Travel to Cuba with Bridges/Investing in Cuba


As anyone who has met me knows that I am half Cuban.


Once you go Cuban, you NEVER go back. (A joke!).  However, there are two sides (of many!) to Cuba.

GranmaMyth1 I know the founder and he knows the many sides to Cuba. He can help make your trip more authentic and interesting.




We last spoke about SELLING THE RALLY in CUBA here: It doesn’t take investing brilliance to sell hype over reality and a 50% premium to the underlying assets.

Investing in Cuba: Opportunities Develop (BARRONS)
There haven’t been big breakthroughs since U.S.-Cuban relations were re-established. But investors should be aware of smaller signs of progress.

By DIMITRA DEFOTIS    November 21, 2015       Emerging Markets

In Cuba-U.S. relations, so much has changed in 2015. For U.S. investors, however, things have stayed much the same.

It’s been nearly a year since President Barack Obama and Cuban President Raúl Castro announced warmer relations. The U.S. removed Cuba from its list of state sponsors of terrorism. But Cuba still has a Marxist-Socialist economic model, a two-tiered currency system that favors locals, and no stock market.

What investors have, for now, is improved diplomacy: After a year of tense negotiations, Cuba is home to a newly opened U.S. embassy in Havana, and it opened its own embassy in Washington, D.C. More flights and mail between the countries could be imminent.

Still on the books: a trade embargo by the U.S. that may not be lifted ahead of the 2016 U.S. presidential election. Those who want the embargo lifted hope a Democrat wins the White House in 2016. Republican presidential candidate Marco Rubio, a Cuban-American from Florida, has promised to undo Obama’s Cuba detente.

Meanwhile, the number of U.S. tourists visiting the island may have spiked by 40% this year, underscoring the travel-related investing opportunity just 90 miles from Key West, says Pedro Freyre. The Miami-based attorney and Columbia University adjunct professor of law is a man with his bags forever packed. He consults with U.S. companies in agriculture, technology, health care, and other sectors where limited trade with Cuba is already allowed.

Cuba is actively courting foreign investment as it seeks to build its creditworthiness, and it’s already doing business with China, Russia, Brazil, and a host of nations that showed up at the annual trade fair in Havana earlier this month. Freyre was there; he likens U.S.-Cuba ties to those with Saudi Arabia, Vietnam, and China: diplomacy despite differing views.

PRIVATE-EQUITY INVESTOR Redux Capital Advisors, a London-based asset manager focused on Cuba, sees big opportunities. It hopes to close the first piece of a $300 million fund this year as the embargo slowly unravels. Just last week, the U.S. Treasury’s Office of Foreign Assets Control removed the names of a handful of Cuban bankers, mostly in Europe, from a list of banned business partners. Also last week: MasterCard (ticker: MA) and Stonegate Bank in Fort Lauderdale, Fla., announced their debit card can be used at select Cuba locations.

Both Redux and Freyre believe that other countries have a leg up on Cuban investment, and that the U.S. Congress needs to move. Cubans on the street hold American accomplishment in high regard, and seem delighted with the idea of doing business. That was the reaction Freyre got when surprising people with “Yo soy Cubano, mi hermano!” or “I’m Cuban, my brother.” The lawyer and the investor may be on to something. Regularly scheduled flights between the U.S. and Cuba could be negotiated within the embargo parameters by the end of this year, and unification of Cuba’s currency may also be imminent, Freyre says.

What’s an investor to do? The closed-end Herzfeld Carribean Basin fund (CUBA), a proxy for growth in Cuban tourism, soared a year ago. But it is down 24% this year, trading in line with its underlying asset value. While the travel and infrastructure stocks in the fund are not pure-Cuba plays, lifted travel restrictions could lift returns. Another top holding, Panama-based Banco Latinoamericano de Comercio Exterior (BLX) jumped nearly 5% last week.

Editor: Cuba will move forward but mostly after the Castro Brothers are gone. You can make a lot of money from a small base but you have to do it in the Black Market (about 60% of Cuba’s economy).


