Many people might be wondering why there is so much interest in doing business with the brutal and repressive totalitarian dictatorship in Cuba. Of course, the “promoting democracy” canard is often thrown out, but if free trade with totalitarian regimes really did bring about democracy, with the hundreds of billions of dollars in trade with the Castro regime carried out by other countries over the past two decades, Cuba should have been free of the yoke of tyranny a long time ago.
So why do they keep pushing for trade with dictatorships when history has clearly shown it only enriches and entrenches them?
The answer is simple: There is a huge profit to be made.
How The Glorious Socialist Revolution Generated A 681% Return For Goldman Sachs
Back in 2011, BlackRock’s Larry Fink revealed one of the great unspoken truths of capital markets, namely that “markets like totalitarian governments.” They also like authoritarian socialism, sprinkled in with a healthy dose of nationalization, because as Bloomberg reports, one of the biggest beneficiaries of over ten years of the “glorious socialist revolution” in Venezuela, coupled with over 1000 nationalizations by the bed-ridden and roughly 15 times deceased Hugo Chavez (if one believes all the rumors), is none other than Goldman Sachs, which generated some 681% in returns due to “aligning its interests” with those of the unshakable Venezuelan ruler.
Since taking office in 1999, Hugo Chavez has spread his socialist revolution in Venezuela by seizing more than 1,000 companies. For bondholders that stuck by him, he’s also delivered returns that are double the emerging- market average.
The 681 percent advance, equal to 14.7 percent annually, has enriched investors from OppenheimerFunds Inc. to Goldman Sachs Asset Management LP that counted on Chavez’s willingness to siphon the country’s oil wealth to pay its creditors in the face of start-stop growth and falling reserves. While his policies drove away enough investors to keep Venezuela’s borrowing costs over 12 percent on average during his tenure, or 4 percentage points higher than those of developing nations, he’s never missed a bond payment.
Venezuelan bonds accounted for about 6.7 percent of the holdings of Goldman Sachs’s $2.9 billion Growth & Emerging Markets Debt Fund, the third-biggest investment, according to data compiled by Bloomberg. The fund returned 12.8 percent over the past three years, outperforming 90 percent of its peers.
“This is a really great high-income and high-total-return investment for your portfolio,” said Sara Zervos, an emerging- market debt manager at New York-based OppenheimerFunds, which oversees $176 billion in assets and has invested in Venezuelan notes for more than a decade. “Chavez hasn’t done a lot of good for his country, but he has the objective to service the bonds. Our interests are aligned.”
Indeed they are. Just as they are aligned in the US, albeit inversely – because for every bond the US government issues, the Fed monetizes anywhere between 50% and 75% (and sometimes over 100% on a gross basis), with the result being excess reserves created flowing through into the coffers of firms like Goldman Sachs, which can then add domestic to already solid socialist returns abroad, by ramping stocks with the indirect proceeds of the Fed monetization.
But everything comes to an end, and while the Fed will not end its market intervention before it has no other choice (i.e., when the rate it pays on overnight reserves is greater than interest income on its “assets under management”), Goldman’s Venezuelan faucet is about to run dry.
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