Cuba Libre, Sooner or Later



On Tuesday, the United Nations issued its 24th annual condemnation of the American embargo of Cuba. There was a silver lining. With the recent thawing of relations between Cuba and the United States, expectations are running high for political normalization between the two countries and the promising economic opportunities that should come with it. While much of this hope is warranted, so is caution. There is still a long way to go before investors and businesses can fully enter the markets of the Caribbean’s largest island.

Over the past year, diplomatic ties between the two countries have been restored, and some trade and travel restrictions eased. What happened? Might the oil downturn have played a role? In recent years, Venezuela has supported the Cuban regime by supplying subsidized oil in return for medical services. Cuba leases out 30,000 Cuban healthcare professionals to Venezuela, along with a variety of other service workers. In return, in addition to cash compensation, subsidized Venezuelan oil provides much of the island’s oil supply.

But oil demand has decelerated, in large part due to a global economic slowdown led by China at the same time that fracking has dramatically increased supply. This combination pushed oil prices lower, reducing the compensation Venezuela provided to Cuba. Might the loss of Cuba’s economic safety net have played a role in its desire to liberalize and negotiate with its neighbor to the north? I think so.

As the Cuban market opens, there will be many opportunities, and none is bigger, perhaps, than medical tourism. Cuba has one of the most concentrated supplies of doctors in the world, with 6.7 for every 1000 citizens. On this metric it is behind only Monaco and Qatar, according to the World Health Organization. But in Cuba, labor costs are extremely low: general practitioners make $44 dollars per month. Thousands of Canadians and Europeans already travel to Cuba every year for its affordable healthcare, but this may be a drop in the bucket compared to the opportunity.

Let’s not forget that a nonstop flight between Havana and Miami would take less than 30 minutes. And with almost four million senior citizens in Florida alone, conditions are ripe for a boom in outbound American patients heading to Cuba for medical care.

General tourism from global consumers is also starting to boom. While travel for Americans is still restricted, tourism from the United States rose by over 50% in the first half of this year. Total inbound international tourism to Cuba was up almost 20% last year. Not surprisingly, AirBnB recently entered Cuba and the island became the fastest growing new market launch in the company’s history.


Despite these areas of optimism, Cuba has a long way to go before its economy can boom. The US still imposes strong sanctions on the country, although public opinion has turned sharply against it. Cuban debt trades for pennies on the dollar. The country has significant infrastructure problems, including subpar roads, financial services, and information technology.

But Cuba is focused on addressing these needs. It ranks 135th in Internet penetration in the world, putting it between Syria and Swaziland. Only 25% of Cubans have any access, and those that do can only reach a small, censored subset of the web. But the country plans to get 50% of households connected to the internet over the next 5 years. It will also need to build out its infrastructure to support the swarms of inbound vacationers that might flock to the island. It currently has 62,000 hotel rooms—roughly the same as Phoenix — but already has plans to build 13,600 more by 2016. Cruises to the island have quintupled over the past three years, but its ports need to be upgraded to host the biggest ships. And indeed there are billion dollar plans to upgrade the island’s Port of Mariel and set up a special economic zone there, with much of the funding coming from Brazil.

More problematic concerns persist. The country does not have the solid rule of law needed to make investors confident. It’s not clear how contract disputes will be handled, or for that matter how basic regulations will be applied. Ultimately, it’s impossible to truly know today how far Cuban liberalization will go. While some property laws have been relaxed, most industrial activity in the country is still centrally controlled.

In today’s highly interconnected global economy, Cuba offers a rare opportunity for businesses and investor to enter semi-untouched markets. There’s plenty of hype and excitement, but let’s not lose track of reality. Risks abound, but rewards could be plentiful – for the patient and long-term oriented. Sooner or later, we’ll be toasting a free Cuba with a cuba libre.



My 5 Year Old Thinks Commercials Are Antiquated


Today is October 21, 2015, better known to movie aficionados as Back to the Future Day. It’s the day to which Marty McFly traveled in the Doc’s DeLorean in Back to the Future II.


We’re living in what seems like a radical future from the perspective of Doc and Marty’s 1985. Most days we take it all for granted: the touchscreen supercomputers that fit in our pockets, the algorithms silently crafting our daily media intake, the soon-to-be self-driving cars. But sometimes a minor fluke—like a glitch in the Matrix—jolts us ‘back to the future,’ reminding us how strange—in a positive way—the times we’re living in really are.