Free Stuff Investing Strategy; Tracking Stocks


You can make a lot of money buying from forced selling. Buy from Wal-Mart’s liquidation sales then sell on Ebay/Amazon at 200% mark-ups.   You are helping your fellow human beings.

Also, learn about EMC tracking stock.

Read more:

Too Much Debt, Too much Capacity (mal-investment), then Inevitable Bust/ King of Buy and Hold


The Western banks that financed commodity production are insolvent, though few yet realize it.


Like the flawed analysis of the CDO market in 2007 the conventional view is that the subordinated lenders may be in trouble, but the senior banks with the senior debt are safe. Deloitte has just punctured this myth with a report stating the obvious: “Not even a wave of oil bankruptcies will shrink crude production.” This is because oil companies go bankrupt not when the price of oil falls below the cost of production, they file much sooner: when the cash flow is no longer sufficient to pay the debts. After bankrutcy, the creditors become the equity holders and get any remaining cash flow–they don’t turn the well off. Not until the price sinks below the raw cost of production–and then for a time necessary to exhaust any capital reserves–does the well actually close. In other words, the oil spigot will not turn off until all residue of the debt is completely erased, and the same dynamic applies to the other commodity sectors.

Myrmikan has pounded the table since August that history is not rhyming but repeating nearly perfectly the 1929 model–first overcapacity drives deflation, then market collapse, then more deflation, until finally a dramatic devaluation of the currency to resolve unpayable debts. The value of capital falls to levels that seem almost inconceivable. This pattern has repeated without fail since the time of Solon, in 594 B.C. Athens, and it is doing so again now.

Deloitte study says 2016 is a period of tough financial and strategic choices for E&P companies

Published 17 February 2016

With more than $150 billion in debt on their balance sheets, nearly 35 percent of pure-play exploration and production companies (E&P) listed worldwide, or about 175 companies, are at high-risk of slipping into bankruptcy in 2016, according to a new Deloitte study, “The Crude Downturn for E&Ps: One Situation, Diverse Responses.”

The outlook is almost equally alarming for about 160 other E&Ps that are less leveraged but cash flow constrained.

Deloitte vice chairman and US oil and gas sector leader John England said: “2016 will be the year of hard decisions. We could see E&P bankruptcies surpass Great Recession levels as companies struggle to remain solvent.

“Access to capital markets, bankers’ support and derivatives protection, which helped smooth an otherwise rocky road for the industry in 2015, are fast waning. A looming capital crunch and heightened cash flow volatility suggest that 2016 will be a period of tough, new financial choices for the industry.”

Seeing the cash crunch, E&Ps worldwide have saved or raised cash to the tune of $130 billion, since the oil price crash. Surprisingly, two-thirds of the savings have come from non-capex measures such as asset sales and equity issuance.

However, considering further equity issuance and asset sales will come at much lower prices, the report notes that E&Ps worldwide are entering 2016 with the only option of cutting their already reduced dividends and share buybacks.

“Considering the industry will have fewer financial levers to pull in 2016, operational performance will be the key to sustainability and growth,” said England.

“There is still more that can be done by oil players, particularly large ones, to reduce costs. Prices will eventually rebound and companies need to focus not only how to survive, but also how to position themselves to thrive for when things turnaround and demand picks up.”

One of the key ways companies have managed to remain viable has been through the reduction of production costs, starting in 2015. Today, about 95 percent of production costs (lease operating expenses and production taxes) of U.S.-origin players operate below $15/boe, versus 65 percent in 2Q14.

The report states that questions on current breakeven prices and near-term cash flows should give way to the future return on capital employed (ROCE) potential of the industry. As the industry improves performance on costs/efficiency, its future emphasis will not be about its ability to make profits at low prices, but generating sufficient ROCE on a large base of devalued investments made in the past.

Further, economies of scale and scope appear to be benefitting natural gas players more, reflected in the widening gap between large and small gas-heavy companies and marginal cost differentiation between large and small oil-heavy players.

