Thursday, May 28, 2015

Venezuela's Currency Approaching Escape Velocity

In early November last year we had made a bet with clients that Venezuela's bolívar fuerte would weaken to USDVEF 200 by January 1st of this year. We were wrong. It hovered in the 175-190 range. 

Today, however, the Venezuelan bolívar fuerte has sailed past 200 and set a new record of USDVEF 423. That means that had you put your money in a bank in Venezuela at the beginning of the year you've now lost half its value.

[Technical note:  bolívares fuertes are often abbreviated as Bs.F. however the ISO currency code is VEF. As traders we always reference the exchange rate by using the ISO code.]

As many of you know we have long covered the situation in Venezuela. We have numerous friends and clients that are Venezuelan and we continually see the pain they endure as they watch their country sink further into economic ruin.

The currency is now very close to hitting escape velocity. When that happens it will be depreciating by enormous amounts every day until it is literally worth less than the paper it is printed on.

The human mind tends to be better equipped to grasp linear trajectories. This mental flaw has been one of our largest competitive advantages in predicting market moves. 100% of the time when currencies head towards terminal decline they move exponentially. Venezuela's currency is already on an exponential trajectory which means the terminal stage is now in motion. Our next post will probably be an eulogy. R.I.P. Venezuelan bolívares fuertes.

 Here's a view of the black market currency rate for the last 5 years. Historical data courtesy of

If you'd like to read more of our blog posts about Venezuela you can find them here.

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