Never Invest Here for the Long Run
“Nobody cares about Latin America.” — Henry Kissinger
This week, my wife and I are leading a small group of FreedomFest investors on a cruise to Mexico and Central America. This was supposed to a once-in-a-lifetime trip to communist Cuba, but President Trump canceled such trips with his executive order. While we had 86 people signed up who wanted to witness the devastating impact of a nation that has been under a communist dictatorship since 1959 firsthand, alas, we were unable to do so.
The fact is that communist dictators are not just democratic socialists. They are hardcore Marxist-Leninists who don’t respect the public’s right to vote them out of office. The only way to get rid of them in places like Cuba and Venezuela is by military force.
The communists learned how to stay in office indefinitely from the events in Chile in the early 1970s. At that time, Salvador Allende was elected president of Chile but was removed from office via military force by General Pinochet in 1973. Since then, the Reds have learned to control the military no matter what, and that’s exactly what they have done in Cuba and Venezuela. And since the military is controlled by the Castro regime in Cuba and the Chavez/Maduro regime in Venezuela, the people there will continue to suffer.
Who Said This?
“Repression was organized on a large scale; torture, concentration camps, censorship, imprisonment without trial, and summary executions became common practices. Thousands of people ‘disappeared,’ masses of exiles and refugees left their countries running for their lives.”
You might think that the author was talking about Cuba or Venezuela, but she (Isabel Allende) was actually talking about Chile under Pinochet!
It looks like Latin American dictatorships are all alike and always end up suppressing the rights of their citizens. In reality, Pinochet voluntarily gave up his dictatorship in 1990 after establishing a stable and growing economy. The same is not true in either Cuba or Venezuela. The communists never give up unless they are militarily removed from office.
For a variety of reasons, I don’t recommend long-term investing in Mexico, or Latin America in general, however cheap their stock markets are. Even Chile, which has the best economic record of any Latin American country, has underperformed, and its stock market is down.
The Fidelity Latin American Fund, which has the ironic symbol FLATX, is representative of Latin American stocks in general.
Chart Courtesy of Yahoo! Finance
While there are several Latin American exchange-traded funds (ETFs) that have made money over the past 10 years, even the best-managed ones have consistently underperformed the U.S. markets, are more volatile and have higher expense ratios.
Why Latin America Underperforms
On the Mexican cruise, I’m giving an hour-long talk on “The Rio Grande Divide: Why North America Succeeds and Latin America Fails.” Eventually, I hope to write a formal paper on the political, economic and cultural differences between the two Americas.
The short answer is this: North America was primarily settled by colonists who sought religious and political freedom and who learned the principles of self-government. They elected their own assemblies and established self-rule and democratic capitalism.
By contrast, Latin America was settled by either Spanish or Portuguese soldiers and workers who were sent to the New World to exploit mineral resources, especially gold and silver, and grow cash crops (such as tobacco, sugar, coffee and cotton). Rather than engage in democratic self-government, they were granted monopolies and land grants. There were no parliament or elected officials.
When Latin American countries finally got their freedom, Simón Bolívar and other Latin American leaders imitated their Iberian founders and produced dictatorships and authoritarian regimes.
As a result, Latin American countries have struggled with the rule of law, inflation, nationalism, instability and military strongmen (Perón, Castro, Chavez, just to name a few). None are in the top 10 of the Economic Freedom Index (www.freetheworld.com). Chile is the best of the lot.
Investors should also know that no country south of the U.S. border has had an active stock market during the entire 20th century. Active stock exchanges have only recently developed in Chile, Argentina, Brazil, Colombia and Mexico.
For now, they are speculations only. In my newsletter, I remain 100% invested in U.S.-based companies. Of course, almost every American company trades and invests abroad. Thus, we are indirectly invested in a global economy with minimal risk. American exceptionalism is still alive and well.
In fact, if you’re an income investor, you can start collecting what I’m calling “American Dream Checks” as soon as next month. I explain exactly how they work here in my newest report. Click here to keep reading.
Good investing, AEIOU,
Mark Skousen
You Blew It!
Don’t Ignore the Best Clause in the U.S. Constitution
By Mark Skousen
While on the cruise, I’m also reading the fifth volume of Murray Rothbard’s book “Conceived in Liberty,” which discusses the debates over the U.S. Constitution. Deftly edited by Professor Patrick Newman, the book is a fascinating read.
I certainly agree with Rothbard that the Constitution granted a great deal of new powers to the federal government and that the slavery clause was most unfortunate as it eventually required the bloody Civil War to resolve.
Nevertheless, there are a lot of checks and balances and they kept the United States from becoming a big government state until the 1930s! That’s not bad.
Here’s my biggest concern with the book. From what I can tell, Rothbard fails to mention the extremely important libertarian prohibition on the states’ ability to impose tariffs and quotas. In essence, this clause eventually created a gigantic “free-trade zone” in all 50 of the states. This is one reason why America has become a major economic behemoth.
According to historians, the adoption of the Import-Export Clause was heavily debated, even more so than the Commerce Clause. Here is what the Import-Export Clause says:
“No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Control of the Congress.”
– United States Constitution Article I, § 10, Clause 2
Rothbard spends considerable ink on various details of the Constitutional debates, and yet he leaves out this vital clause that made America great. Maybe it’s because it goes against Rothbard’s main thesis that the Constitution was a disaster and is not a radical document like the Declaration of Independence had been.
To read Rothbard’s new volume and the others, go here.