That noted, spending cuts in 2015 and 2016 – the first time since the mid-1980s that industry will reduce capex for two consecutive years – will likely have a substantial and long-lasting impact on future supplies and open new chapters in the geopolitics of oil. E&Ps risk slowing the conversion of resources to reserves in frontier locations and the capex required to maintain aging fields and facilities, the report warns.

The report further anticipates that future M&A activity will most likely go beyond the typical buying reasons of the past-preference for oil-heavy assets and buying for growth/scale. Companies that prioritize returns over size, have a balanced and flexible production profile over a deep inventory of non-producing asserts, and give thought to economies of scope over economies of scale will most likely thrive when the price environment improves.

Deloitte Center for Energy Solutions executive director Andrew Slaughter said: “There is no silver bullet solution that applies to the whole industry; in fact, the landscape has never been more complicated.

“Each company has its own set of unique factors to consider – from issues specific to each producing region and asset, to various states of financial circumstances. Staying solvent will require the same level of perseverance, innovative thinking and creativity as the technology breakthroughs that led to the boom in supply we have seen over recent years.”

MUST READ: Nick Train – The King of Buy and Hold

Learn from this author:   Track his other articles here

“Answers” to Hedge Fund Analyst Quiz on Gold


We pick up from we were last:

Analytical point #1: CPI is a meaningless measure to determine the future dollar price of gold.  CPI is an arbitrary government statistic. You are comparing gold in US Dollars (apples) with an index of oranges, grapes, raisins, etc.)

You must have mentioned this to stay employed at Ackman’s hedge fund.

CPI vastly understates monetary debasement Think Differently About Purchasing Power

The Futility of Price-Inflation Measurements

The practical problems with price indexes such as the CPI are the issues of which prices are to be measured and what “weights” will be assigned to what goods. Another problem is deciding what to do about changes in quality. For example, what do you do when Apple introduces a new and improved iPhone at the same price as the previous version?

To deal with this, government statisticians systematically increase the weights for goods that are going down in price and reduce the weights of things are going up in price. If the quality of a good goes up, the statisticians “hedonically” reduce the price of the good.

Those sorts of adjustments do not seem fair to most normal people. If you are eating more ramen noodles and fewer lamb chops you can take little comfort in the fact that that the CPI is staying inside the Fed’s target range. Moreover, under the system of hedonic adjustments, every time entrepreneurs and engineers come up with better products for consumers at lower prices, the Fed takes credit for keeping inflation under control.

Why hasn’t the CPI picked up since 2008?

The first thing to keep in mind is that the CPI is not an economic variable. It is a statistic that at best gives an inaccurate picture of an economic phenomenon: inflation. To calculate the monthly CPI, the US Department of Labor takes a weighted average of prices of various things that consumers purchase, and then its statisticians try to figure out the various proportions of different items in a “mythical” household budget. For example, the statisticians may hold that housing costs are 30 percent of household expenditures, food costs 20 percent, gasoline another 15 percent, and so on.

Analytical point #2: Gold maintains its purchasing power over

L O N G periods of time. Gold is the “golden constant” (Jastram).  Look at research over the past 600 years: : RoyJastram-TheGoldenConstant

Jastram arrived at four conclusions:

  • Gold is a poor hedge against major inflation. (Jastram finished his book in 1977, only 6 years after the link between gold and the dollar was broken. For the period prior to 1971, gold was fixed in price to the US dollar or British Sterling.
  • Gold appreciates in operational wealth in major deflations. Of course if gold is money (it is!) then it should appreciate relative to the goods it can be exchanged for.
  • Gold is an abysmal/ineffective hedge against yearly commodity price increases.
  • Nevertheless gold maintains its purchasing power over long periods of time. This is not because gold eventually moves towards commodity prices but because commodity prices return to gold.

In contrast in the late twentieth and early twenty-first century it was the market price of old which adjusted so that the purchasing power of gold relative to general prices returned to a constant.

Other main points to glean are:

  • Gold is money – J.P. Morgan
  • Gold maintains its purchasing power over decades but not necessarily year-to- year.
  • Gold at the “Attila effect.” Jastram points out that throughout history men and women have turned to gold in times of distress, whether political, economic or personal.  Gold is sought for two basic needs: the imperative to survive and to be secure; and the desire to possess and enjoy beauty.
  • Gold, unlike all paper-based assets, is no one’s liability. It therefore has a near-unique “safe-haven” quality since its value cannot be eroded by any declining of the creditworthiness of its issuer unlike fiat currencies.

