Colombia: The Gem of the Ocean

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 |  Includes: ECH, EPU, EWT, GXG
by: Aaron Katsman

O, Columbia! the gem of the ocean,
The home of the brave and the free,
The shrine of each patriot’s devotion,
A world offers homage to thee. – American Patriotic Song

Looking back, I have fond memories of playing baseball in our backyard and hearing my mother, of blessed memory, sing this song as she stood at the kitchen window overlooking the backyard. She would inevitably comment that she thought that it was a crime that “Columbia the Gem of the Ocean’ was not the national anthem of the United States. The 4th of July, U.S. Independence Day, is a day for many to reflect on the principles that made the U.S. the country that it is. For many the answer is simple: Freedom. The ability for individuals to pursue their goals and dreams without government interference.

With the government takeover of both the automobile and healthcare industries, the demonization of the insurance industry and even trying to ‘educate’ individuals on how to sneeze properly (to prevent the spread of swine flu), there is a general feeling among many that the US has veered from the very principles that made it such a great country.

In a powerful, if not scary, article titled “The Denegration of Democracy”, Thomas Sowell talks about how the current U.S. administration has trampled on the Constitution. Speaking about the $20 billion fund that the government forced oil company BP to cough up to pay for damages caused by the recent oil spill, he says, “Just where in the Constitution of the United States does it say that a President has the authority to extract vast sums of money from a private enterprise and distribute it as he sees fit to whomever he deems worthy of compensation? Nowhere.” Sowell continues, “With vastly expanded powers of government available at the discretion of politicians and bureaucrats, private individuals and organizations can be forced into accepting the imposition of powers that were never granted to the government by the Constitution. If you believe that the end justifies the means, then you don’t believe in Constitutional government. And, without Constitutional government, freedom cannot endure. There will always be a “crisis”– which, as the president’s chief of staff has said, cannot be allowed to “go to waste” as an opportunity to expand the government’s power.”

The Other Colombia

For many investors this expansion of government power is very bothersome. Who wants to invest in a country where the government can impose its will on industry without due-process?

Maybe investors should look at countries that are headed in the ‘Freedom’ direction to invest instead of those countries headed in the other direction. One such country is Colombia (NYSEARCA:GXG). Known more for its drug trade, Colombia has been moving more and more to a free economy. They have also joined the U.S. in jointly cracking down on drug smuggling. Not only has Columbia been the best performing stock market this year, posting a double digit gain –as opposed to all major markets that are down for the year — it has blown away all challengers over the last decade posting an 34.5% annualized return.

While some are fearful of a Venezuelan takeover of Latin America and the potential of a Hugo Chavez brand of socialism spreading throughout the region, recent electoral results may prove otherwise. The recent landslide victory of Juan Manuel Santos is proof that free markets and free trade can bring prosperity, even to a nation that was in economic shambles. Commenting on the election, the Investors Business Daily says, “Santos is probably most dangerous for Venezuela’s Hugo Chavez, because Colombia’s rags-to-riches success story is so dramatic -showing that any beat-up nation can drag itself out of misery through markets - and because Venezuela and Colombia are such close neighbors. Word gets out about how well things are going in Colombia and it spreads fast in Venezuela. Santos need never fire a shot at Venezuela to slay Chavez’s revolution because the power of the markets will do it for him.”

As Santos plans to set up a free trade alliance with Peru (NYSEARCA:EPU) and Chile (NYSEARCA:ECH) (both examples of how free markets prosper) and the Pacific Rim, Colombia could well be on the way of becoming the next Taiwan (NYSEARCA:EWT). If so, this could prove to be very profitable for investors.

Disclosure: No positions