China's Response to Trump's Venezuela Operation Poses Real Risk to Markets
After a surprising announcement that Venezuelan president Nicolas Maduro had been captured, the international response could rock markets.
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Even Polymarket didn’t have Venezuelan President Nicolas Maduro being out of power before the end of January (at least not until a few hours before the operation that ousted him — but that is another story).
I still like my chip company from the 2026 outlook, and think the Trump administration will help it more than people realize. Whether they should or shouldn’t isn’t the question (at least not for my purposes). The question is: will they or won’t they, and I think this past weekend’s event highlights how far the administration will go to achieve what it deems as “success."
I also think that all of those expecting bond vigilantes to make an appearance in 2026 are going to be disappointed. The “logic” runs like this:
If the administration undermines the “independence” of the Federal Reserve, then longer-dated bond yields will go higher.
“Normally” I’d go along with that, but this administration is bond market savvy and it will go out of its way to achieve 3% or lower overnight yields, while getting 10s under 4%. You say “yield curve control” is crazy? But wasn’t “snatching” Maduro “crazy” just a few days ago?
Do not underestimate how far this admin will push things – including with the bond market.
The Maduro Impact
I won’t start with what I think is the most important potential outcome. I will work my way up to it.
Slightly Lower Oil Prices
- Years of chronic underinvestment in Venezuela means it will take time and money to ramp up production
- Even at the best of times, Venezuelan crude is very “heavy,” which limits what can be done effectively with it
- There are geological challenges to accessing much of the oil. Who knows how much recent work has been done? Yeah, if oil was $100, prices would be dropping a lot, but with WTI futures already below $60, they won’t go much lower, at least not in the near term. U.S. energy production gets “sketchy” at these levels as it is, and we are a long way from ramping up Venezuelan supply.
- I like the oil servicers here in any case, regardless of who winds up helping to rebuild.
Rare Earths and Critical Minerals?
I don’t care. This is probably not economically viable and takes time. Our main problem isn’t access to rare earths and critical minerals, it is access to processed and refined rare earths and critical minerals. Venezuela is no help in the short term on that front.
How Does China Respond?
The biggest risk to markets is if China uses this as an excuse to either:
- Suggest more licensing constraints on exporting processed and refined rare earths and critical minerals (which is possible, at least as a negotiating stance)
- Initiate “grey zone” operations around Taiwan, slowing shipping (unlikely, but very damaging)
Monroe Doctrine
While not ceding Asia to China, we are going to focus on the “Americas” and, I think, Latin American markets will do well this year.
The Immigration Issue
If Venezuela is “safer,” then we should get less “forced” migration from Venezuela, which is something the Trump administration wants. If we “cut off the head of the snake” then maybe the gangs linked to Venezuela, operating in the U.S., will be less dangerous. That would be a great outcome.
I continue to believe this is a precursor to hitting the Mexican cartels hard (with or without Mexico’s help).
But for now, this is a relative non-event for markets.
A harsh response from China, in particular (or maybe Russia, though that seems really unlikely), would be the only thing to shake up risk assets, as a direct result of this past weekend’s operation in Venezuela.
