In the biggest drug arrest in decades, Shorty Guzman was finally captured by Mexican police. His capture brings to close one of the longest and most extensive manhunts in the history of the drug war. Yet while drug enforcement agencies across the Americas are hailing the arrest, the actual impact on the ground will likely be minimal.
Guzman is the leader of the Sinaloa cartel, the wealthiest and most powerful drug cartel in the world. His net worth is believed to be in excess of one billion dollars, and his cartel’s influence spreads across the globe. The Sinaloa cartel’s drugs can now be found in Europe, Asia, and across the Americas.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
More violence likely amid power struggles
Wishful thinkers might believe that Guzman’s arrest will usher in a period of peace and stability. Unfortunately, the opposite is more likely. With Guzman out of the way, a power vacuum is all but certain, and given the billions of dollars at stake, rival cartels will be looking to expand their influence while the remaining leaders within the Sinaloa cartel will be fighting to take the reigns.
Mexico’s murder rates have actually been declining in recent years, but that is may have been due to the arrest of Zetas cartel boss Miguel Morales. Over the last few years, rival cartels have suffered severe blows, leaving the Sinaloa cartel with few challengers.
With the arrest of Guzman and other top Sinaloa leaders, however, the next generation of cartel leaders will now be fighting to control the drug lines that run from South America to North America and across the world.
Mid level bosses will be looking to rise the ranks, but there is only room for a few leaders at the top. That means ambitious captains will find themselves at odds with other ambitious captains, which is a perfect recipe for war. These captains will likely be fighting to maintain control of Sonaloa’s still-considerable trafficking lanes and to expand their power within the organization.
Even if Sonaloa itself has been weakened beyond the point of repair, rival cartels will look to expand their own empires in the power vacuum. Drug production in South America remains high, so producers will be looking to sell their drugs, whether to Sonaloa or another cartel. Sonaloa was fierce in protecting its supply and shipping lines, but with its top leadership in
Demand for drugs means supply will continue
People use drugs. People want drugs. People will pay good money for drugs. And so long as demand for drugs remain high, drug cartels will continue to meet the demand. Simple laws of economics. While drug use in the United States and other developing countries has been slowly declining, demand remains high.
At the same time, demand for drugs in Asia has been slowly growing. Even in the face of stiff penalties, often long jail sentences for drug users and death sentences for drug dealers and traffickers, drug use has continued to expand.
So while drug agencies may be ramping up their efforts against cartels, high demand dictates that supply will continue to flow.
What’s next for Guzman?
Currently, the United States is fighting for extradition of Guzman. He is accused of numerous crimes in the United States, and federal prosecutors would love to bring him to court. The Mexican government, however, will most likely not grant the extradition.
Guzman is also charged with numerous crimes in Mexico and the wars between rival cartels in the country have cost thousands of lives. Guzman’s arrest also marks one of the most significant victories for a beleaguered government, so almost certainly he will be tried within the country. After his trial, Guzman might potentially be extradited to the United States.
Of course, Guzman has already escaped from prison before, and he just might be able to spring himself from custody once again.