Long-Term Trends—Maria, Fidel and Hugo
By
Timothy Lutts, Chief Investment Strategist and Editor of
Cabot Stock of the Month ReportFrom Cabot Wealth Advisory 4/14/08
Sign up for free Cabot Wealth Advisory e-newsletterOn the wall of my cubicle is a button, one of 82 that I've collected over the years from the Contrary Opinion Forum in Vermont. It reads, "Life is Understood Backwards--Lived Forwards," meaning, at least to me, that while hindsight is 20/20, the future remains indistinct, precisely because it does not exist yet; it only becomes real as we live it. And every action we (and other people) take creates that future, with long-term implications that are frequently unimagined.
For example, back in June 1966, when my grandmother had been widowed and living alone for nearly 10 years, her eldest son (my uncle) bought her a baby parrot to keep her company. It was a double yellow-headed Amazon. The price, including cage, was $150, a substantial sum back then.
Grandma named the bird Maria, and fed her regularly. Soon enough, Maria grew to full size, and became a great talker, mimicking the phrases she heard every day. As the years passed she became a member of the family, welcoming grandkids, friends, repairmen and more. She enjoyed nuts in particular, but to watch her get the marrow from the remnants of a leg of cooked chicken was a real eye-opener.
In 1986, Grandma passed away, at the ripe old age of 96...and Maria, in her prime at 20, was inherited by my parents. So for two solid decades...and more...my parents cared for that bird. My mother in particular became her guardian. Maria would perch on her shoulder, and let my mother scratch her head. Maria enjoyed excursions outdoors in the summer, and in the winter she was kept warm in the kitchen. They were a great pair. But Maria stopped learning new phrases long ago, in the same way many people stop learning as they get older. And a few weeks ago, she lost her appetite and started looking ragged. The vet diagnosed liver trouble and prescribed some pills. But Maria, at age 41, eventually succumbed.
So on the morning of her passing, my mother announced there would be a funeral that afternoon. At 4 p.m., 20 of us gathered in a big circle to bury Maria in a shoebox in the yard. We reminisced about Maria's youth, and shared stories about her long life. The best was this. Sometimes, when the phone would ring, Maria would call out, "I've got it!"
Now, 41 years ago, when my uncle bought that bird, he had no idea what the future would bring. Nevertheless, a person who actually stopped to think about the long-term might have concluded that things would work out pretty much as they did.
Similarly, when Fidel Castro took control of Cuba in 1959, no one knew that he would hold sway for 49 years. On the other hand, there was no reason to believe he wouldn't. In the absence of a greater force—particularly after the failed Bay of Pigs invasion in 1961—it became evident that Castro would maintain control. The result, of course, was that the Cuban economy was held hostage to the ideals of a socialist dictator. And economically, the result was a disaster.
Today, with Fidel ill and his brother Raul in charge, we can already see changes occurring. In less than two months, in fact, Raul has lifted bans on the sales of computers, DVD players and cell phones. He has launched an overhaul of the agricultural sector, so that state and private farmers, after meeting state quotas, can legally earn money for themselves. And he has removed wage limits, so that the most productive workers will ultimately be the highest earners.
If this trend continues--and I see no reason why it won't--we can expect great progress for Cuba in the years and decades ahead. In fact, I'd say that for patient investors who can handle the risk, investment in Cuba is now attractive.
Contrarily, I see big trouble ahead for Venezuela, where President Hugo Chavez continues down the wrong path. The inflation rate in Venezuela was more than 20% last year. Basic foods like milk, beans, chicken and cooking oil are in short supply. So Chavez, blaming the private sector, is nationalizing everything he can grab, from steel mills to sugar plantations. And the state can afford it, thanks to windfall profits from oil!
We Americans love Venezuelan oil; in fact, the country was our fourth-largest source of oil in 2007. As a result, we were Venezuela's largest source of foreign trading revenue.
But if Chavez thinks his government can produce oil, steel and sugar more efficiently than private companies, he's got a lot to learn. Of course, he won't learn; he'll stick to his principles just like Castro stuck to his. And when the oil begins to run out—if not before—times will get tough.
Interestingly, Chavez has even tinkered with time, an indication, perhaps of how power-hungry he is. Last August, he ordered all of the country's clocks turned back half an hour, so the poor people of Venezuela would enjoy more natural sunlight and thus be more productive. As a result, Venezuela is out of step, time-wise, with every other country on earth!
The preceding three examples have all been about long-term trends, which are generally lived forward and understood backward. As we live them, we notice mostly the messy little details, often neglecting to see the forest for the trees. Later, hindsight brings great clarity. But I'm convinced that with a little thought, we can see these trends as we live them, and thus put ourselves on the road to benefit from today's long-term trends.
So my observation today is that there's growing demand for a cleaner planet. To embrace this idea, you've first got to believe that the world, in general, is in the process of cleaning itself up. The U.S. and Europe are certainly on track with this, while lesser-developed countries, particularly China, have emphasized productivity at the expense of cleanliness; I've been to China and I know what the smog is like!
But I also know that China, India and other fast-growing countries will eventually get on the bandwagon. There will be laws passed; it always helps to have lawmakers on your side. And the leaders in the industry will do very well indeed.
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