Harare — I AM always in awe at how inept some of our fund managers are in times of crises. Imagine running to a sandcastle for cover in times of a tornado.

Sounds silly, I know, yet the truth is that at a time money has ceased to be a store of value (since the economics definition of money includes the storage of value, Zimbabwe dollars have technically ceased to be money), 'investors' still rush to monetary assets for cover.

I am not sure what lessons my peers have drawn from one financial institution after another coming to the market for more cash in the past 12 months but it certainly does not include the fact that whenever hyperinflation hits a nation, monetary assets are the first to get hit.

For those in the dark it might be of some benefit to know that regardless of our precarious economy, Zimbabwe still has the most unrewarding financial landscape in terms of banks being assets of a defensive nature. This is because in their infinite wisdom the central bank thought it wise to disallow banks to become huge private equity players when the new governor took over the reins in 2003. Anything outside 'traditional' banking-hall-type banking was looked down upon with antipathy and rewarded with reprisal. That meant that most banks, save for ABC through various vehicles like Second Nominees, were left with value eroding treasury bills making up over 70% of shareholders' equity.

Now banks instantly became like a portfolio manager whose major asset is cash. For now banks can still earn a bit of margins on other people's money yet time is now when the growth in margins is growing apace with the erosion of reserves on the balance sheets. And with a minimum capital requirement of $1 billion (900%), 1240% later, balance sheets have clearly shrunk over the past 12 months (12 months back the requirement was $100 million and no one came to the market for recapitalisation).

So whatever reasons esteemed analysts will give one regarding investing in banks so that one will not miss the turnaround action is absolute hogwash. I will bet that on such a turnaround the real value of balance sheets would have crumbled to 10% of current values or less. At that point any serious foreign white knight would call for a recapitalisation. Since the purchasing power of our currency would be history, current shareholders would be diluted to naught, leaving them with a disproportionately insignificant piece of larger pie.

Zimbabwe Dollar ($650/USD-$850/USD) down 31%

AFTER months around the 600 level the local unit tumbled during past the week as investors lost faith in the current economic policies in the wake of record inflation figures. Now that the CSO, after finding fuel and cash of course, has ushered us into an official era just shy of 30% month-on-month inflation, readers should brace themselves. The local unit has since tumbled to $850 per greenback with fears some dealers will be quoting as much as $900 by the end of the week.

With inflation on a cruise, and the money market awash with cash a classical liquidity trap is not far in the horizon. To unwittingly make matters worse, the central bank has rightly opted not to subsidise farmers. That means whoever wants to meaningfully farm in this 160 000 per-tonne-of-fertiliser era has to borrow. For this to happen without banks cringing in fear of default the central bank has been quite accommodative regarding rates.

Yet as history shows, most of our farmers will do like they did in those good old times of free diesel. Instead of directing the loaned resources to productive use they are likely to direct them to consumption. In spite of the moral interpretation of such action it is merely rational. Why would one want to risk the ravages of inflation by investing money in the ground for 90 odd days, wait for an extra eight weeks for crop to dry and then joining a long queue to some unrewarding marketing board, if they can simply park their money in a car and watch the value grow with inflation, and pay back the principal and paltry interest after five months.

All this says is that whenever monetary authorities try to intervene in the economy there are bound to be leakages that rational economic actors tend to exploit.

Many a time we have put forward the sound theory that even if rates are subsidised, there will always be "wholesale merchants" that 'buy' those rates and 'resell' them at their realistic levels (real rates).

When this happens, the resulting effect is a higher price level as a result of lower rates hence lower economic welfare (from the value eroding effect of inflation).