[Marxism] CASTRO'S WOES may boost Bush's party in Florida. (WSJ)

Walter Lippmann walterlx at earthlink.net
Fri Aug 4 07:02:57 MDT 2006

Very astute observations, in three little paragraphs. Below that, 
travels to fantasy island by from the sucker-bait batallion.)

August 4, 2006

CASTRO'S WOES may boost Bush's party in Florida.

Chance of his demise energizes older Cuban-Americans, the most
pro-Republican slice of Hispanic constituency. With competitive races
for governor and a House seat on tap, "In the short term, it's
helpful to Republicans," says Miami pollster Sergio Bendixen.

But that could boomerang if expectations of Cuba's rapid
transformation are dashed. A former Bush administration official
predicts little immediate change if Castro dies, since brother Raúl
controls security forces and U.S. pro-democracy plans would have
marginal effect.

Hispanics cast 15% of Florida votes, but Cuban exiles are less than
half following immigration from other Latin countries.


Waiting For Fidel
Is a Cuba-Fund Manager's Dream
About to Finally Come True?
August 4, 2006

For the past 13 years, Thomas Herzfeld has patiently waited to cash
in when Fidel Castro dies.

Mr. Herzfeld runs the Herzfeld Caribbean Basin Fund (Nasdaq ticker
symbol: CUBA), an investment vehicle that since 1993 has been poised
to capitalize on the end of the Castro regime and the lifting of a
decades-long U.S. economic embargo on the island nation. Mr. Herzfeld
launched the closed-end fund at a time when the Castro regime seemed
ready to crumble under the weight of a moribund economy, and just
before thousands of emigrants once again crowded the Straits of
Florida to escape to the U.S.

But Mr. Castro, as is his wont, survived. Mr. Hertzfeld, meanwhile,
waited, and while he waited, he invested his fund's cash in companies
that he thought would benefit from a free Cuba. The majority of its
investments are in U.S. and Mexican companies doing business in the
region. The fund does not seek out companies doing business in Cuba,
but some, such as Mexican cement maker Cemex, have done so in the
past and could do so again. Mr. Herzfeld has also had a Cuba-only
fund in limbo at the Securities and Exchange Commission for the past
10 years, waiting for Mr. Castro's death to complete the registration

The regional fund is tiny by almost any measure, with just $14.7
million in net assets at the end of March. Because it's a closed-end
fund, investors can't ask for their money back as they can in a
mutual fund and instead must buy and sell shares in the open market,
meaning the fund can trade at a premium or a discount to its net
asset value. The fund has long traded at a discount, and thinly at
that. It returned just 60%, adjusted for distributions, from the time
it started trading on the Nasdaq in May 1994 until the end of July
2006. The average closed-end fund returned 157% in the same period,
according to Lipper, and the average Latin American closed-end fund
returned 161%.

Mr. Herzfeld has paid the bills during that time by running a Miami
investment-advisory business and parlaying his expertise in
closed-end funds into a series of books and a monthly newsletter.

But Mr. Herzfeld's long, quiet wait may be coming to an end. Mr.
Castro this week transferred power to his brother, Raul, and
underwent surgery for intestinal bleeding. A Francisco-Franco-like
death watch has begun. Cuban exiles, sensing that a moment they have
awaited for decades is near, are dancing in the streets of Miami. Mr.
Herzfeld, a 30-year Miami resident, has watched from afar, on a
business trip to Switzerland, where he is meeting with unnamed
institutional investors interested in his fund, which has jumped 17%
in the past three days. We talked to him by telephone about his hopes
for a free Cuba.

The Wall Street Journal Online: Has your wait been frustrating?

Thomas Herzfeld: No, it hasn't been, because we've been doing very
well with the fund.

When we created the fund, what we did not want to do was take
people's money, put it in the bank and wait for Castro to die. We
created a portfolio of companies we believed would do well even if
there were no change in Cuba. And our strategy has worked. Our
original investors have doubled their money. [Editor's note: Mr.
Herzfeld's comment refers to returns, adjusted for payouts to
investors, since the fund's inception in September 1993 and includes
its recent rally; the fund did not start trading on the Nasdaq until
May 1994.]

WSJ.com: Still, the fund is fairly small, and trading in it is
usually very thin. Are you discouraged that there has not been more
investor interest in it?

TH: When Pope John Paul II visited Cuba, there was a spike in the
share price. But the volume and the interest in the fund seem to
correspond with Castro's health, more than anything.

