01/16/13 - Investorplace.com - What Happens If Hugo Chavez Croaks?
The above question might sound harsh. But the man is seriously ill with
cancer, and he has made no public appearances in more than a month. Rumors
abound that he is near death ... or might already be dead. As he is reported
to be in Havana, some have even speculated that the Cuban government is
essentially holding him hostage to secure its own future.
Love him or hate him, the authoritarian Venezuelan president has quite a
few mouths to feed across Latin America, and his death could send
shockwaves across the region. Let's take a look at who is most likely to
be affected ... and what it might mean for the financial markets.
At the top of the list is the Castro regime in Cuba. Cuba gets about
two-thirds of its oil from Venezuela, and most is either given to the
island free or via loans that everyone involved knows will never be
repaid. By Wall Street Journal estimates, Venezuela accounts for 40% of
Cuba's overall trade ... and Venezuelan aid and trade is worth about 22% of
Cuba's entire economy.
For all intents and purposes, Chavez is the patron of Cuba, and the Castro
regime continues to exist at his pleasure. And if Chavez dies, his radical
movement will probably die with him - or at the very least it will be
significantly weaker without his cult of personality.
Without Chavez's patronage, Cuba will have to seek a lifeline elsewhere ...
which means it likely would have to open its economy further to foreign
investment. Perhaps the best way to get exposure to a Caribbean boom would
be via the shares of the Herzfeld Caribbean Basin Fund (NASDAQ:CUBA).
The ETF is by no means a pure play on Cuba (remember, we're talking about
a communist country here ...), but it is a nice collection of companies in
the tourism, banking and consumer products companies of the Caribbean and
Latin American regions.
The Castro brothers are not the only radical regime at risk from the
demise of Chavez. Bolivia and Nicaragua both depend on Venezuelan
generosity, and Syria and Iran have benefited from political and
diplomatic support. None of these are really investible themes, however.
It's probably better that way.
One major question mark is the price of crude oil (NYSE:USO). Venezuela
has the largest oil reserves in the world - yes, even larger than
Russia or Saudi Arabia - yet its annual production puts it in 11th place
globally. Venezuelan crude oil production has been in steady decline
since Chavez took power, and for obvious reasons. Professional managers
were replaced with political hatchet men, and no foreign investor in their
right mind would invest in the country, even if Chavez allowed them.
The death of Chavez and the fall of his regime likely would mean massive
foreign investment in the Venezuelan oil industry and could lead to a
surge of new production ... which would be incredibly bearish for the price
Alas, all of this is premature. Chavez still is alive as far as we know,
and his death will not automatically bring free trade, peace and
prosperity to his country. A far more likely outcome will be years of
political infighting and ... in the worst case ... civil war.
In the meantime, all eyes are on Havana.
Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment
Letter, and the chief investment officer of investments firm Sizemore
Capital Management. As of this writing, he did not hold a position in any
of the aforementioned securities. Sign up for a FREE copy of his new
special report: "Top 3 ETFs for Dividend-Hungry Investors."
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