Cuba’s Berlin Wall Moment

We interrupt this week’s discussion on deflation briefly to bring you an important announcement from our colleague Paul Mampilly

“I have a selfie with the future Cuban ambassador!”


Recall, Paul and I traveled to Cuba three weeks ago.

“In five to ten years” I forecasted from the scene on November 17, “Cuba will be the hotspot for American tourists.’ Yesterday, it seemed like that call’s on track.  Ahead of schedule, even, thank you very much.

The incredulous looking fellow over Paul’s shoulder in the photo is the current U.S. Interests Section chief of mission, Jeffrey DeLaurentis. We visited the man’s home in Havana. He’s set to be the next ambassador, due to sweeping changes announced this morning.

Reuters reported: “U.S. to open embassy in Cuba”. Soon after, President Obama took to live T.V. to deliver one of his better speeches. There were three major changes…

  1. Diplomatic relations between both countries will be restored.
  2. Travel restrictions will be eased.
  3. U.S. credit and debit cards can be used in Cuba… larger money transfers can be made between them… U.S. financial institutions can open accounts there and more U.S. exports will be allowed into the island.

“We will end an outdated approach” preached Obama, “that, for decades, has failed to advance our interests and, instead, we will begin to normalize relations between our two countries,”

Only took fifty years for someone to say it… but hey, we’ll take what we can get.

“There’s going to be a party on the Malecon tonight” Paul commented over Skype, “and dancing in the streets.” That’s the well-lit road along Havana’s seawall where the city’s youth gathers at night.


“The young people don’t even know if Castro is alive” a Cuban woman who was part of the Revolution told us while we were there. “The don’t care about him.”

One young man — a twenty something amputee we met over a smoke at a club — illustrated the point to us. “Damn the Castros” he said, “I lost my leg as a child due to a treatable illness. If I had been born in the U.S. and gone to an American hospital, I’d have them both.”

Now that Cuba’s had it’s berlin wall moment, we can him picture him jumping, crutch and arm in the air, in celebration.

Traders on Wall Street celebrated too. Upon hearing Obama’s announcement, the didn’t waste any time… not even to stop and think.

As if on cue, the closed-end Herzfeld Caribbean Basin Fund rocketed up  46%. Never mind it’s holdings have little ties to Cuba… its ticker is CUBA.


The group owns assets that may prosper from an uptick in the Cuban “mojito economy” — like rum and cigars.

Two other, albeit indirect ways, you could bet on Cuba’s ascendance are Western Union (NYSE: WU )and TripAdvisor (NASDAQ:TRIP).

Western Union is already in Cuba. In fact, family remittances from Cuban Americans in Miami back to their homeland passed $3.5 billion in 2013. And yesterday, Obama increased the amount Cuban-Americans would be able to send.WesternUnion1

As for TripAdvisor — an online review aggregator — I was stunned to see several restaurants in Havana asked us to give them positive reviews online. Already, Cuba’s been gearing up to cater to foreign tourists.

“The Caribbean Tourism Organization” reports Quartz, “shows that Cuba is the second-most visited island so far this year, with around 2,220,000 visitors from January to September. It trails only the Dominican Republic, which saw around 4,200,000 from January to October.”

Americans have been going to Cuba in record amounts as well. In 2007, about 49,000 Americans visited Cuba. 5 years later, 98,000 went. You can bank that number doubling again over the next five years and TripAdvisor will be the established place for Americans to map their vacation out.

“We’re planning a trip for the art biennal on May 22 or 23 if you are interested” Luly Duke, the founder of Fundacion Amistad, the non-profit that got us into Havana, emailed me last week.

It’s tempting… if only to keep you posted on the changes in Havana as they unfold.

It Only Took 50 Years…

“The human being is the only animal that stibles twice on the same stone” explained Miguel Coyula. “To see this, look at how many people remarry.”

It’s a long-standing tenet of these reckonings that “the empire has a logic all of its own”. The insight was laid down at length by our co-founders, Bill Bonner and Addison Wiggin in their books. We agree with that… but submit half a century of backing the same failed policy falls in the sheer stubbornness category.

Senor Coyula, a professor and Havana architectural historian seemed to agree. He lectured us on on Havana’s growth, stagnation and possible future from the Colonial era to present day.

