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Cuba post-Castro: What investors should expect

Posted February 26, 2008

"…The major keywords used by our revered candidates in the 2008 presidential derby are poaching in the happy hunting grounds reserved for revivalist meetings and Sunday sermons." — J. Christoph Amberger

By J. Christoph Amberger, TodaysFinancialNews.com

Baltimore – (TFN): The following was taken from a TFN Special Video Report. Watch this video.

Comrade Fidel appears to be in the process of handing over power to his baby brother Raul. Are investors in for a ground floor opportunity — a nascent emerging market right in front of America's doorstep?

We've had plenty of not-so-encouraging examples that the transition from totalitarianism to a free economy would be smooth at all.

Iraq comes to mind… as does Germany, where almost 20 years after reunification, Socialist East Germans engage in Eastalgia — an irrational longing for the time when the price of a static life was the occasional neighbor or relative who disappeared in the company of men wearing leather jackets at four o'clock in the morning.

Russians associate the collapse of communism with the hunger years of the early 1990s — and the wave of organized crime — forerunners of a capitalist economy. Many of them still aren't convinced that they're better off.

Will 11.4 million Cubans be?

Rather watch the financial video? Click here.

Communism — and its pale domesticated cousin socialism — wreak havoc not just with the economy, infrastructure and building substance of a country. After 50 years, it's influence on the spirit and mentality of a people is like mercury poisoning. Communism conditions and habituates people to poverty. It purposefully reduces expectations at life, stifles ambition and creativity, instills passivity, and reinforces bad habits.

In Cuba,  it may take a generation or two to overcome its long-term symptoms.

If the fall of Communism in Eastern Europe is any indicator, Cuba is in for a rough ride. Any power vacuum that may arise after the Castro Brothers and the lifting of the American economic embargo will be quickly taken advantage of by the military — which owns most successful businesses on the island. And the corrupt layers of officials who managed to prosper in Communism.

Let's not forget U.S., Latin American and Caribbean organized crime — drug cartels, arms runners, and prostitution rings.

There will be short-term winners: Tourism-related companies — and lawyers who will be handling the thousands of property disputes that will inevitably arise when a wave of Cuban expatriates and their heirs will sue to regain the $50 billion in property confiscated by the Communists.

How about investors? Like Pavlov's dogs, they've been trained to bid up the handful of U.S. closed-end funds that might profit from regime change in Havana whenever the papers say that change seems imminent.

A prime example is our old CUBA standby from the 1990s, the Herzfeld Caribbean Basin Fund (CUBA) which more than doubled last year before falling back down to earth. A one-stop shopping cart of publicly traded companies that could profit from a lifting of the U.S. embargo, it usually comes at a hefty price: Shares can trade at a 100-plus% premium to their net asset value.

Its share just jumped from around 8 dollars to nine. Give it a week, and it will trade over $10 dollars again, considering its ingenious ticker. You can profit from its upward move as well as from the inevitable downtrend that inevitably occurs when Cuba disappears from U.S. news coverage.

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Posted by J. Christoph Amberger · Filed Under International Investing 

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