He later launched The PaineWebber Europe Growth Fund, the first mutual fund specializing in both Western Europe and in the former communist countries of central Europe. In the mid 1990s, Mr. van Caloen led the international investment effort at Provident Capital Management and later served as First Vice President of Schroders in New York.

Show Notes

Underwriting Venezuela

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Introducing Herve

• Formative lesson: Scudder’s Korea Fund was the first into a closed Korean market, and his Paine Webber fund was the first US mutual fund investing in Eastern Europe; markets that open up offer outsized potential.

• Poland’s post-1989 “shock therapy” was widely predicted to fail but worked; Poland is now the fastest-growing economy in Europe, proof that rule of law plus free markets can rebuild a country in one generation.

• Unlike Poland starting from scratch, Venezuela is a capitalist system in “suspended animation” for 30 years.

Political Transition

• Current setup: Delcy Rodriguez as interim leader with Washington calling the shots (Rubio as de facto “Viceroy”, ultimately Trump); necessarily temporary.

• Institutions must be built before elections (most expect 2027) so results are accepted by all sides, including Chavistas as the future opposition; a Mandela-style “truth and reconciliation” approach rather than revenge cycles.

• Controversy: hydrocarbon licenses awarded without competition to Chavez-era businessman Betancourt; a pragmatic “he gets things done” logic, but it is costing Trump local popularity and adding pressure to accelerate elections.

Macro setup and banking (Minute 8)

• The math: GDP is roughly one third of pre-Chavez levels and must triple to normalize; market cap is 1.5 to 2% of GDP versus a roughly 40% Latin American average, implying around 60x market cap growth just to reach normality.

• Listing wave ahead: companies are starved of capital, banks are not lending, and selling via the exchange attracts roughly 1% capital gains tax versus 34% on a private sale; Herve’s Caracas partner (the largest local broker) is working on two IPOs.

  

• Why banks cannot lend: inflation still 400 to 500% and reserve requirements raised to 73% have frozen credit; no mortgages, no business loans.

• Workarounds filling the gap: BNPL booming, rapid informal dollarization, a physical dollar shortage, and Thiel-backed Erebor Bank distributing USDT stablecoins, which is channeling dollars into the system.

• Sanctions: no OFAC bar on foreigners or Americans buying Caracas stocks, provided companies are not government-linked; sanctions are being lifted sector by sector, oil first, mining next.

• Oil rebuild will be slow and expensive (heavy crude needing pre-refining before Texas); Chevron has flagged roughly $7 billion and Betancourt is talking about $100 billion, though his deal may breach the constitution; risk of a local backlash against “Yankee” takeovers.

• Diaspora: over 8 million emigrants, many successful abroad, are keen to invest or partially return (Margarita Island property, tourism, pharma distribution).

• The pitch to skeptics: pre-Chavez Venezuela was Latin America’s richest economy, with a US-educated elite (MIT, Harvard) and an America-facing culture (baseball, not soccer).

Stocks and Currency (Minute 24)

• Strategy: the classic EM starter kit (banks, brewers, cement) applies but will quickly broaden; anchor holding Banco Provincial trades on a single-digit earnings multiple and 2.6x book, valued on what the bank could become, not its current state.

• BBVA (Provincial’s largest shareholder) is the only foreign bank that never left Venezuela (even Citi quit) and should benefit from that loyalty.

• Rum not beer: Ron Santa Teresa, already exporting to 80 countries via Bacardi’s network, earning dollars with bolivar costs

• Unusually sophisticated candidates for a frontier market: Ridery and Yummy Rides (local Uber/Lyft equivalents), Socado Coffee (“ten times better than Starbucks”)

• Foreign competition is arriving: Colombia’s Nutresa bought Tio Rico (ice cream, roughly 50% share) and Uber entered food delivery via Delivery Hero’s PedidosYa; local champions need capital to fight back or be sold out.

• Herve’s Mercator fund: equity only, aiming to be first to bring liquidity to the exchange; small first tranche, then a larger one if it takes off; the exchange president is fielding tens of companies seeking capital.

• Third Core holding: the Caracas exchange itself, a listed “toll booth” with only about $150k of daily volume, so pure upside; US market cap to GDP above 100% shows the long-run headroom beyond the 40% normalization target.

• Currency risk answer: dollarization; the gap between the official and parallel rates has narrowed from about 30% to roughly 15% and is heading toward zero.

• Inflation is easing (August monthly under 10%); the real economy transacts in dollars, restaurants use a “priced in euros” loophole to beat the official rate, and stablecoins are likely to play a major role, echoing the Turkey/Bitcoin dynamic.

Politics and Sizing (Minute 40)

• 2027 elections are plausible as locals grow impatient; the goal is a strong constitution and institutions, curbing corruption and army influence, and binding the economy to the US so reversal is hard; in the end “only one person calls the shots today and it’s Trump.”