A few years back, such a moment caught the attention of millions as a child struggled to understand traditional media. The video that went viral was called "A Magazine Is an iPad That Does Not Work” and showed a baby trying to scroll and pinch a traditional magazine. To this baby raised in the 21st century, a magazine—as its parents noticed—was basically a broken iPad.

I had a similar experience last weekend in Maine. The weather was unseasonably cold and so my family and I opted to stay in on Saturday afternoon. We decided to look for a movie on TV. Imagine my joy when Back to the Future was playing on cable. Perfect. We started watching it. As Marty unintentionally stumbled back into 1955, my kids started to lose patience. But they seemed to be enjoying the movie… Hmm, what was going on?

I soon realized that they thought the time machine car was pretty cool, but they simply were fed up with the unending stream of commercial breaks. “Why do they keep interrupting us?” my son asked. “Can’t we just get On Demand?”

It soon dawned on me that my tech-savvy 5 year old son had never seen TV ads before. He’s not one of those kids who’s been sheltered from screens. He has an iPad, regularly watches movies and TV shows on demand, plays on tablets and phones, and regularly flips through pictures. And he’s seen plenty of video ads on YouTube and elsewhere. But those don’t match the annoyance of the myriad, lengthy commercial breaks that come with watching a movie on cable.

Somehow—in retrospect, a bit unsurprisingly—he’d managed to avoid TV ads up to this point. To him, cable TV was YouTube, but broken.  The TV commercial, this thing that everyone born after World War II grew up with, was rapidly plunging in relevance.

It is no longer as central as it once was. Of course, ads will still suffuse our lives—perhaps more than ever—but in more diverse forms, and more targeted than ever. It’s stunning to me that 42% of US ad spending is still spent on TV advertising. The shift to digital still has a long way to go.

The intrusive form of TV advertising—seemingly insignificant, always annoying, yet oddly central—meant nothing to him.  Noticing this while poignantly watching Back to the Future, it dawned on me that it really is these little moments that make the future the future, not the wacky hover-boards or the flux capacitor in the Doc’s DeLorean.



How Your Insatiable Thirst for Battery Power Will Charge Latin America


Business man holding electricity light bolt in his hands

I recently spoke with a group of Nigerian leaders who were visiting Yale. I expressed to them my long-term comfort with the outlook for oil demand. A booming middle class in the emerging markets, I argued, would consistently demand more fuels. They were engaged throughout my talk and cared about many different topics – but one kept returning.

“Ok, but Vikram what will oil prices be next year?” I answered honestly: “I don’t know.”

Several other questions came up, but then another person asked, “OK, very compelling presentation…thank you…but do you think oil prices will be higher or lower next year than they are today?” Again, I pleaded ignorance.

The process continued…and eventually everyone was laughing about the persistent focus on oil prices.

Oil has long been a source of geopolitical and economic power. It’s driven countries to war; it’s propped up dictatorships. There’s a lot riding on the price of oil and it rightfully garners disproportionate attention. Some observers stress about whether OPEC will try to manipulate oil prices, while others predict its demise. But this focus may be concealing another very important development, one in which you are personally involved.

Have a smartphone or cordless land-line (remember those!?!) phone? Or a tablet? Well, they all depend on batteries. Batteries suffuse our lives on an everyday basis, even if we only notice them when they run low on charge. In fact, the “Low Battery” warning generates enough angst that a rechargeable charger industry has rapidly sprung up and is today thriving. Of course, we may soon need to have rechargeable chargers to recharge the rechargeable chargers once they run low and, heaven help us, we’re 10 minutes away from a traditional outlet… But I digress…my point is very straightforward: we have an insatiable thirst for stored and easily transported power.


The devices that allow us to function would themselves not function without our trusty portable sources of power. Lithium is a crucial ingredient in these batteries and may one day eclipse oil as a source of geopolitical and economic power.

Unsurprisingly, with the proliferation of consumer electronics, global lithium production has been growing at a rapid clip, doubling in the decade leading up to 2012. Some expect the amount of lithium used in batteries could quadruple by 2020. And 2014 was also the first year in which over 30% of annual lithium output was directed toward consumer battery production. The price for a ton of lithium has tripled to $6,500 over the last ten years, even as the price of lithium batteries has fallen every year since 2007 by almost 15% percent.  Were it not for consistent innovation, I suspect lithium prices would have risen higher faster.

