dChan - Q Origins Project Archive

CITI MAY LIQUIDATE $1BILLION (Gorillion!) IN VENZUELAN GOLD WITHING WEEKS

Back in April 2015, when Venezuela still had a somewhat functioning economy and hyperinflation was not yet rampant, the cash-strapped country quietly conducted a little-noticed gold-for-cash swap with Citigroup as part of which president Nicolas Maduro converted part of his nation's gold reserves into at least $1 billion in cash through a swap with Citibank.

As Reuters reported then, the deal would make more foreign currency available to President Nicolas Maduro's socialist government as the OPEC nation struggled with soaring consumer prices, chronic shortages and a shrinking economy worsened by low oil prices.

As Reuters further added: "former central bank director Jose Guerra and economist Asdrubal Oliveros of Caracas-based consultancy Ecoanalitica said in separate interviews that the operation had been carried out. A source at the central bank told Reuters last month it would provide 1.4 million troy ounces of gold in exchange for cash. Venezuela would have to pay interest on the funds, but the bank would most likely be able to maintain the gold as part of its foreign currency reserves."

Needless to say, the socialist country's economic situation is orders of magnitude worse now, and in addition to a full-blown blockade of the country's only key export, petroleum, the president has a simmering, US-backed coup to contend with as well.

Fast forward three years when Venezuela's gold swap with Citi is about to mature, and according to lawmaker Angel Alvarado, advisor to Venezuelan opposition leader and self-proclaimed president, Juan Guaido, Citi would be entitled to keep the gold if cash-strapped Venezuela does not pay the loan when it expires in March. Considering the country's financial dire straits, the last thing Venezuela can afford is to pay Citi to reclaim ownership of the collateral.

As a result, on Friday, Guaido's advisors asked Citibank not to invoke the guarantee and not to claim the gold put up as collateral for the 2015 loan made to the government of President Nicolas Maduro if his administration does not make payments on time, Reuters reported, citing a Venezuela lawmaker. Opposition leaders have claimed that Maduro usurped power last month when he was sworn in to a second term after a disputed election widely described as a sham.

“Citibank has been asked to stand by and not invoke the guarantee until the end of the usurpation,” Alvarado said in an interview. “We don’t want to lose the gold.”

Confirming what we reported back in 2016, a finance industry source told Reuters that the gold is worth $1.1 billion.

While it is unclear whether Citi will comply with the requests, there is now a non-trivial possibility that the US bank may find itself liquidating over $1 billion in Venezuela bullion in the open market, an operation which could potentially send the price of the precious metal sharply lower.

- *

Meanwhile, far from pushing to reclaim its gold, Maduro has only been selling more of it, as Abu Dhabi investment firm Noor Capital confirmed when it said earlier this month that it bought 3 tons of gold from Venezuela’s central bank, but would halt further transactions until the country’s situation stabilizes.

Guaido has also asked British authorities to prevent Maduro from gaining access to gold reserves held in the Bank of England, which holds around $1.2 billion in bullion for Maduro’s government. So far the British central bank has refused to comply with Maduro's demands to remit the gold back to Venezuela, although when asked for comment, the BOE said it does not comment on client operations.

Meanwhile, Hugo Chavez, who spent the last years of his life repatriating Venezuela's gold is spinning in his grave.

https://www.zerohedge.com/news/2019-02-16/citi-may-liquidate-over-1-billion-venezuela-gold-within-weeks

What Happens When More QE Fails To Reverse The Recession?

The smart money is liquidating assets, paying off debt and moving capital into collateral that isn't impaired by debt or speculative valuations.

The Federal Reserve's sudden return to "accommodative" dovishness in response to the stock market's swoon telegraphs its intent to fire up QE once the recession kicks into gear. QE (quantitative easing) are monetary policies designed to ease borrowing and the issuance of credit, and to prop up assets such as stocks and real estate.

The basic idea is that the Fed creates currency out of thin air and uses the new money to buy Treasury bonds and other assets. This injects fresh money into the financial system and lowers the yield on Treasury bonds, as the Fed will buy bonds at near-zero yield or even less than zero in pursuit of its policy goals of goosing assets higher and increasing borrowing/spending.

This is pretty much the Fed's only lever, and it pulls this lever at any sign of weakness in stocks or the economy. That sets up an obvious question that few seem to ask: what happens when QE fails? What happens when the Fed launches QE and stocks fall as punters realize the rally is over? What happens when lowering interest rates doesn't spark more borrowing?

What happens is the smart money sells everything that isn't nailed down, a process that is arguably already well underway.

Why sell assets when QE has guaranteed gains in the past? Answer: exhaustion. There are limits to everything financial, and once those limits are reached, no amount of goosing will push the limits higher. Rather, further goosing only increases the fragility and vulnerability of the system.

Price-earnings ratios only go so high before reversing, rents only go so high before reversing, and so on. Once the trend has visibly stagnated, smart money sells out because the gains are minimal while the risk of reversal is rising by the day. Why wait for losses to pile up? Sell now and avoid the self-reinforcing decline as everyone starts selling.

The smart money is careful to mask the selling so as to avoid panicking the market. Smart money sells out slowly, in pieces small enough to avoid banging the bid lower. Alas, the Smart Money strategy is to count on greater fools to believe the shuck and jive of QE and the rest of the flim-flam: real estate never goes down, the economy will grow strongly through 2040, the next target for the S&P 500 is much higher, and so on.

Take a look at these charts of total liabilities/debt and federal income tax collected and ask yourself: are these trends sustainable in an economy growing by a few percent a year?

https://www.zerohedge.com/news/2019-02-15/what-happens-when-more-qe-fails-reverse-recession