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November 20, 2005
Why invest in Venezuela? Sun., Nov. 20, 2005, 9:25 AM
Venezuela is a country rich in natural resources and political drama. Unfortunately for some precious metal miners, the two go hand in hand.
Months ago I started to warn traders that political intrigue in Venezuela might make for interesting reading, but would likely be bad for their portfolios.
The gold and silver players in Venezuela are:
Bolivar Gold: TSX: BGC
Crystallex: TSX and AMEX: KRY
Gold Reserve: AMEX: GRZ
Hecla Mining: NYSE: HL
The following charts show the problems that happen when traders invest in stocks of companies that operate in high-risk countries, like in this case, Venezuela.

In the case of Hecla (NYSE: HL), which is principally a silver miner, compare the HL chart to the others in its industry. You will see that the HL stock is broken.

You know, it just struck me that the range of market awareness among readers is so broad that until some of you started to read this blog, you would not have considered to look at stocks in peer groups, or ever felt the need to study which countries these companies operate in, where they might have material and relevant exposure to risk.
I'm happy to have pointed you in the right direction.
Some of you have significant knowledge about some of the things I write about, and I wish you'd care to share more of it. For instance, after I wrote about the obnoxious behavior of Venezuela's President Chavez at the recent meeting of the political leaders of the Americas, held in Argentina, I received a letter from Keith (in Spain), which I'll reproduce here because I found it thoughtful.
Btw, I don't have to accept the beliefs of readers just like you don't have to accept mine. But I do think we ought to share more knowledge.
Bill, re your quote: Besides, there are problems in dealing with dictators, sooner or later. Case in point, Big Oil vs Chavez in Venezuela."--
Have read a few comments along this line in other North American blogs about Chavez in Venezuela, repeating the mainstream North American media line. Here in Spain they [blogs/big media] take a generally a different view. After all, Venezuela has switched large military contract from US to Spanish (among other) purchases. I have a few Venezuelan friends, well off children from both the "exiled" PDVSA workers, that vehemently hate Chavez, to Venezuelans who came to Spain hoping for a better life and now have hopes for the future of their country, and support the current Venezuelan government.
I'd like to make a few quick points and back them up with some highly recommended reference reading:
- The US maintains eight oil refineries owned by US corporations in Venezuela. They don't pay taxes, nor employ Venezuelans. They pay 1% or less royalty agreement to Venezuela under a 60-year old contract, which Venezuela wishes to break (of course).
- Dictator? I recommend the reading searching out some balanced impartial non-mainstream media references. For a quick start see latest election "Recall vote of 2004" and "Carter center" references under [1] below.
- The current Venezuelan government has done more to improve the social equity for the ordinary Venezuelan than any previous government, applauded as a perfect example by a wide variety of poverty fighting organisations. Has reduced inflation significantly,... the list of improvements for the ordinarily Venezuelan is large. Detailed references [1]
- The US has taken a clear policy of intimidating, consulting and aiding with military dictators to overthrow, had senators make threats and calls to assassinate leaders like Chavez of the fairly elected (see carter center reference mentioned above) Venezuelan government. Including large build up of military ships offshore during the recent Bush visit, no doubt for muscle flexing effect to help encourage the negotiations. (timeline and references [2])
Taking a broader view, people who have had decades of poverty with a minority very rich elite, naturally vote and willingly wish to go harder left to resolve the extreme right situation that they were suffering under. One historical case point of many that could be chosen, Spain. After the assassination of the dictator Franco, Spain went to what was then the political extreme left (Socialist Party of Spain PSOE). Its taken three decades of peace before the political parties now appear to be meeting slowly in the middle with their policies, alternating with right (Popular Party PP) and left, like a swinging pendulum as the more extreme policies continue to cancel themselves out over the decades until their is little difference between the parties (Like Australia). Spain has a 500-foot-high monument to Franco and the very wealthy upper class of the country still are very bitter about the loss of their dictator that afforded them so many benefits, as could be seen with exactly who was with the outcry against the recent removal of a small monument to Franco in Madrid by the recently re-elected left (PSOE).
This historical example has repeated itself over and over, and is playing out now in Venezuela. Unfortunately for Venezuela, what is good for the future grown and reconciliation of its country and people, is most certainly not good for North America re: oil. Approximately 15% of US oil comes from Venezuela at a cost of less than 1% of its value... that's a big birthday cake. So now that the Venezuelan government has begun to voice its peoples discontent against the situation and flex its little muscles to take hard line measure to rectify the situation. As a result and of no surprise, its quite clear to the impartial outsider that the very same well oiled machine that is talked about frequently in this blog is now being used to promote discontent and war against Venezuela instead. Much like it does for the latest stock that needs to be distributed by Wall St and Co. Same media machine, same players, same manipulate the eyeballs tactics, only its a slightly bigger game and this time innocent people die, not just lose their retirement funds. No, much better for North America that a dictator is installed against the Venezuelan peoples wishes that keeps that oil flowing at existing rates. Better than a government showing clear history of changing things for the better for population (according to independent international aid organisations [1]).
