Recently: Doug Casey: War Is Coming
Doug Casey, upper left, sips a drink while Pierre Lassonde enjoys a lengthy lecture, finger jabs included, by Fidel Castro. (Photo courtesy of Paul Zyla.)
L: Doug, Fidel Castro is much in the news of late, with almost McNamara-like changes of heart, ranging from regretting the persecution of gay people under his rule, to admitting that socialism isn’t working too well. The press reports him saying, “The Cuban model doesn’t even work for us anymore.” I just heard today that the Cuban government plans to fire a half a million government employees, and the number may climb to a million — those jobs were once sacred sinecures. I know you’ve been to Cuba and met Castro, so what do you make of all this?
Doug: I have to say, this gives me some hope. If only Obama could take a page from Fidel’s new book. Perhaps Fidel is not a completely sociopathic criminal after all; perhaps he’s just been deluded, and a very slow learner; perhaps he’s actually capable of admitting guilt and reforming. He seems to be trying to rethink things in a more moral way, as the grim reaper approaches him. Perennial optimist that I am, I like to give folks the benefit of the doubt.
L: Do you think that’s what it is, a desire to set right what he can before he exits this stage? Or could he actually be more honest than we gave him credit for, and now he’s facing the evidence that says he was wrong?
Doug: You can never really know what’s actually going on in his mind. But it puts him a cut above hopeless sociopaths like Stalin, Hitler, and Mao who never evidenced an iota of regret that we know of. Or even lesser lights, like FDR and Nixon. If Dante’s Inferno exists, all of them would be in low and nasty circles. Let’s hope Fidel at least makes it to the Purgatorio.
L: Of course. Silly question. So tell us about Cuba, why you went there, and what you thought of Castro when you met him.
Doug: I’ve visited Cuba four times over the years. The first time was not long after the Soviet Union collapsed. There was essentially nothing there. The country had been living for years on handouts from the USSR, getting paid way above market for its sugar, buying oil way under market, and getting all sorts of miscellaneous freebies from the Soviets. But that game fell apart, taking the Cuban pseudo-economy down with it. There are about three or four blocks in Havana that have been renovated for the benefit of tourists wandering around, but the vast majority of the city looks like Berlin in 1945 — and I kid you not. Hundreds of buildings with collapsed roofs, broken windows, no electricity or plumbing. Socialist economies have never understood the concepts of depreciation and maintenance.
L: The Soviets ran out of money before their government collapsed, so Cuba would have been on meager rations for some time when you were there…
Doug: And it couldn’t be disguised. I went to a state dinner, and it was so bad, it was embarrassing. As I recall, the only thing they had to serve were some Spanish stuffed olives, which they’d bartered for some sugar, some bread, a few veggies, and a fish. Against all odds, somebody had gotten some gasoline and gone out in a boat and caught one. Things were really rough then.
L: Is that when you met Castro?
Doug: No, I think I met him on my third trip to Cuba. We were staying at a casa particular — a lot of times, when the government would host you, they’d put you up in a house that used to be owned by a rich Cuban who’d fled. It was a trip back in time. The furniture, the rugs, the curtains — all of it was stuff I’d last seen on 1950s TV reruns. It was all decades old.
L: Well, I guess the Cubans aren’t going to make Architectural Digest any time soon. But what about health care? Admirers say real strides have been made there.
Doug: I happened to have visited one of the vaunted Cuban biotech centers while I was there; it basically resembled the chem lab of a rural high school in the U.S. But first we must be very careful to distinguish between “health care” and “medical care” (see our conversation on this). The term health care is a fraudulent misnomer. Health is everywhere a strictly personal responsibility, and determined largely by diet and exercise. It was laughable when that fat slob Michael Moore made the argument that the average Cuban was healthier than the average American because of their nationalized doctors and hospitals. He’s right that the average Cuban is much healthier — but it’s solely because he’s got a simple, fresh, low-calorie diet, he necessarily gets a lot of exercise every day, and he’s not taking a half dozen pills every day to assuage every real or imagined pain.
