Sandinistas Retake Nicaragua

“So what do we do?” a friend asked me via email yesterday.

I immediately knew he was talking about the elections in Nicaragua... as we both own property there. (I simply own a beachfront lot. My friend owns much more.)

Unbelievably, the Sandinistas are back... Daniel Ortega was just elected president in Nicaragua this week.

I am stunned.

Ortega and the Sandinistas presided over one of the greatest destructions of wealth in modern times. Income per person in Nicaragua fell by two-thirds under Sandinista rule from 1979 to 1990, according to the International Monetary Fund. During that time, according to yesterday’s Wall Street Journal, “the Sandinista leadership allegedly stole hundreds of millions of dollars in state lands and assets.”

How could the person who presided over such a disaster get elected?

Blame the opposition first... the three opposing candidates, all with similar political leanings, wouldn’t drop out and throw their support behind another candidate. So Ortega ended up with about 40% of the vote, and the other candidates split the rest of the voters. Ridiculous.

The more important question is where to from here? My purest thoughts are probably the ones I e-mailed to my friend who is a knowledgeable investor... I’ll share them with you verbatim now:

1) If I was down there and owned a business in Nicaragua catering to Americans, I’d close it now and come home. Even if Ortega turns out okay, Americans will still avoid him.

2) I think the property market will go “no bid” immediately.

But the question is should an American with real estate SELL NOW and beat the crowd out the door? Or should an American step up and BUY NOW when it’s no bid?

The logical thing for Ortega to do for his country would be to honor property rights. But asking for logic from Latin dictators is a bad trade. I don’t have the nerve to step up and buy now, even if it’s no bid and you could get a ridiculous deal... I just don’t have any edge in that trade.

I don't have much on the line there now (just one oceanfront lot), so I'm going to wait and see how bad he turns out to be in his first few months in office, before I build anything.  I don't plan to sell, as I hate to sell when things are "no bid," but I could change my mind.

You have much more on the line. With your raw land you don’t have a big carrying cost (no homes to maintain). The options seem to be: You can either “hold and hope” for what may be 5 years (or even 10 if he’s re-elected). Or you could put it on the market, knowing that it may be tough to sell. I absolutely hate to hold-and-hope, particularly for 5 or 10 years. 

There is the small chance that he won’t be a nutcase. I think if you were to sell, you ought to do it soon, as everyone else that owns will be hanging their hopes on this small chance of a kinder, gentler Ortega.

It is a tough call. I don’t have much on the line – and I haven’t talked to anyone there yet. For the moment, I’m standing pat. Sorry I don’t have a better answer... but I don’t think anyone knows what Ortega’s plans are.

That is the e-mail I sent to my friend. I tried to reach my friends down there in the real-estate business in Nicaragua, but they’re not answering their phones. I’m sure they’re stunned and trying to figure out what to do as well.

I wish I could tell you “everything will be fine,” or even that it won’t be fine. At least we’d have some sort of answer. But I can’t tell you either... because I don’t know. Nobody does. Markets hate uncertainty, and it looks like we’ll have uncertainty for a while with Ortega in power in Nicaragua.

And while a kindler, gentler Ortega is the hope, his historical track record is to be feared. I will let you know more as I learn more and talk to friends down there. For now, I’m holding and hoping... just where I don’t want to be...

Good investing,

Steve