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00:00The U.S. operation in Venezuela could serve, though, as a template for nation-building for
00:06them as well. Former director of the Defense Intelligence Agency General Robert Ashley says
00:11China's Xi and Russia's Putin can use this as their own justification for operations in their
00:16regions under an emerging world order that is defined not by rules or international norms,
00:22but by strongmen executing operations in accordance with their personal interests.
00:27Let's bring in Academy of Security's head of macro strategy, Peter Cheer, who works with
00:32the general, as well as Bloomberg Intelligence Chief Emerging Markets Credit Strategist Damien
00:37Sassauer. And Damien, before we get to Peter on this broader issue, I want to get to you
00:44about one specific issue, which is that of the money owed to these big oil companies. We've
00:51been talking about it a little bit. President Trump has referenced it a number of times.
00:54What are the sums and what is the likelihood that they see that money?
00:57Well, I think you're right to focus on the U.S. energy patch, right? Because the short-term
01:01impact of what's going on in Venezuela is going to show up first in ConocoPhillips, ExxonMobil,
01:05all of whom, according to the International Court of Settlements, are owed. In the case of
01:09ConocoPhillips, $10 billion, including interest payable. It's $1.5 billion to ExxonMobil. It's
01:15another $1.2 billion to Chrysalis. I mean, Chrysalis isn't listed anymore, but the first two are
01:18obviously seeing the benefits of that. And then it's the Gulf refiners, the ones who can handle
01:21that heavy sour crude oil out of Venezuela. They're also placed about benefit. That's Valero,
01:27PBF, Phillips 66. The ones that probably, you know, you'd be a little bit bearish on here are the
01:32Alberta oil sands producers like Suncor, because obviously this heavy oil out of Venezuela is going
01:38to displace that to some extent. And then as it relates to the bond market, it's all about the
01:42Venezuelan petabasin dollar bonds, which are up eight points today off the back of a 100% gain last
01:48year. I mean, granted, these bonds are trading at, call it 60% of what their value was when the
01:52country defaulted back in 2017. But today's move is pretty notable, to say the least.
01:56Well, it's a country that has deep amounts of debt. And Peter, to bring you into this,
02:02China's also on the hook for some of it. Are we witnessing now a restructuring of not just the
02:06U.S. flexing its military might, but maybe in these cases coming in and changing the stack,
02:12changing priorities and making sure that America gets the benefit over other countries when it comes to
02:16credit outstanding? And we've been talking about this competition with China for six, seven years,
02:20and this is really kind of an escalation to me. And we've had the trade war, but it's really
02:24mainland China versus the U.S. Now we're going to take the fight to Venezuela, right? We are going
02:28to fight for rights for our companies, for back pay, for things that were taken from us.
02:32China is clearly going to try and use their lawyers to fight for things that they believe
02:36they're entitled to. So I think this is really, you know how the Soviet Union, we always had these kind
02:40of proxy clashes. We had these clashes in other areas. I think this is the first time we're seeing that
02:44with China, and we're going to test how strong the resolve of people to stick to the Belt and
02:48Road Initiative is. I think China's made a lot of missteps. This could be a very big opportunity,
02:52but I think there could yet be friction, and that could be the only thing that hurts the U.S.
02:55markets of China's reaction. Can I actually, I want to tug at one string there, right? There is
03:00obviously weaponry and warfare, there's economic warfare, and there are legal battles, right? How
03:07important is that third aspect to the competition between the U.S. and China? I think it's hugely
03:12important, right? We are sitting here looking at, okay, we want this because you owe this. We're
03:16going to take this. China clearly wants to say the same sort of thing. This is going to set down
03:20in court of law. I think Trump is not necessarily... In the U.S. court of law? I don't know. It's going
03:24to be probably all over. I'm sure there's going to be some U.K. governance in this. There's going to
03:27be international. There's going to be a lot of debate over where it should be. The lawyers are going
03:31to get rich. In the meantime, I think Trump is going to try and continue what he's done in the U.S.,
03:34is push boundaries and then prove it, prove that I'm wrong. So I think there's a real risk that this gets
03:40pretty contentious very quickly. And the nice thing on the economic side, we don't have this
03:44kind of advantage over China, but anything military, there's the tyranny of long distances.
03:49So Taiwan's hard for us to get to. South America is almost impossible. Chinese navies, it's better
03:54than it once was, but nowhere near can project the power that the U.S. Navy can. So this becomes
03:59really interesting on that perspective and shipping. Okay. So the lawyers get rich. I feel like that's
04:03the outcome of this in terms of... The bankers get rich. Yeah. The oil executives get rich. Right.