The fact is that medical care in Cuba is about 50 years behind the times. Their technology, and the education of the doctors, is antiquated and primitive. They don’t even have Band-Aids and penicillin, forget about MRI and CAT-scan machines. Cuba is not a good place to get a severe trauma or acute disease — which is where American medical care shines. But the average Cuban is vastly healthier than the average American, for reasons that have almost nothing to do with medical tech.
L: And the education system? It’s said every Cuban can read and write, which didn’t used to be the case…
Doug: I think there’s some truth to that. But, once again, Boobus americanus completely misunderstands what it means. First, learning to read and write isn’t rocket science. Second, it’s something an individual is responsible for, not a school system. People who think it’s a fantastic accomplishment apparently believe the government is a solution to illiteracy. Of course, Castro wanted everyone educated in the basics, but only so they could read propaganda, in my opinion. There’s certainly not much else to read there — no books in the libraries, no magazines, no newspapers besides Granma, the state rag — and you can forget about computers. I think it’s tough to get a decent education with few pens and pencils to be had, and very little paper, a few books, and the teachers putting political education first. Cuban students are in a time warp. Claims about Cuban education are just nonsense. It’s a huge failure. But so is American education (see our conversation on education).
L: Okay… But what was an anarcho-capitalist doing in Cuba at all, let alone as a guest of the communist government?
Doug: Well, Americans are theoretically allowed to go to Cuba, but they are not allowed to spend any of their own money there. That’s why, if you enter the U.S. from abroad and the officer who checks your passport has reason to believe you’ve been to Cuba, or if you reveal the fact that you’ve been to Cuba, you will definitely be interrogated. I understand that, at least during the Baby Bush years, the U.S. had agents in places like Cancun, Toronto, and Santo Domingo, from where a lot of flights for Havana depart, looking for people with U.S. passports at the check-in counter. We’ll have to do one of these conversations on dealing with Customs, Immigration, and TSA types sometime soon… Anyway, since it’s hard to visit a place and not spend any of your own money at all, they figure you’ve probably broken the law, and you will probably be prosecuted. So, American businessmen usually go there as guests of their business associates, enabling them to make the claim that they never spent anything in Cuba. The Cuban government treats them well, because it gets a 50% equity stake in any deal they make — you’re always in business with the government in Cuba.
L: What kind of deals?
Doug: I went there with Leisure Canada (V.LCN), a small Canadian company that had acquired some spectacular beachfront property in Cuba and was planning to build resort hotels. Another time I was with a mining company that had a copper-gold deposit in the far west of the island. I went another time with a mining company that Pierre Lassonde had, with several projects around the country. And the other time was with another Canadian company that was trying to manufacture retail electronics in Cuba, taking advantage of the cheap labor. Those were my sponsors — and you needed to have a sponsor, of course.
It was always an adventure. One time we were flying to Santiago, in Santiago de Cuba province, where the revolution began, in an old Soviet An-1. I was talking to the pilot, and told him I flew. He let me take the controls for 10 minutes — try doing that on a commercial flight in the U.S. Another time we were taking an Mi-8, the workhorse Soviet helicopter, someplace and the pilot couldn’t get the damn thing to fire up. So the copilot came back and started messing around in the fusebox with a screwdriver. The whole thing filled with acrid smoke, and we exited posthaste. Believe it or not, those guys flew the thing away — but I guarantee we weren’t on it.
It was on the trip with Pierre that I met Fidel. There were only about ten of us there, and he presented himself, unannounced. I believe he speaks quite acceptable English, but he prefers to speak Spanish, for nationalistic reasons, and so as not to be misquoted or misunderstood in English. He rambled on for hours, through his interpreter. At that time, he’d already given up smoking cigars — he was well known for smoking Cohiba Lanceros, the long, thin panatellas. They are absolutely one of my favorite cigars as well. Cuban cigars are the only way to fly (see CWC on ATF).
L: If those are thin, how did the CIA hide a bomb in one when they tried to kill Castro?
Doug: I don’t know — maybe they didn’t give him a Lancero-type cigar. We gave him a cigar as a token, and he accepted it. Immediately, one of the three or four security guards took it out of Castro’s pocket and put it in his own pocket. Fidel was wearing his signature green fatigues, but not combat boots. He was sporting a pair of Gucci-style calfskins that zipped up the side; quite fashionable, and comfortable.
