The Herzfeld Caribbean Basin Fund (CUBA: NASDAQ), as the name suggests, invests directly and indirectly in the countries in the Caribbean Basin. Among these investment destinations is Cuba. This close-end fund is up 78% since inception.

“Bear in mind, this was accomplished without the benefit of the U.S. embargo against Cuba being lifted, which we believe will be the key to significant growth in the region in which we invest,” says the fund’s chairman, Thomas Herzfeld.

In mid-2006, the fund was 97% invested in companies that will do well even if the U.S. does not lift the trade embargo. But there are a number of speculative investments you can make, in case the U.S. resumes trade with Cuba. Herzfeld himself is hoping for a post-Fidel Castro boom that will bring about tremendous growth in the region.

The last time a communist regime fell, investors saw 15-fold returns. I’m talking about the Soviet Union. After its collapse, the Russian stock index, RTS (Russian Trading System) climbed nearly 1,481% from 99 points in 1995 to 1,566 today.

The same thing is about to happen again in Cuba. Just look at the August spike in the Caribbean Basin Fund after news of Castro’s illness:

In fact, Herzfeld has already registered another fund — The Cuba Fund, Inc. — with the SEC. The fund will most likely begin operations once the embargo lifts. There is, of course, no telling when exactly Cuba will embark on a post-Castro boom because the end of communist Cuba quite literally means the end of Fidel Castro.

Normalized relations between Cuba and the rest of the world would mean tremendous profits for investors. Let me tell you why:

• Cuba is drilling for oil
• It is one of the world’s largest nickel producers
• Cuba has tremendous tourist potential
• 2 million Cubans live in America

Oil-thirsty China is helping Cuba drill for oil and gas off the coast of Florida. India’s Oil and Natural Gas Corporation (ONGC) is also getting ready for deep sea oil exploration in Cuba’s north coast. Canadian oil and gas explorer Sherritt International (TSE:S) is already producing oil from Cuba. Norwegian explorer Norsk Hydro (NHY:NYSE) also has a 30% stake in Cuba’s exploration project:

Source: Answers.com

While it seems like the whole world is drilling for oil in Cuba, the U.S. can’t, thanks to the trade embargo. Perhaps that is reason enough for the US to consider lifting the embargo? After all, an estimated 4.6 billion barrels of oil lie off the coast of Cuba — just 50 miles from Florida.

Cuba has another important resource the world needs — nickel. In fact, China signed an agreement two years ago to enter into a $500 million nickel contract with Cuba. Fifty percent of China’s nickel (used for manufacturing and to make stainless steel) comes from Cuba.

According to a MarketWatch.com article, even the cigar business will thrive in post-Castro Cuba. “One tobacco company [Robbert] van Batenburg [head of research at Louis Capital Markets, a New York-based brokerage firm] likes in a post-Castro climate is Altadis S.A. (ALTDF), a Spanish company that dominates the global cigar market. Altadis owns 50% of Habanos SA, a maker of prestige Cuban cigar brands, and the U.S. is the largest market for cigars, accounting for 50% of worldwide sales.”

And if American tourists could travel to Cuba, I bet Caribbean cruise ships like Royal Caribbean (RCL:NYSE) will be calling on Havana! Cuba’s beaches are world class and Havana’s old town is a UNESCO heritage site. There will be an obvious hotel and tourism industry boom in post-Castro Cuba. And foreign investments, along with expatriate retirees, will drive Cuban real estate prices up.

Let’s not forget Cuba’s 2 million exiles living in the U.S., mainly in Florida. After Castro, they will want to return home. They will want to travel, visit relatives, buy real estate and make other investments.

Right now, for every 1,000 people in Cuba, there are only 3.2 cars, 6.9 phones and 1.1 internet portals. Put it another way, that means there is one car per 312 people and one telephone per 145 people!

So when Cuba rebuilds, an investor’s profit potential is tremendous.

Regards,

Sala Kannan
October 6, 2006

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