Sounds stuffy… but it was well worth being cooped up in a hotel. Even on a sunny Havana day.

“I was invited to speak to the Congress and State Department about U.S.-Cuban relations. One of the questions I kept getting was, ‘What do you think of the embargo?’. I returned their question with a question.

“‘If you had a headache’ I said, ‘and the doctor recommended you take advil… and you keep taking advil for fifty years but the headache doesn’t go away, what should you do?’

“The Americans looked at me and said, ‘You should try something different.’”

Reasonable enough you may think. But suggest that to Florida republicans — many who are of Cuban descent… and you might have a shoe chucked at you.

“The sound you hear in the distance is Marco Rubio’s head exploding” our colleague and 5 Minute Forecast editor, Dave Gonigam quipped over IM this yesterday as we listened to Obama. “Radio Habana Cuba should be fascinating to listen to tonight.”

Google “Radio Habana” and you can listen yourself. Interesting stuff. It will give you a different perspective, at the very least.

I have jewish friends, if you’ll believe it, who don’t give two shekels about the holocaust. If you were born before 1960, you might be able to justify why we’ve had an embargo with Cuba for so long. We envy you, in that case, because we can’t.

We know the historical tit for tat…

Tit: The Cuban government ordered foreign refineries — two of which were American — to refine Soviet crude. The Treasury department, of all agencies, told American companies to refuse,  which they did.

Tat: Castro expropriated the refineries.

Tit: The U.S. cut off their Cuban sugar quota.

Tat: Castro nationalized all U.S. companies.

Tit: The soviets and Cubans team up, initially by buying and selling more sugar than they needed at inflated prices.

Tat: In October of 1960, the U.S. placed an embargo on all Cuban goods and services.

Tit: The bay of pigs happens.

Tat: Soviets try putting nuclear missiles in Cuba

And here we are…

Too simplistic, perhaps. No matter, to someone born as recently as me, the Cuban embargo has always seemed like a dinosaur. About as out of place as Soul Train and bell bottoms.

Yet, according to CNN’s Fareed Zakaria, “the older generation still retain this idea that they’re going to go back to a non-Castro Cuba. That they’re going to reclaim Cuba.”

Felix Gonzalez, a 76-year old Cuban-American that came to the States in 1961, called Obama’s announcement this morning a “betrayal,” “I don’t trust the Castro government,” he said. “I will never.”

From first-hand experience, we can tell you the younger Cubans in Cuba are a lot more practical. Or they just don’t care. It’s hard to know for sure.

These “issues were so much caught up with the Cold War” CNN’s Zakaria concluded. “All that is gone. Finally, in a sense, we’re catching up with what the reality is. There is an alternate strategy that more contact, more commerce will have the effect of softening, opening up the regime.”

As I wrote to you from Havana:

You’d think everything here is supposed to be driven by fear of the regime. Fear of jail… fear of losing your home… fear of being switched to a bad job. And maybe it is. But it doesn’t seem like anyone’s afraid. I expected the streets to be empty at night… for people to look sad… and for certain questions I ask not to be answered. The reality is very different.

People — especially young people — gather in the thousands at night along what’s called the Malecon — which is the sidewalk lining the several-mile-long sea wall. I walked up and down it several times yesterday, with a cigar.

The teenagers relax, talk, make out — all listening to modern music and wearing modern clothing. On the first night here, we drove along the Malecon on the way to the hotel. ‘These are the people who are going to change Cuba’ our American guide who’d been coming for fifteen years, told us…”

Throughout history we’ve had grand human experiments where geography separated two groups of people who were more or less shared customs, language and history. All that was different were their economic systems.

North and South Korea…

East and West Germany…

China and Hong Kong…

Cuba and Miami.

In each case people voted with their feet… sometimes, with their lives. The record of history is clear: People go where their money, talents, and rights are treated best.

Who was whisked out of West Germany and into East Germany?

Who crossed the DMZ to get from South Korea to North Korea?

Who risked life and limb floating on a door to depart Miami for Havana?

The embargo didn’t end yesterday dear reader, but it might as well have. Freedom is a bit like soda. One sip, and you want more and more.

For now, raise a glass of Havana Club and puff on your Partagas. To freedom in Cuba… however slowly!

Hasta luego,


for The Daily Reckoning

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P.P.S.  Here are a few more pictures from my trip…








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