Zimbabwe’s Dr Gideon Gono: To Ensure My People Survive, I Had To Find Myself Printing Money.

To all of you who are Dr Gideon Gono fans out there, here are some of his notable commentaries based on a Newsweek interview:

Dr. Gono: I've been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren't in the textbooks. Then the IMF asked the U.S. to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.

My comment: Political survival of the Mugabe regime drives Dr. Gono’s policies. Moreover, as Dr. Gono implies, you don’t need the borrowing and lending gobbledygook to debase a currency. 

And this is a lesson that applies even to developed economies faced with the present crisis. While they speak of doing these for the 'good of the people' or restore economic growth, the crux of the matter is that they are wantonly debasing their currencies to reduce real debt levels at the expense of the general public. Unfortunately mainstream economists, most especially the popular genre, don't seem to get it. Policies based on political survival don't match with the interests of the public. 

Dr. Gono: The stockbrokers were creating a money supply that wasn't there. I printed Z$1.5 quadrillion, but the exchange was operating with Z$100 sextillion. So I said, "Who is doing my job?" Unless there is more discipline and honor, the exchange will stay closed. I can't be bothered. I don't know when it'll open. It's a free market, a business which must be allowed to succeed or fail.

My comment: Dr. Gono hates competition and that’s why Zimbabwe stock exchange was closed. He hates it when people shun their currency to look for a substitute 'store of value'. 

Another probable reason could be due to the industry's desire to conduct transactions in foreign currency which obviously will compete and undermine his authority. Where Dr. Gono's power to wield control of his constituents emanates through its currency, a society's shift to an alternative medium of exchange effectively attenuates the vitality of the tyranical Mugabe-Gono regime.

Dr. Gono: It's a mystery to many how I have survived. I am modestly credited with the survival strategy of my country. The issue is if you want to break Zimbabwe and want it to fall, just deal with one man. You deal with Gideon Gono.

My comment: Another example of Fatal Conceit.

Dr. Gono: It's impossible to be directing the course of an entire economy and divorce yourself from politics. Politics are important because the turnaround of the economy hinges on political stability, but I can't tell when that will happen.

My comment: This is an example of an oxymoronic or “seemingly self-contradictory effect” statement. Political stability can't be attained because he and Mr. Mugabe are the cause of the miseries of Zimbabwe.

Black Swan Problem: Not All Markets Are Down!

``No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion," wrote philosopher David Hume in his Treatise on Human Nature, which is a rephrase of the black swan problem posed by John Stuart Mill [Nassim Nicolas Taleb: Fooled By Randomness p.117]

When we hear experts generalize that global markets are in bearish territory as means to give emphasis to their deflationary theme, we understand this as a Black Swan Dilemma.

While it is true that MOST markets are in the red or even in bear market territory (defined as in 20% decline), it isn't true that all markets are suffering losses or even in bear markets.

This great chart from Bespoke Invest...

Quoting Bespoke Invest, ``As shown, Iceland is down the most at -89.66%, followed by Ukraine (-76%), Bulgaria (-74%), Romania (-66%), Russia (-65%), and China (-65%). Brazil is down 40% year to date and India is down 48%. Clearly, 2008 can't end quick enough for the BRIC countries. Just 3 of the 84 countries are up for the year. Ecuador is up 5.8%, Tunisia is up 17%, and Ghana is up 61%. And with a decline of 36% year to date, the US is the 33rd best performing country out of the 84 analyzed."

To add, some countries as Bostwana, Venezuela, Costa Rica, Lebanon and Morocco are down year to date but LESS than 10%-which doesn't technically bring them into bear markets.

We understand Bespoke's chart as computed based on local currency figures.

courtesy of isx-iq.com

And we would like to add Iraq's booming stock exchange, which according to Washington Post (Oct 27, 2008), is up 50% over the year.

Of course no bourse can beat Zimbabwe's turbocharged performance, from All Africa.com (all highlights mine),

``The feat continued into 2008 with industrials posting a year-to-date growth of 960 quadrillion percent, which is 4,15 billion times as much as July's annual inflation of 231 million percent.

``The resource index is up 444 quadrillion percent since January. And so, from the look of things, ZSE investors may have indeed managed to hedge their assets against the effects of high inflation but some have been at a loss in US dollar terms."

As a reminder, Zimbabwe's market has been up on local currency terms but is significantly down in US dollar terms. The seemingly fantastic rise reflects the impact of hyperinflation to its asset prices, as Zimbabweans seek shelter in the stock market from a collapsing currency.

As a final note, the Bespoke chart also shows of the massive adjustments in PE ratio on a year to date basis.