Venezuela Bondholders Shouldn't Abet Bad Regime, Hausmann Says

He also was the head of Planning in Venezuela previously UH and has a really good window into a situation

that is devastating to watch unfold. And UH, I was reading through your recent essay for Project Syndicate, which is called the Hunger Bonds, and you're talking about really the ethics of investing in Valis Venezuelan debt at a time of such a humanitarian crisis, and you said, if you are a decent human being, investing in Venezuelan bonds should make you feel mildly nauseous, borrowing phrase from UH former

FBI director James Coming. Why, Well, because essentially you have a country that is imploding imports have declined by between two thousand and twelve and two thousand sixteen. There further percent down in two thousand seventeen. That means that there's no food, there's no medicine, there's no intermediate inputs for production,

there's no anything. So the economy is imploding. The capital stock of the country is dwindling, it's being you know, yes, But the thing that I'm trying to connect is if a situation is so dire, wouldn't you think that putting more money into it would actually help it? Well, right now, markets think that Venezuela is going to go broke, and so the guield on on Venezuelan bonds is upwards of so markets are pricing in a very very high likelihood

of default. The government has decided not to default, and in order not to default, it has compressed imports. So when news comes out that imports are down, bonds rally, which means that the more Venezuela's go hungry, the better you feel about your bonds, because the more dollars are left to service your debt. So that service in Venezuela's costing around fourteen billion dollars and total imports this year

are unlikely to reach sixteen billion dollars. So essentially you're you're in order to service the debt, you need not to import food, medicine inputs, and that is what is keeping the government paying the debt. So are you saying that if investors stopped putting money allocating money to Venezuela, that eventually the government wouldn't be able to ring an anything more out of imports and would be forced to default. The yes, that that is that when the markets have

closed Venezuela out already. So all we're talking about is trading old debt. So if you hold this old debt, what you're now asking is, so this old debt was issued at the time and the money was wasted, corrupted, etcetera, and got us into this mess. So if you hold Venezuela that you're hoping maybe that a better government comes up and the economy recovers, and the recovery is used not to recover Venezuela and income levels, but to pay you.

So you're again placed in a situation where you're in well being, the return on your assets depends on bad things happening to Venezuelans, and you don't want to do that. There is a story on the Bloomberg a couple of months ago talking about how autocratic UH dictatorships end up being fantastic investments for bondholders, and it saying, you know, just because you know, honestly, investing isn't necessarily moral, it's dollars and cents, and these autocratic leaders end up paying well,

that that's not really true. I mean, the reason why there's impact investment is because people care about doing well, but they also care about doing good. I mean, would you put money into a company that is selling guns to drug traffickers? Would you invest in in so would you have bought Hitler bonds? So there is we are moral beings and we want to do well, and we also want to do good and and because of that,

people choose what they're willing to invest in. You know, it's interesting that this is coming up at a time when emerging markets debt is on fire. There is billion billions of dollars going into emerging markets credit, in particular through funds that seek to track the JP Market Emerging Market Bond Index. And you talk about how even though Venezuela only represents five percent of the index, it accounts

for about of the total yield. Uh. You know, so anyone who's going into emerging markets debt right now is contributing to this exactly. And I want, I want to save them. I think that all the other emerging markets are doing fine. I want just to take Venezuela out of the index so people are not forced into buying Venezuelan bonds, so people are not forced into these moral clones. Well, so are there people who are demanding the JP Morgan remove Venezuela debt from this benchmark index that is the

gold standard for emerging markets credit investing. Well, I just put it out today, so let's see hear what you know. It's it's it's a tricky thing because at the end of the day, investors are responsible for doing well by their by their clients right now, and and they and you know, the managers don't want to be their their bonus to be dependent on getting the Venezuela called right because so, you know you Venezuela, everybody thought that was

going to default. It didn't default, and that was good for the bonds. Why did it not default? Because it's starved. It's people you don't want to be rejoicing in those situations. Thank you so much for joining us. Really an important discussion. Ricardo Houseman is the director of the Center for International Development at Harvard's Kennedy School, which is based in Boston, but he is here in on Bloomberg eleven three oh studio.