Demand for lithium is sure to increase in the coming decades—it’s expected to double over the next ten years—especially with the rise of fully electric vehicles. The poster child of this development is Elon Musk’s Tesla Motors. His multi-billion dollar Nevada “gigafactory” is slated to produce 500,000 vehicles per year by 2020. Goldman Sachs estimated that this one operation alone could demand 17% of the world’s lithium output. And that’s not including all the other firms that are getting in on electric cars, including the Warren Buffet-backed car company Build Your Dreams, which has ambitions on a similar scale to Musk’s Tesla.

Where will all this lithium come from? Unfortunately, the world’s lithium reserves are extremely concentrated, with the vast majority—possibly as much as 70%—in the Andes Mountains of Chile, Bolivia, and Argentina. Other deposits are found in the US, China, and Australia. But most of these other deposits are more expensive to mine than the Andes deposits that lie on the surface.

miles upon miles of flat, crusted salt under stunningly blue skies

From 2010 to 2013, the United States imported 96% of its lithium from either Chile or Argentina. The renewable energy consultant Tam Hunt recently asked whether we could end up seeing a 21st century cartel of the "Lithium Producing and Exporting Countries.” It seems highly likely that the Andes countries (the “Lithium Triangle”) will amass vast economic and political power through the control of a resource critical to the functioning of the modern economy.

Others, though, are less pessimistic, noting that newfound demand is already leading to new discoveries of lithium reserves—like the motherlode discovered in Afghanistan a few years ago—and that lithium is recyclable. However it shakes out, lithium is very likely to be a centrally important global commodity worthy of everyone’s attention.

Forget Your Plans and Focus on Planning


Will the fed raise interest rates? What will oil prices be a year from now? Is there any future left for commodities? Will World War 3 break out in the Middle East? Are we going to see the United States of Europe in the next 10 years? Despite the seemingly endless list of geo-economic and political crosscurrents, many of us are still charged with making business and personal decisions.

Consulting Crystal Ball for Future of Earth

In trying to navigate through a chaotic and uncertain future, many of us resort to some form of strategic planning. What could be more prudent than sitting down with your morning coffee, pulling out a financial model, and making sure the numbers work out for next year? Wanna hire another sales person? Run it through your base case to see if the numbers still work.

Or what about that convertible your husband wants: can you afford it? He’s suggesting it won’t affect the budget because he’s going to stop his bank-busting Sunday afternoon pre-game runs to Whole Paycheck for $9 guacamole, $14 six-packs of beer, $18 artisanal garlic lemon olives, and of course, the $12 organic, GMO-free, gluten-free, free-range, and fair trade tortilla chips, among other stuff.

Really? This all sounds nice, but there’s a catch. We tend to think of planning as a process for making plans. What if I told you that committing to planning is the best choice you could make, and that committing to a plan is just about the worst. Sound contradictory? It’s not.

You see, planning is often treated as a way to calculate, predict, and lock in. We build the spreadsheets, model out the projections, and make long-range hire/fire or build/buy/rent decisions based on these calculations. But, as we know, our assumptions will inevitably be over-simplified, the data shoddy, the predictions off. That’s just reality. So might we be doing a disservice by committing to plans? If we treat plans as sacred, we’ll likely make bad decisions. We’ll be disappointed. And we won’t be better off. The sad reality is that plans are self-imposed tunnel vision.

The antidote to this disease is planning. Confused? Don’t be. The act of planning is our savior. It invites and encourages us to consider various future scenarios and to brainstorm possible actions. We need to emphasize planning over plans. Through planning, we voice diverse opinions, survey the range of possibilities— including the seemingly unlikely extremes—and evaluate scenarios that may seem far-fetched.

Planning multiplies perspectives and possibilities, rather than reducing them. Plans generate a false sense of certainty; planning highlights, acknowledges, and emphasizes uncertainty. People who embrace planning are better thinkers because they consider multiple perspectives. They don’t fool themselves into thinking they’re always right.

Consider the case of Shell Oil. In the mid 1960s, the company implemented a program called Unified Planning Machinery (UPM), a model-driven computer-generated financial system. UPM generated a plan, but it did not promote planning. Around the same time, Shell also introduced a planning operation called Long-Term Studies. It was an almost polar opposite of UPM. This group explored a range of future scenarios and considered the ramifications of various oil prices, for instance. They shunned a supposedly precise numerical forecast and instead considered alternatives, one of which they hoped would ultimately be approximately right.

