One of the benefits of America finally seeing what Zimbabwe went through as it entered hyperinflation, ignoring for a second that the Zimbabwe stock market was the best performing market, putting Bernanke's liquidity pump to shame, is that very soon everyone will be naked, once companies finally realize they have no choice but to pass through surging input costs. And while some may be ecstatic by the S&P's modest rise YTD, it is nothing compared to what virtually every single agricultural product has done in the first month of 2011. To wit: Corn spot up 7.76%, wheat up 5.63%, Rice up 10.08%, Hogs up 10.16%, Sugar up 5.64%, Orange Juice up 3.33%, and cotton.... up 17.08%. That's in one month!
The chart below shows various commodities performance YTD. This is just the beginning. We are curious what happens when rice goes up 100% in 2011... That is only about 30 limit up sessions.
As a reminder, here is how the Zimbabwe stock market performed in 2008. We are heading right there.
From Businessweekly, October 22, 2008
While markets across the world have been crashing, the Zimbabwe Stock Exchange has being seeing record gains as citizens turn to equities to protect their money from the country's hyperinflation.
benchmark Industrial Index soared 257 percent on Tuesday up from a
previous one day record of 241 percent on Monday with some companies
seeing share prices increase by up to 3,500 percent.
But before Wall Street traders start packing their bags and heading south, they should bear in mind that these figures are just another representation of Zimbabwe's collapsing economy and are almost meaningless in real terms.
Zimbabwe, once a regional breadbasket, is staggering amid the world's worst inflation, a looming humanitarian emergency and worsening shortages of food, gasoline and most basic goods. Inflation is at 231 million percent, but some experts put it more at about 20 trillion percent.
"Why leave money in the bank?" asked Emmanuel Munyukwi, chief executive of the Zimbabwe Stock Exchange at a seminar on the doing business in Zimbabwe on Tuesday.
"People are forced to come on the stock market. They believe that after hard currency, the stock market is the only viable option where you can get a bit of a return," he said.
Zimbabwe's stock exchange, established in 1896, is one of Africa's oldest and the fourth largest. A securities commission has been established and it is hoping to follow in the footsteps of other countries like its neighbor South Africa and list as a company.
There are 19 stockbroking firms in Zimbabwe and 90 percent of investors come from institutions, asset managers or pension funds. About 8 percent of investors are individuals and only 2 percent are foreigners. This is in comparison to about a decade ago when foreigners made up about 30 percent of investors.
Munyukwi expressed his dismay at the "gross economic mismanagement" by the Zimbabwean government which has led to the collapse of the economy, however, the stock exchange was managing to survive despite the harsh environment.