• Chavistas retain positions of power; tension between reconciliation and revenge (his driver’s father wants revenge, the son wants to move forward); expect punishment for the worst actors and quiet exile for cooperators.

• Portfolio framing: a convex call option; Poland rose about 10x in the six years after its market reopened; buy now and do not look at it for five years, because an election announcement would gap the market with too little liquidity to chase.

• Venezuela Market context: the exchange jumped roughly 140% in dollar terms after January 6, then moved sideways as investors await confirmation of the transition.

• Sourcing stock: hunting secondary blocks and IPO allocations now, with government privatizations to come; listed companies are happy to dilute given how scarce capital is.

Follow Herve on LinkedIn and Twitter.

The Show Notes (plus bonus extras at the end)

🐿️’s “20-for-20” and Resources

• The latest Twenty for Twenty sector installment on resources (energy plus materials) was published Saturday

• A hypothetical 2006 version would have been stacked with financials, energy, materials, dry bulk and housing during the China capex boom.

• CRB spot index had an all-timer four-year run into the 2008 oil spike, but buyers of the DJP commodity ETN at its 2006 launch only broke even at the start of this year.

• Product launches are a late-cycle signal: when ETFs or bank products arrive in a hot theme, the trade is usually over

• Today’s resources pitch is different from 2006: a scarcity, capital discipline, debasement and sovereign resilience story rather than a China demand shock.

• The resources sleeve in Twenty for Twenty will likely be well above the current MSCI ACWI 8.5% index weight.

• Running resources through the mosaic of ten macro themes:

• Valuation caution: Freeport-McMoRan’s forward EBITDA is around two standard deviations above its 20-year average; Southern Copper and peers show the same dynamic.

• Glencore included as the wild card despite its coal business scoring poorly on the macro themes (thumb on the scale).

• Copper futures show a crowded bullish tape on COT positioning (large and small specs heavily long, elevated open interest). But it’s still an awesome chart!

• S&P data shows a 20-year famine in tier-one copper discoveries; recent big finds are in LATAM, Asia-Pac and Africa - i.e., not tier-one jurisdictions.

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DCM (and AI earnings) Bubble (Minute 14)

• Banner year for debt capital markets (DCM) bankers as 2026 is lining up to be the biggest issuance since the GFC (with an inflation caveat) - even if Mag 7 issuers are likely paying charity-level fees for market share.

• Last year’s call that hyperscalers would blow out their balance sheets and free cash flow has played out in underperformance; Meta now trades at 9x next year’s EBITDA

• Mag 7 has flipped to a negative correlation with momentum over the last four weeks, a dynamic only seen in “crash-ish” periods.

• H/T ’s charts: strip out markups on big private AI holdings and much of the “earnings bubble” is mark-to-market

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Xmas Tree of Death (Minute 18)

• Benny has built a mathematical signature model for the “Christmas tree of death”: money and leverage crowd in, shorts step aside, then an air pocket. (e.g., US Steel 20 years ago, silver this January, Palantir last fall and Alcoa this year)

• Kospi check-in: possibly a fifth wave. Korean regulators now require retail traders to pass a ‘driving-test’ equivalent before trading double or triple leveraged products - probably not a bad idea.

• Flows: foreigners buying while locals got wiped out, with 3% of Korean account holders margin called in short order; echoes 1997 hot-money dynamics.

• Similar in Japan : foreigners bullish, locals and corporate Japan wary of Takaichi’s reform promises (Charlie Brown football syndrome)

• The only bid in Korea is buybacks: Samsung and SK Hynix are repurchasing stock they just issued. Hynix did a $26B ADR then a $1.5B buyback weeks later - a corporate finance head-scratcher!!

• Google’s early-June equity raise read as tactically front-running the SpaceX, OpenAI and Anthropic raises; better to pull the Band-Aid off early on funding the capex cycle.

• Commodity bear markets are dark places where no one will give you capital; cyclicals can only raise money when the ‘ducks are quacking’. Hynix’s buyback looks like stock-price management after a rapid drawdown (red flag?).

• Mid-innings Xmas Tree ‘mechanics’: crash, stabilization, then beta decay if flows don’t re-accelerate; heavy supply sits above the right shoulder with 90%-plus momentum concentration, and nobody gets out at the top.

Bonus Extras

20260905 Benny's Weekly LLM Chartbook

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Weekly update for subscribers.

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20260905 LLM Provider Pricing & Top 30 Model Intelligence Analysis

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Show Notes

Yen intervention and “Oriental Maggie”

• Is there real coordination between the MOF, US Treasury and others behind the yen moves of recent weeks?- “the last 3 to 4 weeks have seen a weaponization of the yen,” with Bessent, Trump and Tokyo speaking with one voice; 160 in dollar-yen is the threshold of pain.