Shell soon dropped the Unified Planning Machinery—it was useless—but Long-Term Studies proved invaluable. Scenario planning helped Shell weather the turbulent 1970s much better than its peers, who hadn’t taken the time to meditate on such extreme possibilities as an oil price shock. Over the next few years, they were able to successfully maneuver the company through a highly uncertain global economic environment. The result: while other international oil companies struggled to survive, Shell thrived.

Planning is about broadening our mental maps. As the head of Long-Term Studies at Shell in the 1960s put it, "You are trying to manipulate people into being open-minded.”  Hmmm, time to manipulate hubby into thinking about a four-wheel drive minivan that can handle the kids? After all, we are heading into Winter…



Pop Pop Fizz Fizz…


Remember the Alka-Seltzer commercial that had the catchy jingle "plop plop fizz fizz, oh what a relief it is!"?  (If not, click HERE for a reminder!)  As you've likely noted in my past three newsletters, steadily rising markets with increasing valuations and escalating risks are fertile ground for spotting bubbles...but they are also enough to give any thoughtful investor indigestion. For the defensively positioned, even the slightest indication of sobriety is enough to bring some relief.

So, while it brings me no joy to see China slow dramatically, Canadian housing plunge precipitously, or crude oil fall regularly, there is a certain relief that accompanies these developments.  Many contemplative observers have been concerned about these possibilities, and removing these risks allows focus on the incrementally positive outlook from here.  After all, doesn't a China growing at 5% still produce an expanding middle class that will consume more animal protein, travel more frequently and further, and seek better healthcare?

One area that continues to give me heartburn, however, is the ongoing tech boom in Silicon Valley.  It seems the prayers of the famous bumper sticker ("Please God, Just One More Bubble!") have been answered.  Of particular note is rapid growth in the number of "unicorns" and the return of Silicon Valley twenty-somethings onto the Forbes list of the world's wealthiest.  Other concerning signs include massive monument building (oops, I meant the construction of new headquarters!), lavish parties, and the possibly-irrational exuberance of non-traditional investors (i.e. mutual funds) participating in pre-IPO late stage financing rounds.  I recently spoke with New York Times technology reporter Nick Bilton and he quoted me in his Vanity Fair article "Is Silicon Valley in Another Bubble?"  For those seeking an overview, I highly recommend it.

I'll continue to comment on developments I find interesting and noteworthy.  In addition to posting my thoughts every Wednesday on my website, I have also begun posting them to LinkedIn, Facebook, and Twitter.  Listed below are links to my most recent comments.  As always, I'd appreciate feedback!

Tomorrow's Protein...Available Today!

As the global middle class continues to expand, demand for animal protein will keep on growing.  This development will place increasing pressure on food prices and the environment, spurring the development of alternative protein sources.  In this short piece, I review four sources of protein that are likely to play an important role in helping feed the world.   Click HERE to read more.

What We Can Learn From Yogi Berra

Baseball legend Yogi Berra recently passed away at the age of 90.  He was a flexible, nuanced, and innovative thinker, one from whom we can learn a great deal.  In this short comment, I take five of his most famous sayings and extract leadership and life lessons from them.  Click HERE for my note.


Fed Babble Bubble

The overwhelming noise around whether the Fed would raise interest rates was a bunch of babbling to me.  Any move they may make is unlikely to have material impact.  But the implications of a new trend are far more powerful and are worth contemplating a bit. Click HERE for my thoughts.


5 Leadership Lessons from the Queen

Queen Elizabeth recently took the title of longest serving British monarch.  In this short piece, I look at the impressive breadth of her experiences and suggest five possible lessons that we can learn from her tenure.  Click HERE for my piece.


Maybe Majors Matter...

In this short note from the beginning of the academic year, I reflect on the pressures faced by students thinking about selecting a major.  Not surprisingly for those who follow my work, I suggest that mindsets matter more than majors.  The time has come for parental passion for practicality to cede to practicality for student passion.  Click HERE for more.


How the Chinese Slowdown Will Impact You

During August, the bursting of a Chinese equity market bubble was THE news for many media outlets.  In this comment, I suggest that the Chinese markets are a distraction.  What matters is the Chinese economy, and it's rapidly slowing...with implications for commodities, luxury goods, and global equity portfolios.  Ultimately, what happens in China will not stay in China. Click HERE to read my note.


Is Apple Doomed to Disappoint?

Apple has been booming for years. It's now a huge company.  Do all large companies eventually disappoint their customers?  I recount a recent experience at a local Apple store and suggest that the disappointment may not ultimately matter.  Why else would I have an Apple Watch that I don't need?  Click HERE for my comment.

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