Economist article on Venezuela

http://www.economist.com/news/americas/21643223-mismanagemen…

The above article is in The Economist this week. It describes the worsening situation in the country. Here’s a noteworthy quote from the article:

“Until it was modified this month, there were three separate official exchange rates, ranging from 6.30 to the dollar for food and medicines to 50 for many other imports. On the black market, a dollar will buy 180 bolívares. (Since the largest denomination is only 100 bolívares, currency transactions involve fat wads of banknotes.)”

MELI wrote down their assets in Venezuela last year. I can’t recall the figure they used but 50:1 is sticking in my head. MELI also purchased real estate to protect against inflation and a devaluing currency. However, the government recently seized a private business:

“Under Mr Maduro the controls have become more draconian. Blaming retailers for the queues outside their shops, this month the government arrested the bosses of a big pharmacy chain and a supermarket company, both of which it has commandeered.”

It will be interesting to hear what MELI management has to say about its Venezuelan operations on the upcoming earnings call.

Chris
Long MELI at 7.2% of portfolio (6th largest position)

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The latest exchange rate added by the government is BsF170 to the dollar, just below the black market rate. It’s an admission by the government that they can’t “defend” the bolivar. The Bank of England couldn’t defend the pound sterling and made Soros rich in the process. When will politicians learn?*

Denny Schlesinger

  • A rhetorical question, the answer is NEVER! But from 6.30 to 170 there sure is room for arbitrage, a.k.a. corruption!
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Long MELI at 7.2% of portfolio (6th largest position)

Hi Chris,

Maybe we’ll get a buying opportunity. I’ve been wanting to expand my MELLI holdings and Venezuela may help.
Mykie