04:08Because this is something that you've written about too, Peter, this idea that the U.S. is going
04:11to be asking some serious concessions from oil majors who go into Venezuela. And Damien, I want
04:17to take that to you, this idea of just how much bonds can really benefit of not just Venezuela,
04:24but of oil producers and oil producer equities. Yes, they're up today, but are we going to look at a
04:28situation where, yes, they can go in, but they're going to be confronted with a surplus, more of a surplus,
04:33more of a glut of oil and a U.S. government who's not as friendly to them and what they demand for
04:38them as the outcome of them entering into Venezuela? Well, we've been hearing all this
04:41talk about $100 billion is necessary to get Venezuela oil back online. It's not that. It's
04:46$15 to $20 billion to expand 500,000 barrels per day out of Venezuela. That's still 25% cheaper than
04:52the deep water projects we're seeing in Brazil and Guiana. So there is a benefit from a cost benefit
04:56analysis to go into Venezuela because look, I mean, a lot of that infrastructure is dilapidated as
05:01it is, is still there. So there's a starting point there. And so look, I mean, you're absolutely
05:05right. This is not about narco-terrorism. It's not about the Cartel of the Suns or Tren de Aragua.
05:10It's about China and it's about supply chains. And that to me is the fact that China, look,
05:14has been buying discounted barrels from Venezuela in RMB. Look, the free lunch is over. And so China,
05:20if you saw out of Beijing this morning, Beijing called in all the big Chinese banks to say,
05:24hey, we got to assess what your credit exposure is to Venezuela because the world has just changed
05:27overnight. By the way, what other assets are key in this economic warfare? I mean,
05:33rare earths. Exactly. So this is what happens there, Damian. There's utilities. I mean,
05:38Alicar used to be an issuer of U.S. dollar debt. There's tourism. I mean, huge coastline out of
05:41Venezuela. It is a huge opportunity. And that's why I think in any restructuring you're going to see
05:45in Venezuela, it's going to, you're going to have to give some sort of equity to the upside of GDP
05:49growth in Venezuela as a kicker to get investors back in there and to get them happy with the current
05:53state of affairs. And by that, I mean GDP warrants, stuff that's going to link the future gains of
05:58creditors to the success of the Venezuela restructuring and transition. And I think
06:02you're going to see some sort of stuff along those lines. Another asset is that I think we don't talk
06:07about enough or not as much as rare earths oil and gold is chip production capacity, right? That's
06:16all in Taiwan, or let's say 80 to 90 percent of it. Does China move to take Taiwan using some
06:24pretense, hey, they're selling drugs here too, you know, or do they hold off long enough for us to
06:31put chip capacity somewhere else? So I don't think they're going to do anything reactionary. They
06:34certainly don't have the military capability probably today to take this over effectively and
06:38seamlessly and keep the chip industry intact. They will continue to put pressure on. I think we could
06:42see more gray zone tactics where they either disrupt, you know, via cyber, something going
06:47on in Taiwan, maybe they use the maritime militia to spread out. Having said that, you know, we've
06:51been a big believer of pro sector. There's production for security. And Intel has been one of our top
06:55calls in that. I think you are just going to see a really aggressive push where the U.S. government
07:00kickstarted this, but it's American capitalism that's going to push it to the next step, right? People
07:04are scouring the universe for companies that have mining rights that have been unused. What technology do we
07:09have that can process and refine things? I think this just tells everyone, hey,
07:12this is serious. The world order is changing. We are going to produce and refine things here that
07:16we need for national security. Ships is going to be top of that line because we cannot afford
07:21to have China do that. And the realization is there that not only can we not afford it,
07:25China might do it. And B, we have the resources if we effectively focus to do it ourselves. So
07:30I'm very excited about that part. Well, it also just shows a President Trump who is willing to take
07:35drastic actions, even if there is a threat that he gets pushed back from markets, from political
07:40standings. It throws to the wayside any idea of taco, a taco trade, at least when it comes to
07:45geopolitics. So how should we take Trump's threats with Colombia, with Cuba, with Greenland? Should
07:51we look at those differently now? I think you can take a look at them differently. I think in each
07:54case, the one thing I want to pull back is I do think there is an element to the cartel attacks
07:59here that is understated. So one, right, we have a lot of forced migration out of Venezuela. People have
08:05not liked it. If you make it a safer, more productive society, partly by killing off the
08:09cartel, that's good. A lot of the crime in the U.S. that has happened from legal immigration tends to
08:14be from these cartel members. So if you cut off the head of the snake, do they wither and die?
08:18But more importantly, I think this is going to set up the stage for late Q1, late Q2, serious talks
08:23with Mexico and say, Ms. Scheinbaum, it's now time to do something about your cartels. You can do it with
08:28our help or we can do it without your help. But something is going to be done about the cartels in Mexico,
08:32right? We've set up a lot of new rules of engagement. We've shown that we're willing
08:36to do stuff. This operation was phenomenal, right? We come in. Clearly, there was inside
08:39help to make it so successful. So he doesn't have the sport, Maduro. I think if you're the
08:44cartels in Mexico, this is a really strong message to you. And again, that would probably be the best
08:48thing that could happen to Mexico is getting rid of their cartels. And then you can really see this
08:52North-South America alliance grow and be extremely profitable.
08:57What happens then to those currencies? What happens then to that debt? I mean, I'm looking at WCRL.
09:02The dollar has done fairly poorly against a lot of them over the last four quarters.