• The real pressure is political: polls show 90 to 95% of Japanese feel the purchasing power pinch, and every 10 yen of depreciation adds roughly 0.4 to 0.5 percentage points to CPI.

• One in three households are pensioners, and the pension “macro slide” means payouts rise only about 1.9% when CPI rises 3%, so pensioner purchasing power is being decimated.

• Backdrop: inflation expectations, a BOJ behind the curve, and Takaichi’s aggressive fiscal program mean bond issuance keeps rising.

• Portrait of Takaichi: obsessed with power, a ruthless Machiavellian on cabinet control, and un-Japanese in style, deciding by phone and email rather than consensus building; “she is the nail that stands out”.

• In February she ended Japan’s voluntary restraint on exporting offensive weapons in a single day, something Abe tried and failed to do; frigates (to Australia), submarines and missile defense can now be exported, and industrials rank dual-use and defense tech as their number one or two growth opportunity.

• Fiscal revolution: multi-year budget commitments beyond the old carve-outs (defense 5 years, education 3 years), now 10-year programs for quantum computing, robotics, AI and anime/content.

• Scale: Tanaka Kakuei’s 1970s restructuring started at 20% of GDP; Takaichi’s program is about 60% of starting GDP, with decade-long commitments to data centers, robotics plants and submarine plants.

• Versus Abenomics: Abe faced a minus 4% output gap and deflation risk; today the output gap is positive (BOJ estimate around plus 1%), rates are rising, and the fiscal mix is investment-led through public-private partnerships (10% government, 90% private, with debt guarantees). This is not consumption-led reform.

• Onshoring logic: at 160, the yen makes Japan viable as an Asia-Pacific export hub, so corporate savings should come home.

BOJ constraints and capital flows (Minute 14)

• Intervention theater: the BOJ did nothing at the last meeting, then Ueda said he was convinced inflation accelerates in H2 (so why not hike?); Bessent’s staged Reuters photo was “all-time trolling.”

• Why the BOJ is slow:

  • fiscal constraint: debt at 260% of GDP means each 100 basis points of rate rises adds about 1 percentage point of GDP to interest expense; interest already absorbs about 26% of the national budget, heading towards one third; the real constraint is political, since less discretionary budget means less power to allocate.

  • financial fragility: regional banks, credit cooperatives and credit unions lack people, systems and compute after 20 years of zero rates (only seven JGB traders were left when Ueda arrived); credit co-ops just posted their worst results since the bubble collapse, with bankruptcies starting; big insurers reported unrealized losses near 7% of AUM in the June quarter.

• The implosion risk is not the GPIF announcing a shift out of Treasuries (a pipe dream); - it is the forced selling of USTs to cover domestic losses.

• Reality check from Jesper’s presentation to the GPIF allocation committee: the fund must be able to liquidate 50 to 100 billion dollars in two days without moving price, which only the UST market allows; selling even 5 billion of JGBs moves the needle.

• The JGB market has been re-privatized: roughly 80% of transactions are now private-to-private, versus 80% BOJ-dominated under yield curve control.

• Ten-year JGBs around 3% are genuinely attractive: the insurers’ guaranteed rate (yotei) is 1.6%, so 3% lets them clip coupons and play golf, consistent with 1 to 1.5% trend growth plus 2% inflation; a floor under JGBs is established.

Domestic trust and the bureaucracy (Minute 26)

• The dirty secret - the only buyers of Japanese equities are foreigners and corporations via buybacks; domestic asset owners have been net sellers for 2 to 3 years.

• Why: America is seen as the nerve center where capital is treated best (tax, rules, liquidity, pro-capital politics), while Japanese investors fear domestic rules will change, especially capital gains tax, with AI-driven labor displacement creating pressure to tax capital to fund a basic income.

• Takaichi is not capital friendly on tax: she cut the food consumption tax but did nothing for corporations; the governance code update empowers boards to reject takeover bids; the founder minimum tax threshold was cut from 300 to 160 and the rate raised.

• The civil service (“Men in Grey Suits”) is bought in: Abe vetoed about a third of senior ministry promotions each year, while Takaichi rubber-stamped everyone, so METI and agency bureaucrats write the policy detail, which is bullish for the longevity of the reforms.

• Jesper’s meta case for Japan: (1) labor scarcity forces companies to rethink incentives and retention, and (2) both big partners have become unreliable, with 32% of profits tied to the US and 18% to China (Toyota just announced another China factory).

Geopolitics, banks and sector calls (Minute 36)

• Nightmare scenario: a Trump-Xi deal opening the US market to Chinese products and joint ventures (BYD building US factories with Ford) would gut Japan’s most profitable market; Japanese car makers were happy to pay the 15% tariff (effectively 7 to 8%) as protection to keep Chinese cars out.