In choosing the title The Golden Constant, Jastram did not imply that there was an absolute mathematical rule to which the purchasing power of gold adhered, but rather that gold exhibited the qualities of constancy in a wider sense. The fact that gold is almost immune to corrosion, rust or decay is one element of this. The metal has an enduring attraction for humankind. Also, the purchasing power of gold, while in fluctuation, returns over the centuries and in different countries to a broadly stable level is testament to all these elements of its constancy.  How many grams of gold to purchase cattle in Rome vs. today in Cedar City, Utah?  Not much difference despite the thousands of years of time and the different local.

You then advise Ackman that if investors lose faith in Central Banks’ ability to manipulate both credit and investors, then gold might be a safer place to hold wealth than dollars.  You then instruct Mr. Ackman to carefully view this video.

In all seriousness, you should have learned two concepts:

Be careful in comparing data sets.  CPI is useless.

If you choose to research an asset or money, then study ALL its history. Don’t look at just the most recent past.

READINGS   Follow the links!

The key to booms and busts




Video of The Fed at Work


Federal Reserve members at work

Analyst Quiz Part II


Part I: I will discuss in another post and send a gift to all who provided comments.

Mr. Ackman calls you into his office and tells you that he shorted gold three days ago, because he wants to make money to support his positions in VRX, etc. Goldman Sachs promised sub-$1,000 gold in 2015.  He ignored whatever you said because you are a “junior” analyst.   But today gold is up $50 +.   Pershing Square recently installed two hotlines: 1. for investor suicide prevention and 2. for death threats.   Phones are ringin’ off the hook.

Also, this morning Janet Yellen had a nervous breakdown during her testimony to Congress.  She told Congress that, “We have no clue what is going on.”  Then she asked Congressional leaders to join her in prayer, “God, Help us!”

Her testimony: Negative Rates a failed strategy so do it

You recently read:

  1. Misconceptions about gold
  2. What Determines the Price of Gold and What determines the price of gold_Blumen
  3. Murphy’s Law of Gold Analysis
  4. Gold and 1937 Depression
  5. Money Gold and Chaos
  6. Losing Control

The above readings you may or may not agree with but you press on to learn more. And you see this:

bank shit

What do you advise Mr. Ackman to do now?

God, Help us!

Shareholder Letters

3-SPX-vs.-Commodities 020116_RearviewMirrorCartoon

Thanks to a member of the Deep-Value Group at Google Groups or

SEARCH STRATEGY: Announced Cash Liquidation

Sunridge Gold Corp. (SGC:TSX.V; SGCNF:OTCQX), which has a project in Eritrea that is getting sold to a Chinese entity. On a per share basis a shareholder will get about $0.35/share in cash or more payable in two tranches. It was trading at about $0.28/0.29 today in early February, and that offers about 30% upside.  The deal has been voted on and accepted. See terms announced here:

The above is only for individual special situation investors. A miner in Eritrea!

Analyst Quiz is Gold Overvalued Based on CPI–Go SHORT?

gold vs cpi

You just got promoted to advise Ackman; he is keen to improve returns.  He slaps that chart on your desk and then asks if shorting gold would be a good idea? Why or why not based on this brilliant analysis?  In fact, with “Deflation” fears rampant, Ackman feels gold could drop to $650.

Also, you read: The Golden Dilemma where two PhDs project a $350 price target.  If experts such as these predict lower prices, then should you join the pack?

Also, you find a chart that supports what your boss thinks. Yahoo!


Unfortunately, some nut-job sends you this link: The Positive theory of gold and the The ultimate extinguisher of debt

You have until this afternoon to report back.  This tests common sense and critical thinking skills. Good luck!

A prize to be awarded.