Doug: That really happened. My mistake that evening was to stand around listening to Castro go on and on about nothing, really, of any importance, when all the while, sitting off to the side by himself, was Carlos Lage. At the time, he was the bright young star of the next generation — everyone had their eye on him as the guy who was going to replace Fidel. Apparently, Lage spoke perfect English, and I could have sat down with him and had a good conversation for a couple hours, maybe planted some ideas that could have made a difference.
L: Well, Raul Castro got the job, so maybe, maybe not.
Doug: Yes, apparently, he’s subsequently fallen from grace. But back to your initial question, I do think it’s quite interesting that Castro has had some second thoughts about the Cuban revolution — though he also came out later with some second thoughts on his second thoughts.
When I met him, I got the impression that he’s pretty sophisticated, although a complete egomaniac. Certainly not stupid. He’s got to know that everything he’s done with Cuba has been a disaster. But I’d guess that he just doesn’t see a way out now, doesn’t know how to finesse it. I wish I could have proposed my radical plan for privatization to Lage… I believe it could thread the horns of the dilemma Fidel finds himself in.
L: Do you think Cuba could actually embrace market reforms and rejoin the global economy? Or are the political realities such that Castro’s generation pretty much has to die before progress can resume again?
Doug: I suspect they’ll try to do it the way the Chinese did: economic freedom, but political repression. The guys who are running the place don’t want their rice bowls broken, don’t want their power scam to come to an end. But there are some things about Cuba that are hard to figure, some factors that are very hard to gauge. For example, the people who left in 1959 and the early u201860s, they were mostly the rich and educated ones — which, in Cuba, meant mostly white people of European descent. They went mainly to south Florida, but also other places, where many have become extremely successful. Now, are they, or their kids, going to be welcomed back? I suspect not. If they were to return — which many will try to — I suspect there’ll be a bit of a culture clash. That’s not a prediction, but it seems quite possible to me that the Cubans who stayed, who, on average, are of a different racial mix and have a different culture, aren’t going to appreciate these rich carpetbaggers, if they come back.
L: I’ve seen that in West Africa, where they call white people obruni, which, I’m told, basically means “swindler”, but they also call their returning cousins obruni. There’s a huge cultural difference, and perhaps a perceived racial one as well.
Doug: Sure. That sort of thing happens all around the world. It’s often called Uhuru jumping. A fat checkbook buys a lot of political favors. Underdeveloped countries are always run politically — which is basically why they’re underdeveloped. Add money, and corruption enriches the political class.
L: Hm. Did you invest in any of those companies?
Doug: Yes, but I have to admit that none of these were winners. One of the reasons is what I said about the government always taking a 50% stake in any of these deals — and that’s a completely carried interest. That, in effect, doubles your capital costs, and you still have to pay taxes, and royalties. Another critical factor is that you’ve got to pay all the Cubans you hire a reasonable salary in dollars — but the money goes to the government, which pays them in Cuban pesos at the official exchange rate, even though the pesos are worthless. So the government captures most of their salaries too. You pay a guy $1000 a month, and he winds up getting $20. It’s just a scam, of course, but if a government does it, the sheep assume it’s for the greater good. These things put even the best business plan on shaky ground in Cuba.
L: Why did you invest, then?
Doug: Well, Wally Berikov, the guy who ran Leisure Canada, is a good friend and a great guy to spend time with. He was also a close personal friend of Castro’s and managed to get hold of some really beautiful property — just fantastic development properties, in downtown Havana, the Island of Youth, and elsewhere. It’s still a mystery to me why Wally was never able to follow through… but they still have control of those properties, 20 years on. Maybe, when Castro dies, the thing will finally be a ten-bagger.
This was one that looked like a great speculation, but just never panned out. As you know, this is in the nature of dealing in small, volatile, risky, illiquid companies. But if just one realizes its potential, it will make up for ten losers — but we hope to do a lot better than just one in ten.
