1/22/2013 4:45 PM ET|
Time to invest in Cuba?
There are signs that the economic embargo imposed by the US more than 50 years ago may soon end. Investors might consider getting in ahead of the changes.
Is this the year we finally say hasta la vista to the five-decade-old Cuban trade embargo?
Tom Herzfeld, a Miami-area fund manager who studies Cuba-U.S. relations, thinks so. This is an unconventional view. But stranger things have happened in the past few years, like the Arab Spring. Besides, it's often the unexpected that provides the best returns in investing.
And here, the investment implications could be big, for several companies.
Herzfeld thinks the policy change would boost companies as diverse as cruise line operator Carnival (CCL), cargo shipper Seaboard (SEB), regional airline Copa (CPA), soft-drink distributor Coca-Cola Femsa (KOF) and even Watsco (WSO), which likely would sell more air conditioners in Cuba.
These stocks are all big holdings in the Herzfeld Caribbean Basin (CUBA) fund, which Herzfeld says he has positioned to benefit from embargo elimination.
"Now, more than ever, the pieces are falling into place where the embargo could be lifted this year," maintains Herzfeld.
Herzfeld cites President Barack Obama's view that economic relations with Cuba should be liberalized -- and the president's greater freedom to pursue this goal now that the election is behind him.
Herzfeld points to the nomination of Sen. of John Kerry,D-mass., who shares this view, to lead the State Department, as well as to steps by Cuba to improve human rights, such as the recent loosening of travel restrictions for Cubans.
Then there's the shaky health of Cuban dictator Fidel Castro, whose demise could lead to big changes.
"I believe if he were to die, that would be the single event that would led to the lifting of the embargo," says Herzfeld.
A possible leadership transition in Venezuela, which we'll get to in a moment, could also be a factor in the embargo coming down.
Cuban experts I surveyed don't think much of Herzfeld's theory. "It won't happen anytime soon," predicts Ted Piccone, a senior fellow and deputy director for foreign policy at the Brookings Institution.
Riordan Roett, the director of the Latin American Studies Program at the Johns Hopkins School of Advanced International Studies, puts it more bluntly: "What's he smoking?"
Cuba experts cite two main obstacles. First, the embargo is in place because of a law passed by Congress, which Obama can't just overturn on his own. Next, Cuban-American congressional leaders, who have a big say, strongly oppose any change. Top among them: Sen. Robert Menendez, D-N.J., who may be taking over the Senate Foreign Relations Committee; Rep. Ileana Ros-Lehtinen, R-Fla., former chairwoman of the House Foreign Affairs Committee; and Sen. Marco Rubio, R-Fla.
"They are just not going to budge on this," says Roett.
As an investor, Herzfeld is nonplussed by these challenges. He thinks the companies his fund owns as Cuba plays will do well regardless of whether the embargo is ended. Many of the stocks have recently hit all-time highs. An end to the embargo would be just one more catalyst for these names, he says.
There are two other reasons investors may want to avoid getting too put off by the Cuba experts. First, in investing, it's the out-of-consensus plays that can do the best -- when things occur that most people did not foresee.
Plus, I can make the case that it's not too crazy to think that the embargo is on the way out. It would not be the first time "the experts" missed a big change. How many of them predicted the Arab Spring?
Even if an Arab Spring doesn't sweep Cuba, there are plausible reasons to think the trade embargo could be gone sooner than the experts believe. Here are the three big ones:
1. The embargo doesn't make any sense anymore.
Sure, Fidel, 86, and his brother Raúl Castro, 81, are bad hombres. They've confiscated a lot of property -- much of it owned by U.S. companies -- since seizing power in 1959. Worse, they stomp on human rights and oppose democracy. This is why the 1996 Helms-Burton Act blocks most U.S. trade with Cuba until the country has free elections, releases political prisoners and respects human rights.
It is a commendable policy but, sadly, hypocritical. If this were consistent U.S. policy, we'd have no political or trade relations with Vietnam, Myanmar or even China, says Juan Carlos Hidalgo, a Latin America policy analyst at the Cato Institute, who notes that each of these countries fails to clear the Helms-Burton hurdles applied to Cuba.
Thus, the Cuba embargo is a pretty glaring anomaly, which makes it vulnerable. "The only advantage of the embargo is that it allows the Cuban regime to blame the miserable Cuban economy on 'the blockade' as they call it," says Hidalgo.
The embargo is also vulnerable because it's an obvious failure. After 50 years of embargo, the Castro brothers still rule Cuba, notes Tomas Bilbao, the executive director of the Cuba Study Group, a lobbying organization whose goal is "empowering" Cuban people by helping them start businesses and sell goods abroad. "I think we need to shift from an obsession with hurting the regime to an obsession with helping the Cuban people," he says.
2. Political support for the embargo is eroding.
Another problem for embargo aficionados is that younger Cuban Americans in Florida, the all-important next generation of voters, just aren't as passionate about it as their parents and grandparents were. "When I lecture down there, they couldn't care less about Castro and the embargo," says Roett.
A recent poll by Florida International University in Miami bears this out. It found that just 50% of Cuban-Americans still support the embargo, and 80% think it has failed. It's also worth noting that Obama got a lot more of the Cuban-American vote in Florida in the 2012 election, despite the awareness that he is more willing to lift the embargo, says Hidalgo.
With their constituents defecting on the issue, congressional backers of the embargo may be losing ground. "The Cuban vote in Florida is changing, thus sticking with the embargo doesn't makes sense," believes Hidalgo.
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Cuba was supported by the US, it was only when the US demanded to dictate policy on the price of sugar, oil etc after the overthrow of the criminal Batista, that Cuba sought a better way to help the vast majority of its people! One of the smallest countries in the world has for over 60 years stood up against the failed embargo. Cuba is supported by every country in the world and especially for their humanitarian aid for such a small country. The facts are that we should never ever have to pay the corporate america greed, back, for what they stole from Cuba in the first place. That same american greed of the banks almost destroyed our country, only difference was we rewarded them instead of nantionalizing. So, it is important that we work to have meaningful normal relations with Cuba that both countries respect and get off the rehtoric. America is a great country but so are all the rest of the worlds countries. It is about RESPECT.
cuba would be a boon to the tourism industry of florida and the gulf coast.
then we pick up a new flush of food-cigars-culture that has only been "allowed" in florida.
thank god cuban jazz music made it's way to new york city in the 40's! at least we always have had that to enjoy!
A VET OF THE REALISTIC: Obama is doing a great job.I`m much better of than I was 4 years ago..
My busines was started on a shoestring and it`s expandind on a good busines plan.Ive
expanded it with stock market gains.It`s all about using your head and not listening to the
negitive far right lying about Obama`s record.
O.K. Let's get a market going so people can put their money where their mouth is.
I'm bidding $10,000 for Cuba. Where's the offer?
I'm sorry most of these comments that are negative to such an idea are obviously written by fools!
It is yes a communist country. The people are not commies, just the government.
If you look at the direction of our current government, wealth redistribution, socialized medicine, what direction are we headed?
We need to concern ourselves with changing our government first and looking to expand our financial futures.
No one said to take on Cuba as another commonwealth like PR but to open their and our markets to profitable things like tourism for them which the would give them profits to buy from us.
I`ll stick with investing in America.After 4 years the market is up 85%, better thanthe
first 4 years of Clinton, G.H. Bush, Reagan andGW Bu**** about time people realized what
a great President we have.This is the President who went after and got Bin Laden and
several terrorist operatives after Bush said "I don`t know or care where Bin Laden is"It`s
great to have a strong President.Obama makes me proud to be an American.God bless
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