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Venezuela Heating Up The "Wrong Way"?

Wednesday, 10 Jan 2007 | 10:24 AM ET

Venezuelan stocks are plunging today. This comes in the wake of Venezuela's president Hugo Chavez's call for nationalizing power and telecom companies in his country. Later today on "Power Lunch" Theirry Wizman head of Latin America investing at Bear Sterns will be on to talk about what this all means for American companies (we'll update this story with Wizman's comments). But just how important is what Chavez said? Is it all talk? Well--it's evidently important enough for the New York Times to make it their second editorial of the day.

Chavez gave a speech on Monday (he's recently been re-elected to a third six-year term) where he said--"We're moving toward a socialist republic of Venezuela, and that requires a deep reform of our national constitution,, we're heading toward socialism, and nothing and no one can prevent it." Not much mistaking his intentions there.

(On "Morning Call" CNBC's Michelle Caruso-Cabrera talked about the Chavez speech)

Chavez Socialism Fallout
A look at Chavez's threat to nationalize telecoms and electric companies, with CNBC's Michelle Caruso-Cabrera

Chavez has been more than critical of the U.S. since being elected president in 1998. But it got worse in 2002--as he believes the Bush administration was behind a briefly successful coup attempt against him that year--and his criticisms have gotten stronger (remember "Bush is the devil" speech at the U.N. last fall?) He certainly has some popular support in his country among the poor--with public spending (from oil revenues) on food and housing. Consumer spending is reported to be at an all time level highs in Venezuela. However, unemployment still runs strong--around 12%--though that number has gone down in recent years. And the middle and upper classes are not in favor of his land reform initiatives--where land that's "not used" by its owners can be "given" to people who will use it.

Chavez is also close to Cuba's Fidel Castro--and has pushed for the elections of similar minded leaders in Latin America countries like Peru and Bolivia.

So--with the U.S. being Venezuela's biggest customer for oil--how is this all going to play out? For Verizon and AES --it's not looking good right now. Verizon owns a large share of the largest telecom company in Venezuela and the country's largest electrical company is mostly owned by Virginia based AES. Both of these local companies are the current takeover targets of Chavez. Verizon had been trying to sell it's share in the Venezuelan company BEFORE the Monday speech by Chavez.

Add that Chavez also wants to take control of several multi-billion dollar oil projects in Venezuela (look out Exxon Mobil ) --things could be heating up.

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XOM
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