He also is the former Minister of Planning for Venezuela and former Chief Economists of the INTERN Inter American Development Bank. Really appreciate your comments right now, I want to try and focus where there is a lot going on, which is the G seven meeting that is going on in Sicily this weekend, and we are going to UH here from President Trump as well as other world leaders about issues ranging from trade negotiations, to the to the environment,

UH to potentially how to fight terrorism. I want to bring in for some more perspective Arial Cohen, who is a Senior Fellow at the Atlantic Council. He's also director the Center for Energy, Natural Resources and Geopolitics at the Institute for Analysis of Global Security based in Washington, d c. Arial, thank you so much for joining us today. I would love to get your thoughts before we move into what

to expect during the G seven summit. What's your evaluation so far President Trump, when he was at NATO and during this world tour, well, let's talk with the good news. The world tour went when went well until he got to Europe. He did well in Saudi Arabia, the historic one hunting and ten billion dollar arms deal hopefully will not hurt our ally. Israel. He did okay in Israel, although there was no clarity on how to proceed on

the suggested talks with the Palestinians. The Palestinians are not doing their fair share in terms of stopping incitement to violence and controlling terror. But when he hit Europe, the rock UH don'ald Tom has very strong ideas about how

our allies should behave. I was reading his book, The Art of the Deal that he co authored, and he is clearly even back then, So that's UH what thirty years ago believe that the Japanese and the Europeans are not paying UH their fair shriff for defense, that they have unequal trade deals that have heard of Americans. But with all that, NATA is one of the most successful military and political alliances of his of all the history. UH. NATA has been in existence since nine UH and UH

it provided a lot of security. It's not rent a cop. It's not that you pay a monthly fee and we provide you with our missile defenses or our soldiers. So they there's a very steep learning curve in the Trump White House. And yes, do you think that anything that he said jeopardized that very strong alliance. I just came back from Europe. I was in a high level conference with the Germans UH, primarily looking at frustra there's a

lot of disappointment now. I would say there was a lot of disappointment with some of Barack Obama's foreign policy, including in the Middle East. So uh, you know, we're grown ups. It's not very easy to satisfy each other all the time. But I would not push the Germans and the other Europeans in open forms as harshly as Donald Trump is doing right now. But I think his main issue that they need UH to pay in more into defense, that the fair the fair share UH is

not there. You know, they're not paying enough for for the defense. That is a valid point, very valid. Okay, Well, Ariel moving on to the summit that is upcoming, the G seven summit that is happening in Sicily this year. Where world leaders, major world leaders get together. Not Russia, however, of course, Um, what do you think is the most important thing that will be discussed and what do you expect and come out of this meeting? I think European

grows is anemic. They will be talking about how to get Europe beyond their one point nine grows. The global growth is projected three point five, which is okay, but you know, we probably could do better in the emerging markets. I don't think they have a lot in terms of solutions. I think that between the Europeans will be a talk about how to heal Brexit. There are some harsh statements on both sides. The Europeans said, you owe us what

two billions? Uh? The Brits retaliated and responded with their number. But overall, as usual, interest rate, deficit, taxation, things like that. They are always on the G seven agenda. You're absolutely right, Russia is not there. Why Russia was a part of what used to be G eight. Russia is not there

because of their aggression in Ukraine. So do you think that Russia is going to be a conversation That is going to be a difficult one for President Trump to wait into the Europeans indicated that with the exception of the sanctions, that they differ on Russia. But Europe is split. As I said, I just came back from Europe. There was I was a part of the conversation on Russia between US and Germany. UM. I think if Chancellor Merco wins re election as is widely expected, not just the

sanctions will continue. The perception that Russia is a threat to Europe will persist in Europe, and the Trump administration is split. The leaders of our defense and foreign policy establishments understand the Russia is a threat, with the White House maybe not so much so. One other point that is probably going to come up and loom large at the G seven summit is the environment and the Paris Climate Accord and environmental protections. What do you think will

come out with respect to that? Uh? This is sixty four billion dollar questions because the Trump White House is very climate skeptic. Uh. They are thinking seriously about pooling, um, the US out of the Paris Accords. Of course, the accords of volunteer accords, and the question is how enforceable are they? And I think the big divide among other

things among besides the trade. Besides the Europeans not paying their fair share for defense is also climate and I would hate to see our relationship with Europe deteriorating further. But Mr Trump and his electorate have a very strong view on climate which is very different than our bi coastal elites. The West Coast and the East coast elites are of course pro climate change and recognize it as

a major issue. And so do the European elite. So this is one of the serious folk lins when we're not staring into the abyss of the threat of the radical Islamist terrorism. Alright, real quick, Ariel, On a scale from one to ten, how would you create his international trip so far? Uh? Saudi Arabia, A, Israel B plus Europe. See Ariel Coh and thank you so much for joining us.