Don’t Believe the Hype

“First, never buy a bank at twice its book value, Number two, don’t trust any bank with a superior earnings record, Number three, you are buying a pig in a poke because the assets are inherenetly unanalysable… ”  “Then there are the contra rules, ” He went on, “such as the inability to earn exponential rates of return except through recklesness or fruad.” Also,” said Tisch…”a really smart person says to himself at a certain point that your pricing is set by the stupidest person in the market,” It is the marginal lender who makes the marginal loan at a bargain-basement rate, and it is impossible to compete with that optimist.

James Grant “Banking with Tisch” (October 6, 1986)

Theranos misled me

And that brings us to the lunatic valuation of the FANGs (Facebook, Amazon, Netflix and Google), which was also on display again this week. To wit, 100X+ PE multiples are always and everywhere a deformed artifact of central bank driven Bubble Finance, not the emission of an honest capital market.

The fact is, the greatest technology-based businesses of modern times accomplished its dramatic growth spurt in just over 20 quarters between 2011 and 2015. That was after the i-Phone incepted and the i-Pad worked up a serious head of steam.

Now Apple is pancaking or worse, and it is hard to believe that gimmick products like Apple Watch or Oculus can fill the hole from the fast fading i-Pad and the stalling i-Phone. No harm done, of course, and its entirely possible the APPL will have another modest growth run.

But here’s the thing. Apple essentially proves you can’t capitalize anything at 100X except in extremely rare cases because of the terminal growth rate barrier. That is, after a few years of red hot growth almost every large company’s organic growth rate bends toward the single digit path of GDP.

Fangs and Monetary Fools


oil historical

I’m wondering if people may take the wrong message from this chart.  Here’s my read:

The high prices in the beginning were due to oil being a very desirable but very scare resource.  Drilling only began in 1859 and the technology was primitive and inefficient.

Then entered J.D.Rockefeller, who brought major efficiencies to the industry and increased refining capacity to the point where it was in excess of that needed for kerosene (used in lamps), and so the price plummeted.  There was another brief spike in price as Rockefeller gained what amounted to monopoly control of the industry in the late 1870s, and new applications for oil were found.

Thereafter, the price plunged due to improved efficiency and competition from other areas and abroad.  Oil traded in a fairly broad but well-defined range for the next 60 years, depending on prevailing business conditions.  The wide swings in prices during this period suggest that there is a positive feedback mechanism involved in the prices.  Low prices make energy less expensive, which promotes increased economic activity, which increases demand, which causes higher prices, which quenches economic activity, which reduces demand, which reduces prices…

After WWII, with the discovery of the huge Arabian oil fields (as well as others) and the emergence of the US as the guarantor of stable world prices, there emerged a period of remarkable price stability from roughly the end of WWII onwards.  Stability resulted from increases in demand being met with increases in supply at current prices, coupled with the price stability resulting from the Bretton Woods monetary system.

The next significant break came with the “Arab Oil Embargo(s)” of the 1970s.  While there was an obvious political context here, the other part of the equation was that US production was peaking.  There was a short respite once political conditions improved, but the underlying dynamic was that some of the important producers, the US in particular, were unable to keep up with local demand.

This situation became global in the early years of the 21st century, as demand in emerging economies ramped-up, while at the same time production from important established fields was in decline.  New fields were found, but were typically much more expensive to exploit than the earlier fields.  Since that time, the supply/demand dynamic has been at play, with price increases driven by increased cost and limited supply, and price declines being driven by poor economic conditions caused by the heretofore high prices.  The feedback cycle outlined above is in full play, this time with prices being in a generally upward trend due to generally scarce supply at lower price levels.

My reason for pointing this out is that I’m not sure that identifying $47 as an average price is very meaningful.  The bottom line is that demand for oil will be robust whenever prices allow for it, while supply at any given level will become scarcer as the “low-hanging fruit” is picked clean.  My contention is that major price volatility with a generally upward trend is what we have to look forward to.  This will continue until something happens to fundamentally change either the positive feedback mechanism or the fundamental long-term supply/demand relationship.  So the $47 average price may be of historical interest, but may be of limited applicability going forward. (from an anonymous commentor).


Stockman is too optimistic