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SOVEREIGN MAN

A gift from Hugo Chavez

Amazingly enough, Hugo Chavez is giving us a gift.  Allow me to explain.

World leaders are gathered today in Berlin, celebrating the 20th anniversary of the fall of the Iron Curtain.  What would have been the greatest armed conflict in the history of the world was successfully avoided… peace prevailed.

Meanwhile, thousands of miles away, Hugo Chavez is stoking the flames of war in his region.

Notwithstanding the collapse of European communism, Hugo steers a rather unwieldly ship of socialism in Venezuela.  Hugo calls his brand “Bolivarian Socialism,” named after the famous Andean political leader Simon Bolivar who had served as President in Colombia, Venezuela, Bolivia, and Peru. 

Ironically, despite the moniker bestowed by Chavez, Bolivar was an avowed proponent of the free market who admired Thomas Jefferson and traveled with Adam Smith’s Wealth of Nations.  Hugo’s policies are a far cry from Bolivar… but then again, the US government does not exactly promote the ideals of the Constitution either.

Now Chavez and the United States find themselves pitted against each other once again, this time through Colombia as an intermediary.  Colombia and the US recently signed a military agreement that allows the US to do what it does best– station American military troops in a foreign land.

In this case, the agreement calls for US troop deployments to seven military bases across Colombia.  Their mission will focus on counter narcotic operations and fighting the paramilitary insurgency. 

Realistically, though, the US is clutching on to its presence in the region.  American forces have already been kicked out of Ecuador, and since the withdrawal from Panama in 2000, the closest military installation with US troops is Soto Cano Air Base in Honduras… and as you are undoubtedly aware, Honduras isn’t exactly a beacon of stability these days.

Furthermore, to say that the US military is stretched thin is definitely the understatement of the day.  Sending even more troops overseas to fight yet another noun (this time it’s the war on ‘drugs’) may end up being the straw that broke the camel’s back.

Fortunately, we have little to fear from Hugo Chavez, at least in terms of conventional warfare.  Over the weekend, while Sarkozy and Merkel glad handed with former resistance leaders like Lech Walesa in Berlin, Chavez was addressing his troops.

“Let’s not waste a day on our main aim: to prepare for war and to help the people prepare for war, because it is everyone’s responsibility,” he said.  A few days before, he sent 15,000 troops to the  border with Colombia, citing fears that the US would use its new presence in the region to attack Venezuela.

The fact remains, however, the Venezuela unequivocally does not want to start an armed conflict.

Colombian forces are battle hardened veterans; they have fought for years against guerilla and paramilitary groups, and their combat experience is among the most extensive in the region.

Not to mention, the Colombian military is well-funded thanks to its alliance with the United States… and military funding means top of the line weaponry.

Venezuela forces, by comparison, are poorly trained, dreadfully equipped, and inexperienced.

Sure, a similar matchup took place in the 1980s between Iraq (funded and equipped by the United States), and Iran.  The Iranians had very little equipment or training– their chief combat tactic was to hurl waves of warm bodies at oncoming Iraqi tanks… and Iran had  a lot of bodies at the time.

The tactic worked.  Millions died, and the long battle of attrition between Iraq and Iran ended in a stalemate. 

Venezuelans, however, do not have the Iranian’s overzealous religious resolve, nor do they particularly care for Chavez and his brand of socialism.

Consequently, if Chavez initiated an attack, it would look like amateur night on the Colombian border. 

Chavez knows this, so all of his rhetoric is simply bombastic statement that won’t be backed up with action– unless something truly catastrophic and unexpected happens, like a clear act of war from the Colombians or the United States. This is highly unlikely.

In the meantime, Chavez will continue his peacock strutting and scare the world into thinking that war is imminent.  I think he’s actually giving us a gift, though.

In 2006, Israel and Lebanon held a brief war… a few people came. Markets got jittery, and both the Israeli shekel and Lebanese pound had a brief plunge.  They returned to normal levels quite literally within days.

In the last few weeks since the Colombia/Venezuela saga began, I’ve watched the Colombian peso sink by 8% against the US dollar.  Part of this has been a dollar rally, but most of the swing has been because markets are scared of war with Venezuela.

I’m convinced the fears are unfounded.

Chavez is shrewd and at least reasonably intelligent to have gotten this far. Venezuela is beset by major problems– crumbling oil infrastructure, water scarcity, frequent power outages, etc. War is a great way to distract and unify the masses, but walking in to an absolutely certain military defeat is a fool’s bet.

As such, I think that if the Colombian peso continues to fall, especially past 2,050, it should make a reasonable short-term investment.

Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

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About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

Comments on this entry are closed.

  • JL

    Interesting article, but how, pray tell, does one invest in the Colombian peso from the U.S.?? I’ve never seen it offered anywhere and even if I could find a bank to do an exchange, the bid/ask spread would likely chew up any profit. Any thoughts??

  • Colombian-American Carlos

    I would caution this approach. Colombia is actively weakening it’s currency to help it’s exporters (http://www.bloomberg.com/apps/news?pid=20601086&sid=aiwf8O6QrWes). Chile tried this last year until they realized they needed the funds too badly and the dollar rally negated the problem (for now). This play wont be ripe until this policy wears thin with this weak latin american government’s pocketbook (they are no China). When we see a US stock plunge with a dollar rally, you might think about it. Personally I find these currency speculations a fools errand. But I would like to know what broker you would use to trade it, as I’ve found little access to latin american currency markets.

  • J P L

    Simon-

    Great analogy to the Lebanon/Irsrali conflict– the same thing happens to oil all the time, a bit of news of instability and markets get spooked, then return to normal. How do you invest in the colombian Peso? What about their banks? I suppose theywill probably try to keep their currency somewhat weak to help exports, until of course everyone loses all confidence in the good ‘old greenback.is there any alternative?? hope your ribs feel better.

  • rverriotto

    I lived in Venezuela for a few years and I do not see how anything that Chavez has done could be considered a gift. Seriously, that country is the epitome of “paradise lost” for me. So captivating, so beautiful, so warm and inviting, yet corrupted to her core.

  • Judy

    Sorry to hear of your accident Simon, we hope that you get well soon.

  • lrm

    rverriotto: He means a gift for the US,not for Venezuela. By acting too big for his britches,he creates instability which strenghtens the US dollar. However,the US interestingly employs very short term strategies-supplying state of the art military supplies for colombia,when it is not even doing the same for american troops in iraq and afghan.

    Also,The USA does the same thing-distracts (tries to distract)the masses by hyper-focusing on the ‘Chavez threat’. C’mon-there’s no way the US is threatened.

    Of course,the US also needs to have a reason/excuse to have a stronger/new presence in S.A.,(the bigger interest being oil and overall power over nations in the region),so Chavez makes a great scapegoat,in a way. It’s not unlike Cuba-we need a bogieman,for a variety of reasons.
    As already stated in Simon’s post,Chavez poses no real threat. So what gives?

    Heck,he cannot even threaten his neighboring countries…anyway,old post,but wanted to comment. Thanks,people,for the insights and comments.

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