Aero Cohen is Senior Fellow at the Atlantic Council. Also he is the director of the Center for Energy, Natural Resources and Geopolitics at the Institute for Analysis of Global Security in Washington, d C. We want to take a moment to let you know about something new from Bloomberg. Starting right now, you can use our i O s app or our new Google Chrome extension to scan any news story on any website, instantly revealing relevant news and market data from Bloomberg and other sources related to the

companies and people you're reading about. So no matter where you're reading the news, you can bring the power of Bloomberg's news and data with you. It's pretty amazing. Download our io s app or search for the Bloomberg extension on the Chrome Store to try it out. Learn more at Bloomberg dot com slash lens. Right now, I want to talk about getting to the beach or the pub, particularly in a car or a truck or perhaps a I don't know, a diesel train after they exist, I

don't know. Anyway, I want to bring in someone who knows a lot more about all things oil, Vincent Piazza. He is a senior equity energy Analystic Global sector leader for Bloomberg Intelligence, UH focusing on oil, focusing on Opaque, which just is completing their meeting and UH yesterday create values fell out of bed? What happened? So? If I recall my Jesuit high school English class, what's the Shakespeare play?

Much Ado about? Nothing? So look, I think in order to extend confidence for price there needed to be something more than just the extension of the cuts um they needed. I think what the market was looking for. We're deeper cuts. Right, you can curtail production, but actually exports rose higher throughout this period of time, So you still had this overflow

of petroleum out there in the marketplace. So if I think about just here in the US, still a major importer, you had uh patrolling, We had crude oil volumes, crude oil stockpiles quite high, roughly above the five year average. That's over a hundred million barrels of extra storage that we need to flush out. And so you have this range bound market. You know, OPEC during the during their first agreement to curtail output last year, set a floor

for US and that floor is round forty. Okay, what US output and the ascendency of US output does is it puts a ceiling on that price rise because now those barrels can flow out into the global marketplace as well. And we've heard from four Q earnings calls and one Q earnings calls management teams suggesting that in that fifty dollar range they can push on that accelerator, complete those wells,

and bring that put online. In that sixty range, we're talking about a resurgence of growth and new wells being drilled.

So there you have that price range. You didn't really hear anything different the last day or so about deepening cuts to help push well dilution of the although stock piles, both in the US and also more broadly, just to put some numbers to this, So on on Wednesday, the price of crewed was fifty one, a little more than fifty one barrel, uh next day tumbling four point almost to forty a barrel in the wake of the expected

prolonged output cuts, but not necessarily deeper output cuts. I mean, could you argue that if they had had deeper output cuts that I wouldn't have done anything because the higher prices go, the more shale producers just stick on the accelerator. And that's the conundrum. What's the eggit strategy? Right? So this this output cut, this this this strategy is likely more transitory. Um it's been engineered to prosecute other means.

So for example, Saudias I p O okay, and boosting the price of oil, which boost sentiment, which would boost the reception for that I P O. But you're still in this range, and we've talked about this for several months, several quarters every time month on the show. It's consistent. Right, You have this tight range because you have this output from the US that can respond more quickly than perceived to any price signal. So what could break us out

of this range? Because you know, we remember running into you getting a cup of coffee and you said, you know a lot of people haven't lived through a true cycle. This is not the cycle high and lower in a range, but it does break out eventually and it can go way higher or way lower. And it's it's demand centric. It's sustained demand centric. You know the Chinese filling their

spr that is on a sustained demand trajectory. Right, And if you think about the broader scope, if you think about car efficiencies, um, better better mileage, right, that reduces that that demand cadence. So in a way, so if I'm hearing you correctly, given that the move is toward electric vehicles, is towards being less uh less focused on oil as a use for and a motive of getting energy. Given that, I mean, isn't demand only going to go

down from here? I would say the demand growth will be more curtailed, and so that price range will be more, will be tighter and to the longer and longer, and likely to so lower relative to where we were in two thousand and fourteen and where we were in two thousand and seven relative to that period, Yes, it will be lower, but that but that tighter range, that forty is safety tight range really speaks to the paradigm shift that we've been seeing so real quick, I know we

are heading into Memorial Day weekend, and does does gas demand really pick up that much? So again we talk about this this this this concept of more fuel efficient vehicles, right, and if you just think about the mild winter and the mount winter, actually we've seen of vehicle miles traveled tracking above the five year high. Okay, I'm sorry the

five year average. Right, so more folks in the road. Now, consumption for the summertime will likely rise, maybe about one percent, but you have many more vehicles on the road, So

that does speak to the fuel efficiency. Now that mix, and I talked to our autos analyst, Kevin Tynan, and he suggests that that new sales mix, that new vehicle mix is tilted more toward the light light truck side, so there could be some additional fuel consumption, but again relative to where you were in prior periods, it's a much more fuel efficient vehicle, and so consumption is likely not to budge that much, but it should be higher relative year a weear just because the mild winter that

