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BREAKING NEWS
June 7, 2007
Want to Make 39,000%? Explore Zimbabwe
In Zimbabwe, about the only thing faster than the country's annual inflation rate is the percentage gain in its benchmark stock-market index in the past year.

The nation's Industrials Index climbed almost 39,000 percent in the past 12 months. The value of the index, composed of 77 companies, has doubled in the past two weeks.

”Share prices have risen at a pace even faster than Zimbabwe's inflation rate has soared, so even as the country crumbles, the Zimbabwean investor is keeping up rather well,” according to Dennis Gartman, economist and editor of the Suffolk, Virginia-based Gartman Letter.

The nation has the highest inflation rate in the world, at 3,714 percent. Zimbabwe's dollar, officially pegged at 250 to its U.S. counterpart, trades at about 45,000 on the black market. In April, the central bank devalued the rate that exporters get for generating overseas revenue by 98 percent to 15,000 Zimbabwe dollars.

”Midyear last year, investors of the country suddenly understood that the only logical investment was the stock market,” Gartman wrote in his newsletter earlier this week. “Debt was out, land might be taken from you by the government, but equity in the nation's viable businesses was the least likely place for the government to expropriate.”

On May 29, Zimbabwe's Trade and Industry Minister Obert Mpofu said the country may force foreign-owned companies to sell 51 percent of their shares to black citizens. Earlier this week, Minister of Mines Amos Midzi told a conference in Namibia that Zimbabwe plans to increase local control of mining resources, though the state won't nationalize the industry.
Bloomberg


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Can a Mania Function at the Point of Gun? This One Can!
Category: NEWS
By: Pete Kendall, June 7, 2007

A mania always progresses down through less sophisticated investment classes.
The Elliott Wave Financial Forecast, April 2007

zimba index
This one speaks for itself. As we said with respect to the Ho Chi Minh boom in March (see Additional References below) and all the Shanghai maids that quit their day jobs to trade stocks in the June issue, “The higher it goes, the more certain we are of its eventual crash.” Stocks in a country that is considering forcing foreign-owned companies to sell half their shares to black citizens are up almost 40,000 times in a year. It’s even more absurd than a run on shares in a country where the concept of private ownership is less than a generation old. A mania is an exotic financial beast, but it’s not outside the pattern of social mood. In fact, they all act in essentially the same way. The wilder and more remote they get, the harder they fall.

Additional References
March 2007, EWFF
The Ho Chi Minh Stock Index is up 174% in just six months. Long-time subscribers will recognize the push into lower quality shares by less sophisticated investors. It is a phenomenon that in 1999 EWT dubbed the “flight from quality:”

Historical accounts of the Tulip Mania show that its last few weeks saw a reversal of the usual flight to quality. A dash from quality in the terminal stage of the advance reflected a “class difference” between the “nobleman, merchants, and shopkeepers...who traded in piece goods” and the rising influence of less experienced investors “trading in pound goods.” In Extraordinary Popular Delusions and The Madness of Crowds, Charles Mackay describes this progression from the aristocrats and money changers at the outset of the mania to “farmers, mechanics, seamen, footmen, maid-servants, even chimney sweeps and old clotheswomen” at the end, when “every one imagined that the passion for tulips would last for ever.” As a result, lower quality “pound goods” (like the Switzers) replaced by-the-bulb “piece goods” prices (like Goudas) as the primary object of speculation.

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