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.
The Daily Reckoning Australia