One reason I'm in Switzerland, in fact, is new institutional interest
in the fund. Aside from the Spaniards and Italians, there typically
hasn't been a lot of interest in investing in Cuba. But free Cuba is
another story; it could be a new emerging market for the Europeans.

WSJ.com: What are some of the investment themes and opportunities you
expect in a free Cuba?

TH: The themes will be infrastructure and telecommunications, along
with some of the classic Cuban industries: rum, sugar, tobaccco,
tourism and fishing.

And we believe the companies we're invested in will do well. For
example, Florida East Coast Industries operates the Florida East
Coast Railway, a freight line between Jacksonville and Miami. A lot
of the cargo going to and from Cuba would go over that railway, and
they have announced plans to run a rail barge to and from Cuba --
though they've been low-key on that recently.

Florida Rock will [possibly] build highways in Cuba. Watsco will
[possibly] sell air conditioners there.

We're also invested in Royal Caribbean and Carnival. Now, when
passengers take Caribbean cruises, they either go to the Eastern
Caribbean such as the Lesser Antilles, or the Western Caribbean, such
as the Yucatan Peninsula. Once the embargo is lifted, Cuba will be
the hub, the central point for cruising. That will revolutionize the
industry, leading to an enormous increase in passengers.

We also have some of the old Republic of Cuba's defaulted debt. It's
sovereign debt, created before Castro. That is the bond issue which I
believe will be most likely to be paid first when the embargo is

WSJ.com: What makes you think that will actually be paid off?

TH: Many Cuban exiles are bondholders in that issue. So if the
Cuban-American community is involved in the reconstruction and
rebuilding of the country, then that's the issue that has the
greatest chance of getting repaid.

WSJ.com: Will you make any changes to the fund after the embargo

TH: We would sell some of our holdings if they rally, take the cash
to get into a more-liquid position, and then invest directly in Cuba.
Our most likely partners will be the Cuban-American community in
South Florida, who are shareholders in the fund and clients of our

It would also be a logical time to increase the size of the fund.
It's very tiny now, and we have never seen a reason to increase its
size. But if it looks like there will be a free Cuba, it would make
sense. Then we might have an opportunity to get involved in
larger-scale investments.

We also have a sister fund called the Cuba Fund, which is a
pure-country fund rather than a regional fund. But I'm not allowed to
talk about that because it's in SEC registration.

WSJ.com: How big would you make the regional fund?

TH: I don't know. But Cuba's reconstruction will be a
multibillion-dollar undertaking, and we want to capture a significant
portion of that.

WSJ.com: Given the potential you see, why do you think more people
aren't doing what you're doing?

TH: When I first thought about forming this fund, I went to all of
the major underwriters, and none wanted to do it. Not a lot of people
were willing to take risk.

It can also be a dangerous thing to do; we were misunderstood out of
the gate. I made a speech at the Cuban Club in Puerto Rico when we
were trying to raise money. They at first thought we were trying to
create a way to invest with Castro, and I had my life threatened.
They finally realized we didn't have that in mind, and they invested
in the fund.

It was not unusal in the past decade or so for people who are seen to
be pro-Castro in Miami to live very dangerous lives. But we were very
careful never to do anything that would help the Castro government.

WSJ.com: Investors may be worried that, even after Castro's death, it
could be many years before Cuban markets are opened fully. How could
investors cash in quickly on the end of the regime?

TH: It's partially open now. Investments in medicine, food and
telecom services to Cuba are available now. You might also have a
piecemeal lifting of the embargo at first. The U.S. is ready, I
think, to invest a very large amount of capital in rebuilding a free
Cuba, and I think investors will be able to cash in very quickly.

WSJ.com: What about your background led you to dedicate so much of
your life and energy to this?

TH: The first part of it is my having devoted a career to the subject
of closed-end funds. We're experts in closed-end funds, and we're
based in South Florida, so this was a natural thing for us to do.

The second part of it is having been in South Florida for 30 years;
the subject of Cuba and Castro is one in which all South Floridians
are immersed. I first came here as a youngster with my parents,
shortly after the Cuban revolution, when I was a college student.
Then I came back a few years later, and all of a sudden there was a
thriving Cuban-American community, the most powerful political and
economic force in the state. It's fascinating. And it's compelling to
view firsthand the end of a communist dictatorship and the return of
a country to freedom.

WSJ.com: Do you wish you were back in Miami right now?

TH: You kind of get emotional when you're in Miami. At the moment, I
kind of welcome seeing it all from a global perspective rather than
being in the middle of it.

But if anything major happens, I will go back. I want to be in Havana
when the embargo is lifted.

Write to Mark Gongloff at mark.gongloff at wsj.com

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