Cuba has been under US economic sanctions since 1962. That’s stunted the growth of the Cuban economy. But at the same time, they have done nothing to bring about political change on the Communist-ruled island. So the new US administration has decided on a change of policy…
On 13 April, Barack Obama took the first steps towards ending the US economic embargo on Cuba. He announced that all restrictions on travel to and remittances to the island by Cuban-Americans will be lifted. American companies will also be allowed to provide telecoms services to Cuba.
Obama had promised to loosen the sanctions during the election campaign and he has delivered on that pledge.
These are small steps, but if Cuba responds positively, they could rapidly lead to much bigger changes. And they could rapidly deliver massive profits for early investors. Let me explain why…
Returning emigrants could set-off an economic boom
On its own there isn’t much to differentiate Cuba from any other emerging economy. But there is one crucial fact that could set-off a rapid economic boom if the US does start to loosen economic sanctions. You see, there are now two million Cubans living across the water in the United States. These people have not only experienced democracy and a free market since fleeing the communist island, but they have also accumulated wealth and prosperity.
Those two million Cuban-Americans generate more than twice the wealth that the 11 million people left in Cuba create. So allowing them to travel freely to Cuba could give the islands economy a massive boost.
At the same time Cuba has been gradually opening-up its economy. Fidel Castro kicked-off limited liberalisation of the economy in 1990s. He allowed Cubans to set-up small businesses and foreign investment was allowed into the country. More than a fifth of the population now works in the private sector. By the end of 2007, the country had attracted $136 million in foreign investment. That’s still a fraction of the overall economy though. So there is enormous scope for further growth.
By October 2006, Fidel Castro appeared to be on his death bed and he turned-over the government to his 75 year old brother Raul. Raul began his rule by promising “changes of structure and concept” in the state-run economy. And for a while it looked like there would be a rapprochement between the US and Cuba. But the hard-line taken by the Bush government towards the Castro brothers’ regime ruled that out. Cuba didn’t open up the way we hoped it would. But here’s why that could change…
Raul has recently consolidated his power over the Cuban government. He officially became President last year. And he has just revamped the cabinet to bring in his own allies. So with right sounds coming out of Washington and Havana, we could finally see the opening-up of the Cuban economy that we have been waiting for. That will give private investors like you a way to cash in on the boom.
The country is a bio-tech powerhouse
A lot of the foreign investment in Cuba has focused on the leisure industry. But there is a lot more to Cuba than rum, rumba and beaches. The opportunity here is far, far bigger…
The country is a major force in the global biotech industry. And Cuban biotech institutions own more than 900 international patents.
The country is actually Latin America’s biggest pharmaceutical exporter. It exports biotech products to more than 50 countries. Most of those are in the developing world. What’s holding it back from becoming a genuine global player is the US trade sanctions. Despite that, international drug companies have been eyeing Cuba’s biotech industry…
Hardly anyone knows it, but GlaxoSmithKline’s Meningitis B vaccine is actually licensed from Cuba. And in 2004 a Californian company, CancerVax, actually received permission to test a potentially ground-breaking Cuban cancer therapy in the US. That was the first time the US allowed Cuban biotech products into the country. And you can bet there is plenty more to come.
You see, what makes Cuba’s drug industry unique is that they haven’t wasted medical resources on developing anti-wrinkle creams or impotence drugs. Instead it is focused on real medical problems like AIDS, cancer and tropical diseases. And Cuba’s biotech industry is genuinely world class.
If – or when – the US does lift sanctions on Cuba, its biotech sector is going to burst onto the world stage
I will report back on the situation once a clearer picture emerges of the opportunity here. If things develop the way I believe they will, Cuba could rapidly emerge as the most exciting growth story in the Americas.
Good investing,
Manraaj Singh
For The Right Side
P.S. I still haven’t found the right way to invest in Cuba. But there are plenty of other similarly exciting and overlooked opportunities to invest in now. One of the most exciting that I have come across recently is in West Africa. Click here to read about that and to be first in line when I releases my Cuba play.
Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary.
Market Notes
Not just the bare necessities...
BY SHIVVY ARORA
Investors are influenced by the spending habits of the masses. These shifts show the changes in psychology from being risk-averse to feeling more optimistic. So are we currently sticking to just the things we need (the staples), or slipping back into buying what we want (the discretionary items)?
Now, discretionary stocks are those sensitive to economic conditions. These companies produce optional goods or services, such as electronics or running shoes. The Consumer Discretionary Exchange Traded Fund (or ETF) is a way to invest in a basket of these companies. The Consumer Staples ETF is the opposite, allowing you to invest in companies that provide essential items such as food or healthcare.
The chart below shows the comparison between the Consumer Discretionary ETF (ticker: XLY) and the Consumer Staples ETF (ticker: XLP) over the past nine years.
When the line rises, it means discretionary stocks are performing better than staples; and vice-versa. You can see that from 2001-2004, the pattern of consumer spending favoured discretionary shares. From 2005 to early 2009, staples reigned.
Too early to bet on discretionary shares
Discretionary stocks can be great early-cycle plays. But be warned – potential shifts away from the safety of the staples are often a one to two year process. It’s too early yet to start calling for a continued rally in discretionary shares.
The Daily Reckoning – China’s game plan for the US...
BY BILL BONNER
Buenos Aires, Argentina
Thursday, 23 April 2009
Is the rally still on? We’re not sure. Yesterday, the Dow fell 83 points... after a weak bounce on Tuesday. We expected the rally to last until June and to take the Dow back to the 10,000 range. But anything could happen.
Gold rose $9 yesterday... back to $892.
And if you depend on 91-day T bills for your spending money, you’re in a world of hurt. The yield is only 0.13%.
But maybe things are better on the other side of the planet. How’s China doing? Analysts are “cautiously optimistic,” says a New York Times report.
Retail spending in China is said to be up 15%. Meanwhile, a report tells us that China is stepping up its purchases of US Treasury debt.
Hmmm... .why would China be doing that? The official response to that question was that US Treasury debt is not only the most abundant credit in the world, it is also the most reliable.
As to the first point, no one would quibble. As to the second, only a fool wouldn’t.
The price tag for the crisis-related bailouts, guarantees and boondoggles is nearly $13 billion. The US is setting records of course. The biggest budgets ever. The biggest budget deficits ever. The biggest bailouts.
The US budget deficit is about 13%. It was a budget deficit of not even half that amount that pushed Argentina over the brink in 2001. What are we supposed to believe... that there is no brink waiting for the US?
Even more curious... what do the Chinese believe?
Read on…
To read the Daily Reckoning in full, click here.
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