09:14Right, over the last four quarters. But now what you're looking at here is a little bit
09:16something different. And for me, look, I mean, this is definitely a dollar. This fuels the dollar
09:20bearish view from a foreign investor standpoint to the U.S. So I think in the short term, you could
09:24see the dollar weaken on this because, as you rightly point out, Trump is showing very little regard
09:28for the interest of other countries. The dollar weaken against the broader basket or against these
09:31EM currencies? Yes, broad dollar weakness. Now, let's talk about Latin America. Latin America is
09:36rife with high yielders. Mexico, Brazil and Colombia are the highest yielding countries from a fixed
09:40income standpoint that you're going to find anywhere in emerging markets. And if you're going to see
09:43dollar weakness and you're going to talk about higher yields, well, my goodness, I'm an EM investor.
09:47I'm looking to carry in those countries. That's just me. So I think it's actually bullish for the
09:51currencies of those three countries. Now, let's be also clear. Colombia has an election in May.
09:54And by the way, the pivot to the right is real. Pivot to the right meaning pro U.S. So I do believe
09:59that, you know, Gustavo Petro is not going to be in power for that much longer. I mean, he won't be.
10:03The next person to take that chair is going to be more pro U.S., in my opinion. And you've got Brazil
10:08at the end of this year as well. And look, Lula has got nine lives. Don't get me wrong. But,
10:13you know, he will be pro U.S. if that serves him. And so it's going to be very interesting.
10:16Claudia Scheinbaum has shown a willingness to work with the Trump administration in Mexico. Again,
10:20all of these three countries, they had to kind of come out against this action and in support of
10:24the U.N. charter. But let's see where things are over the media. Just like the vice president,
10:28right? Delce Rodriguez. Her first couple of speeches were fiery, anti-American. For sure.
10:33Bring back Maduro. Quickly changes her tone. Exactly. And last night, she's like, you know what,
10:37we're willing to work with you. Well, that's I mean, but Damien, how much of this because
10:41those views you had, you could have had them before this all happened. How much has changed now?
10:46How much has changed now that Trump is reimposing not a Monroe doctrine, his words, a Don Rowe doctrine?
10:51The only thing that's changed for me, quite honestly, is I was very, very constructive on
10:55the dollar coming into this year thinking, OK, maybe we'll see a little bit of weakness. But by
10:58and large, I expect broad dollar to be up in 2026. Now I'm not so sure because this definitely fans
11:03the flames of all the dollar bearish talk that's out there about the U.S. as the U.S. dollar is the
11:08world's reserve currency and how that needs to end. And it is good course of business by these other
11:14countries to diversify their exposure to other currencies. I'm not suggesting that it's not going to
11:18happen. The question is, will it be enough to cause the dollar to weaken relative to the broad basket?
11:23I'm not so sure. But certainly today I'm a little less bullish on the dollar than I was, you know,
11:28just at the end. Can I just ask one more, Peter, about Russia? Because it's not clear. We want to
11:35have dominance over China and get them out of Venezuela. But do we want dominance over Russia
11:41as well? I mean, we let their tanker go with no fight at all, right? The Bella one, which is now
11:48called the Marinara. They painted the Russian flag on the side and the Russian said, that's ours.
11:52And we haven't touched it. Well, I think that's a great question. One, I think we're going to go
11:55back. When we talk about emerging markets this year, we have to be very specific and regionally
11:59specific. I think South America, great place center in South America. There's an ETF, ILF. That's an
12:04interesting way. Great place to invest. I do not want Asia necessarily. I don't want, so EM is too
12:10broad. You need to be more specific. I think with Russia, it's unclear. I think he did not want to
12:14push a fight with Putin right now. We've got enough to handle with this area. Again, if we're not done
12:19with maybe Cuba and Colombia, I think he lets Putin get away with some stuff for now. And then we figure
12:24it out. But I think both Putin and Zelensky have to be like, okay, the next time the president comes and
12:28threatens us or tells us, if you don't do this, this might happen. We have to take this much more
12:32seriously. Again, I think we're reestablishing deterrence. We did it when we attacked the
12:36nuclear facilities in Iran. I think we're doing this now in there. And deterrence, it's a bit
12:41scary, but you really have to use and show your willingness to use your capability to have anyone
12:46feared. And for the last 10, 15 years, right, the U.S. kind of drew red lines in the sand or lines in
12:51the sand and like, ooh, we're not going to back that up. We're now backing these things up. We're being
12:55aggressive. I think it's changing the calculus. So while it's direct confrontation with China, I think it's
12:59giving every world leader in a precarious position something to think about and probably not good for
13:04them. Less than a minute, but isn't this also just a huge U.S. control of the oil industry now? 40%
13:10of the production in North America now overseas? Yeah. And I think it's going to change the
13:15negotiations that we go through with the USMCA renegotiations that are going through. One, I
13:19think Mexico is going to have to figure out how they fit in. We're going to, I think that's where
13:23the protection is going to come on the cartels. Canada with the tar sands. Okay, how do we now play
13:27nicer? Because there are huge advantages with what Canada has. There's already a lot of refinery
13:30set up in the middle of the Midwest to take that. There is a lot going on. And I think it
13:36creates this opportunity for almost this fortress North America where we can be very, very successful
13:41on this production for security. Really seismic changes. Peter Scheer, Damian Sassauer,
13:45thank you both so much.
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