L: A lot of deals never worked out in Cuba, not just LCN…
Doug: Yes. Whenever things go wrong there, the Cubans like to blame the U.S. embargo — it’s all the fault of the U.S. This is, of course, complete nonsense. Only the U.S. has an embargo against Cuba, so they can get anything they want, including American goods, from anywhere else in the world. Cuba has perfectly fine relations with every other country in the world, besides the U.S. They can’t buy things, but it’s not because the U.S. stops them. It’s simply because they’re bankrupt and can’t pay for anything.
L: Can’t say I’m surprised to hear that you’re no fan of the embargo.
Doug: It’s just one more stupid thing the U.S. government has done. It handed Castro a credible excuse for failure as he stumbled from one economic disaster to another, and may well have significantly prolonged his rule. It did keep American tourists away, which is a shame, because a flood of American tourists would have made it abundantly obvious to the Cuban people that Americans don’t have horns, and it may have inspired more of them to ask if their society was on the wrong path sooner.
Continuation of the embargo only damages American businesses. When Fidel dies, and Raul dies shortly after him, the place will definitely open up. Unfortunately for Americans, the Spaniards, Mexicans, and all the other nationalities that are big there, will have locked up all the best deals and will have the best connections with the government.
It’s a completely perverse policy that has done nothing but create a big PR black eye for America and punish American tourists and businesses, while giving Castro a great excuse that allowed him to continue failing for decades. Totally perverse, like almost everything the U.S. government does.
L: Looking forward then, if somebody came to you with a great Cuba deal, now, before it’s all tied up, would you be interested?
Doug: I don’t see how Cuba can fail to boom…
L: The spring is pushed down about as far as it can go, so the place has nowhere to go but up?
Doug: That’s right. And the place has thousands of miles of pristine beaches that have seen no commercial use for 50 years, which is to say, ever. I understand that about half of the real estate in Cuba is actually still privately owned — entirely apart from that which was taken from foreigners. Everybody has settled except for the Americans. Almost anything you could do there — as long as you have some confidence that it will come to fruition — could be a fantastic deal. But you’d want to get positioned now, make connections with entrepreneurial Cubans, etc., before the country opens up. The problem is the U.S. government makes this hard for Americans, and even if you can get around that, you have to speak excellent Spanish, and take a lot of time to meet the right people, learn how to do business in the place. There’s always a way to skin the cat. But best to figure it out now, before the Cuban economy liberalizes and starts booming.
L: The only short cut I can think of would be to hook up with one of these Mexican or Spanish business people already doing business there — but then you’d have to be able to trust that person a lot.
Doug: Yes. And, especially if the deal were taking advantage of some gray area of the law, you’d have to really trust the Cubans you were making the deal with, because there’s always a chance of them reneging later. But it’s only 90 miles from Florida; at some point, it’s going to be a fantastic place to be. And it’s a fun place, even now, under the puritanical Castros. I can only imagine what it must have been like in the u201850s, when Meyer Lansky was running it…
L: Location, location, location.
Doug: Just so. The only problem is that you just can’t be everywhere at once. Maybe that doesn’t bother most people, though, who even today tend to be as rooted in one place as a medieval serf.
L: Well then, food for thought. Meanwhile, on the other side of the planet, I hear you’ve been researching some sort of real estate deal in Egypt?
Doug: That’s right — a bit exotic, a bit of an outlier. And I promise not one person in a million will have thought of this one… but that’s a topic for another day.
L: u2018Til next time then. Thanks.
Doug: My pleasure. Talking Cuba has given me an urge to fire up a cigar and have a nice, aged, dark rum on the rocks.
Doug, cigar in pocket, under the watchful eye of Che Guevara. (Photo courtesy of Paul Zyla.)
To make informed investment decisions, it is important to see the big picture… and that means not only looking at economic realities within U.S. borders but globally. Doug and his co-editors at The Casey Report do just that — analyzing the big trends in the making and recommending the most prudent strategies to realize profit. In the current edition, for example, Chief Economist Bud Conrad tells a Tale of Two Sovereign Debt Crises, comparing the problems of Japan and the United States. To learn about Bud’s favorite investment for 2010, click here for more.