• Hyper-speculative barter: China gets US market access and technology transfer in exchange for reallocating sovereign reserves into US Treasuries.

• Japan is hedging through Indo-Pacific alliances: Australia (11 frigates, 3 built in Japan and the rest in a Japanese-revitalized Australian shipyard) and a deepening India corridor.

• Banks: forced to become utilities under zero rates, they now have net interest income from the steepener; the bull case is the credit multiplier from PPP loan demand (the 370 trillion yen, 60% of GDP, reindustrialization will be funded by PPPs, not JGBs) plus fee income from MBOs, M&A and IPOs.

• Single names: MUFG-Morgan Stanley is the success story, making 1 plus 1 equal 4; watch Sumitomo (SMFG), whose Jefferies stake is likely to grow into a similarly powerful franchise.

• Deposits: sticky so far, but the mattress money (goldfish stuck in jelly) is becoming unstuck through inflation and deposit competition (Shinsei Bank offering 1.7% on 3-month deposits; SBI and Shinsei very aggressive); roughly 1.3 times GDP shifts as the boomer generation dies and heirs move regional bank money to the cities.

• Bullish Tokio Marine: first Japanese asset manager with pay-for-performance for fund managers, now partnered with Berkshire Hathaway; could become Japan’s first globally relevant asset manager within five years.

• Generational flip: the average outgoing CEO is 68, the incoming one 52; the Ice Age generation is taking over corporate Japan and is comfortable making decisions, doing M&A and even MBOs, happily financed by the mega banks.

• Japan has real assets, Hello Kitty does three times Disney’s revenue, and 38 trillion yen of the 370 trillion program targets anime and content; the 19th-century media companies could consolidate into global powerhouses.

• Energy is the pinch point: Komatsu and peers cite energy cost certainty as the top obstacle to reshoring, nuclear restarts remain slow, and if the Strait of Hormuz stays closed, Japan’s strategic oil reserves run out around January to February

The 2026 Prediction that Missed - Better Luck in 2030!

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Jeff learned his trade on the knee of his dad who was the CEO of Target for over a decade. You could say US retail runs through Jeff’s blood. You can find his subscriber content over at StockMarket TV as well as at Wall Street Beats where he is a partner there with Benny.

The discussion argues that the US consumer is materially healthier in observed spending data than the prevailing macro narrative suggests. The core investment implication is that heavily shorted, low-expectation retail, restaurant, leisure, and turnaround names can produce outsized returns when results merely show that conditions are “fine,” particularly while capital remains concentrated in AI and semiconductors.

The show was recorded at 6pm EST on Thursday 13th August.

Benny () & The Squirrel were joined once again by Mike.

The show was recorded at 6pm EST on Thursday 6th August.

The show has expanded on the socials! Follow us on Instagram and / or TikTok (if you do that kind of thing!)

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The show was recorded at 6pm EST on Thursday 6th August.

Benny & The Squirrel will be back on Sunday evening for our regular ‘Start the Week’ show.

The show has expanded on the socials! Follow us on Instagram and / or TikTok (if you do that kind of thing!)

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Show was recorded at 6.20pm EST on Sunday 26th April, 2026.

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Pod Summary

Chinese Financials and the Reach for Yield:

• Recent strong performance of Chinese life insurance companies and banks. Chinese retail investors, with Chinese 10-year yield dipping below 3%, have aggressively bought high-yielding bank stocks, outperforming global markets and the broader MSCI China index.

• Asian Demographics and Insurance Growth: Massive demographic tailwinds for the Asian insurance market.

• Two-track story: selling classic wealth management products to aging, wealthy (aging) Northern populations, and introducing first-time insurance product buying by the emerging middle class in South and Southeast Asia

Treasury Volatility and the PFIX ETF (Minute 13)

• Shifting to the bond market, the discussion focuses on the recent epic “volatility crush” in U.S. Treasuries.

• They review the Harley Bassman PFIX ETF (a play on 30-year interest rates) and debate whether current low volatility levels present a near-term opportunity to add to treasury volatility hedges.

Distortions in the MSCI Emerging Markets Index (Minute 18)

• Discussion of the skewed composition of the MSCI Emerging Markets Index (EEM).

• Despite recent market turbulence, the index posted a record month, largely because it is heavily weighted toward semiconductors and memory stocks (acting more like a tech index) rather than traditional emerging market index.

The Composite Fragility Security Index (Minute 27)

• The episode introduces a proprietary “Composite Fragility Security Index” model that ranks the top 50 countries by GDP based on hidden risks like water safety and food security.

• Many developed nations, including Singapore and Australia, possess significant underlying fragilities despite their apparent wealth.

• Discussion of specific geopolitical and currency risks that the market is currently ignoring:

  • Taiwan

  • Potential break of the Saudi dollar peg

  • Singapore and Dubai resilience