the mild winter we had, and also the outlook for the summertime. Vincent Piazza, thank you so much for joining us. Always a wonderful thing to talk with you. Vincent Piazza, senior equity energy analysts and global sector leader for Bloomberg Intelligence. Well, you know, I've got to say I was kind of surprised to realize just how big the market for auctioning off heavy industrial equipment is. Robbie Telegram joins us now. He's chief executive officer for Richie Brothers, which is the

leading auctioneer of this equipment UH in the world. Robbie joins us now from Burnaby, Canada, which is a suburb of Vancouver. Robbie, thank you so much for joining us. First, congratulations, I know that you just recently announced that you would be going ahead and acquiring Iron Planet for almost a billion dollars eight point five million dollars UH. And now that you rank is a fifty tough fifty e commerce company. I would love you just give me a sense of

how big this market is for auctioning off heavy industrial equipment. Lisa, thank you so much. The auction market is about three hundred sixty billion dollars globally and it encompasses um sectors such as construction, transportation which is over their own trucks, agriculture, oil and gas, and mining. And there are different channels through which used equipment and the three and sixty billion is used equipment that gets sold through these channels, so

very large. So how do these how do these auctions work? I mean I was joking with with my producer earlier that I think of like pond stars, you know, people coming with their tractors up to a of to of to a window and saying, hey, you know, how much can you get for this? But has it work? Really? No, think it's actually a little bit more sophisticated than that. So we um uh Richie Brothers has been the pioneer in what is called us an unreserved auction, which is

that everything will sell no matter what. And we have auction yards around the world. We have forty four yards and these auctions are unique in the sense that they're both live as well as online, so they integrated and people can call from all over the world or book our make purchases online as well as bid on site. So we've got that unique integrated model, and we merchandise our equipment on our yards. It's like a Picasso picture.

Are people do a beautiful job. There's like ten thousand pieces, So think about it as dozers and tractors all over the yard and buyers, potential buyers come kick that ours look at the equipment. We also provide information so people can look at it online and then an auctioneer m much like any other UH industry, will auction off those items and we could sell potentially a three million dollar crane in less than sixty seconds. Wow. So what is

the most popular item to get sold? Well, construction is our sweet spot. We do things like excavators and UH wheeloaders, UH dozers, so the gamut of it and all things that going to really bridge building, roadworks and so in many ways we think of Richie Brothers as enabling building of the world, but also with agricultural equipment farming. So so it's really a company that we feel very good

about that our people are enabling commas. So I'm trying to understand whether your business stands to gain during periods of ramped up infrastructure or if, uh, you know, when when your company does best. We're part of the cycle. But interestingly, Lisa, it's we do well in good times and do well not so good times as well. And in good times when the economy is doing well, when there's infrastructure spending, new equipment production is at a peak

and people like to buy new. Eventually that convert gets converted to used equipment, so we benefit from that. When times like we had the oil and gas crisis last few years, we were the beneficiaries because the people get dislocated and they want to sell their equipment, and we then are able to help our customers dispose of their equipment and get the best values. And we get the

best best values because of our knowledge of pricing. Were known as the foremost authority or used equipment pricing, and that helps us get the best deals. Despite the fact that we're an unreserved auction Who are the sellers. The sellers are the majority for Richie Brothers end users. These are people who are general contractors who might be in bridge building, roadworks. So the s are people that are

entrepreneurs and we have tremendous respect for them. Many of them have grown with us and we've grown with them. Say yeah, I'm just trying to understand why they want to sell their equipment, right, I mean, like, what would drive them to have too much and then I don't want to offload some of it? Well, I think UM contractors like to optimize their fleets. So after a certain number of hours, or let's say the equipment is three

years old, they want to get in new equipment. Or they've finished a job and there's a lot between the next job, so they don't want to build up inventories. So that's why they want to dispose it off So it's replacement, and you know they can also take it into a dealer and trade it in. But Richie Brothers has trusted relationships and because of our ability to give them great values, they come to us. Thank you so

much for joining me. It's a fascinating industry and one that is much bigger than I had imagined it to be three and sixty billion dollars globally. Rabbi Telegram. He is the chief executive officer of Richie Brothers. Coming to us from Burnaby, Canada, that is a suburb of Vancouver, and Richie Brothers just got clearance from the Department of Justice for their seven fifty eight point five million dollar acquisition of Iron Planet uh and it is one of

the top fifty e commerce companies in the world. Really interesting industry. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.