Zimbabwe is an economic hellhole. Inflation is running at 1,000s of percent per year… the economy is collapsing…and the stock market is actually going up faster than any in the world. But Zimbabwe is still worth looking at, because it reminds us of what wealth really is, and that – given the right circumstances – anyone can turn a dream into a nightmare.
“Living the American Nightmare,” says a headline at SFGate.com. The article tells a now-familiar story. People bought houses using no-money-down adjustable rate mortgages. Now, their monthly installments are going up and they can’t pay them.
Foreclosures are said to be running at the highest levels in 30 years. California homeowners are in a “tailspin” says TIME magazine. In San Bernardino, for example, foreclosures rose 987% in the second quarter of this year.
And here’s a sign of the times on the other coast. In Baltimore, we used to see small signs along the highways telling you to refinance…now the signs say, “Avoid Foreclosure”.
Is the subprime problem over…is it “contained”? If so, nobody told the stock market. Hovnanian, the nation’s largest homebuilder, is down 82%…and still going down.
But let us return to what we can learn from Zimbabwe…
Real wealth is neither having more money, nor having higher priced stocks. Real wealth is accumulated capital – buildings, tools, factories…and the skills to know how to use them. Wealth can be money too – but only if the money represents real, useful capital. In Zimbabwe, they’ve got their Zim dollars up the wazoo. But the real capital in the country is fast disappearing – stolen, destroyed, neglected, redistributed, consumed or exported. Under these conditions, increases in stock prices are empty; the stock market in Harare has become a kind of fantasy casino, where people can pretend to get rich by betting against each other.
When the US stock market hit a peak in January of 2000, it looked to us as though we had seen the top. Stocks do not tend to hit another peak once they have just come off a major one. And even if they do, it’s not a peak you want to climb. It’s too treacherous. You make money by buying low and selling high. Start your climbing in the valley, in other words; it’s safer down there…and the only way to go is up. As you go up, it becomes more dangerous. You have farther to fall. Eventually, you will want to get off the trail all together.
Markets and Money