So the steps are simple:
1) Demonize one man - make him simple to hate.
2) Use the media machine to discredit/ignore/mis-inform North Americans over his legal right to power and widespread support of the people. Amplify the injustices and bloody noses received by the ousted ruling wealthy so they look like helpless poor victims (that happen to be wealthy) of a vicious dictator that dearly needs military help to return to the old days of glory.
3) Fund and support all would be Military dictators/terrorist groups willing to step up to take the country over whatever the majority of the people actually want, while guaranteeing to continue North American access to oil at existing "negotiated" contracts (something about stability for foreign investors I think it's been called?).
4) When all else fails, Invade with troops.
Unfortunately for Texas, the American people are a little sick and tired of invading countries against international law for the sake of oil, as per step 4. Mainly due to the objection that its beginning to cost too much taxpayers money more than anything else. So perhaps the world must wait a little first...
The Stelco situation pales to laughable insignificance when compared to the pre-Chavez treatment of Venezuela at the hands of North American interests. Imagine 8 Stelcos running what is the main source of income of Canada. Stolen and run by foreigners, no tax, no rent and Canada gets 1% of the proceeds. The 9th company being controlled be established "goverment" with strong military roots, support of all the wealthy ruling elite, and so vested interest in maintaining the status quo. Inflation is running at 40%, wide spread poverty and land laws that look more like the medieval feudal system... and the situation continues for decades. You need a hard man to do a hard job and not mind making a few bloody noses in the process, to get Canada out of that one and put it on the track to reform that will take decades.
It will be no surprise that within minutes any new terrorist bomb attack in North America, regardless of evidence or who may be the real culprit, the first words floating across the CNN channel will be Hugo Chavez, beating up that now familiar war drum in the same manner as the Sold to You" drum goes. From reference [1]: "Western mainstream news media have reported that Chávez is a confrontational ideologue[79] who willingly harbors, funds, and trains terrorists in Venezuela and insurgents abroad.". I wonder if North America also received news that Venezuela was the first one to offer large amounts of aid and further discounted heating oil in the wake of Hurricane Wilma? Probably not; that's not in-line with step 1.
Highly recommend reading, at minimum the these links but if you have time, the references:
[1] http://en.wikipedia.org/wiki/Hugo_Ch%C3%A1vez
[2] http://www.cooperativeresearch.org/timeline.jsp?timeline=venezuela'
I thanked Keith for writing this. I don't have all the answers, and too often maybe, in my rush to publish, I make glib remarks that are not well received by thoughtful people.
You can always learn from people you might not want to associate with, including Hugo Chavez. For instance, Canada had a Prime Minister for 16 years running (1968-84), except for a brief 9 months out of office. His name was Pierre Trudeau. I disliked him with a passion because of his proclivity to autocratic management of his Cabinet, always pushing government into immense debt. Let's just say I liked his chosen successor, John Turner, a little better.
But I recall the time when Trudeau told us, in the midst of the Cold War, that: The problems are not East to West, but North to South". I never forgot that. Even at that, the point took probably 20 years to fully register with me.
Trudeau was a great friend of Fidel Castro, which disappointed me greatly. Then one day, a friend of mine showed a couple hundred of us, at his AGM, a photo of him arm in arm, smoking big fat stogies, with his newest shareholder" " Fidel himself. It was experiences like this that proved to me the world was a changing place, and I had better adapt.
That friend btw " an associate really " is another Pierre from Montreal, Pierre Lassonde, now Chair of the World Gold Council, and president of Newmont Mining, which is the largest and most successful of American mining companies.
Posted by Posted by Bill Cara on November 20, 2005 08:34:59 AM | Category: International Equity Markets
Discourse
A keenly observed Venezuela blog by a Venezuelan living in Venezuela. While that seems excessively redundant, it is the way Tomas Sancio describes himself.
Posted by: Fred
at
November 20, 2005 12:03 PM [link]
Sorry about that porqueno, your absolutely correct. I had it in my mind to say the right hand man of Franco; the Admiral Carrero Blanco who was all set to take over the reigns before being assassinated by Basque nationalists, now known as the terrorist group ETA. http://en.wikipedia.org/wiki/Luis_Carrero_Blanco
Also, I got my hurricanes wrong, it was Katrina... there are so many these days, I got confused.
Posted by: Keith
at
November 21, 2005 7:11 AM [link]
Dear Bill,
I feel you are very close and understanding, thank you and you are wonderful. I learned a lot at your site and am grateful.
Can you give us a list of daily rituals you do to keep up with the overall picture? What are the other sources of reading for peripheral awareness and new things? In other words, document what you deligently do to reach today's Bill? There must be a lot, but let's start with a condensed list and build on it.

Hi,
Just a factual correction to Keith's comments: Franco wasn't assassinated, he died after a long illness.
Thanks for a great blog.
Posted by: porqueno
at
November 20, 2005 10:57 AM [link]