Zimbabwe...what an exciting place!
The Zimbabwe inflation rate is now tops 4,500% per year. Naturally, stuff would be flying off the shelves as people rushed to get rid of it...if there were stuff on the shelves.
But that’s the trouble with inflation. At first, it fools people into thinking that there is more purchasing power. Factories churn out more goods. Businesses hire bodies. Investors make capital investments. And production plumps up.
Then, people catch on. There’s no new demand, after all, just more currency bills. Businesses cut back, production falls. Prices skyrocket.
Democratically elected president of the hellhole, Robert Mugabe has been looting the place. Ordinary citizens could change their Zimbabwe dollars for the U.S. brand earlier this year at $1US to $2,900 Zim. Now, the rate is one U.S. dollar per $100,000 Zimbabwean dollars. But if you are one of Mugabe’s cronies, you have the right to trade your Zim bucks at the official rate. It’s not hard to see what happens. The elite buy U.S. dollars on the black market and sell them to the government at the official rate. They never had it so good.
Then, since there is nothing much to buy, they gamble on the stock market. Zimbabwean stocks are the fastest rising in the world - even in real, inflation-adjusted terms. In the last 22 weeks, according to the Financial Times, they’re up 200%.
Of course, it won’t last forever. No bubble ever does - an especially those that are as perverted as the one in Harare. Our advice to Zimbabwe’s investors - take your money and run.
Bill Bonner
The Daily Reckoning Australia
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The Daily Reckoning offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, The Daily Reckoning delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, The Daily Reckoning is published in 7 countries with a worldwide readership of almost 1 million people.
Comment by John on 15 June 2007:
I think you have that the wrong way round. Mugabe's cronies don't "buy U.S. dollars on the black market and sell them to the government at the official rate." That would make no sense (buy high, sell low). They BUY their US dollars at the official rate (Z$250 per US dollar) and then sell them on the black market where they can get Z$100,000 for each US dollar. Z$250 becomes Z$100,000. What a deal! Where do I sign up?
This whole hyper-inflation/ collapsing economy situation may seem mildly fascinating to those who don't have to live with it every day. Unfortunately the reality is so much more tragic. It's hard to see how things will ever begin to get better. As bad as things seem now they're going to get a whole lot worse over the next 6 months or so. Not a pretty sight at all. Very sad. Not the country I left 30 years ago. Or even 15 years ago, for that matter.
Comment by CG on 20 June 2007:
Hi Bill,
Your flippant and light hearted approach is usually refreshing, on Zimbabwe you have missed the mark and sadly not used your skills to convey the essence of the sick situation to your readers.
Remarks like Mugabe being democratically elected are wrong and sadly you have missed a valuable opportunity to have a go at his so called "democratic election" which is, at the end of the day, the nub of the problem. There is after all a black government in waiting which would have majority support if allowed a fraction of the room to move it would have as a matter of right in any other part of the world.
Buying black market dollars and selling them to the govt is also 180 degrees out - if you think about it?
While no one in their right mind would put real money into the country, ironically, in real value terms, there are going to be some real bargains in Zimbabwe one day. This, and the impending collapse (and day of reckoning) driven by the hyper inflation, may be driving the stock exchange by internal investors. It would be interesting to know who is buying what.
There is not much left to loot but forcing international investors to sell ownership of local companies to indigenous Zimbabweans is still available even in the 'death throws'.
Keep up the good work but crucify the bastards at every opportunity.
regards
CG