What Diamond Producers Are Saying About The Market
The Dynamic Wealth Report
July 29, 2009
Holding $50,000 In My Hands...
by Brian T Mikes, Editor
I found myself in a little strip mall in the Phoenix area. I sat down
right in front of the glass countertop. Across the counter was Scott. I
noticed the big gold rings on his fingers. Stretching out his hand, he
gave me a neatly folded piece of paper.
My stomach jumped right into my throat. I carefully unfolded the white,
crinkly paper.
Before long, five little crystals were sparkling in my hand… each stone
is worth more than $10,000. I’m holding more than $50,000 worth of
diamonds in my hand.
I’d never held something so valuable in my hands before. I’m nervous
just looking at the diamonds. After all, I’m buying an engagement ring.
Scott’s our family jeweler. Need to resize a ring… go to Scott. Need an
anniversary gift… go to Scott. Dad buys all of mom’s jewelry from Scott. And, all of my brothers' engagement and wedding rings were made by
Scott.
He must have spent more than two hours going through the details. He
showed me example after example of diamonds… loose stones only. He walked
me through diamond grading, color, cut, and clarity. He took his time
explaining the differences between the stones.
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He told me what mattered and, most importantly, what didn’t.
That was more than a decade ago. I bought the biggest diamond I could
and designed a special ring. As the famous saying goes, “A diamond is
forever”… unfortunately the marriage wasn’t (but that’s another story).
I learned something valuable from that life experience. The value of a
diamond is in the eye of the beholder.
De Beers is the world’s top diamond producer. Four out of every ten
diamonds come from De Beers. They’re an industry giant. That’s why a
recent announcement was so shocking. But more on that in a moment.
De Beers owns 14 mines in Canada, South Africa, Botswana and Namibia. The mines produce a huge number of uncut and unpolished diamonds every
year. These diamonds are then sold to “sightholders” (as De Beers calls
them) who cut and polish them.
The polished diamonds are sold to retail stores around the world.
Just a few days ago, De Beers announced results for the first half of the
year. Sales of diamonds fell by a staggering 57%. And earnings fell by
99%. That hurts!
It’s amazing what a global recession will do to spending on
non-essential items.
Almost any reader of the financial press knows how difficult the economy
is. Clearly, spending on luxury items went overboard long before this
financial ship set sail.
However, that wasn’t the most shocking part of the story.
It was comments from the De Beers management that really caught my eye.
“We’re on the way back.”
“The story is looking considerably better than it was three or four
months ago.”
Those are quotes from executive director Stephen Lussier.
This is a huge turnaround from the first quarter when the company cut
production at the mines. Output for 2009 is expected to be half of 2008.
So, what does all this mean?
Basically, we’re seeing a revival in the high-end consumer portion of the
market. I take this to be a very early sign the rich are growing tired
of belt tightening… and they’re starting to spend.
Catching a trend like this early could result in some huge gains.
I see jumping diamond sales as a big indicator high end spending is
resuming. Who will benefit from this revival of spending habits? The
high end retail stores of course. Take a look at companies like
Tiffany
(TIF), Saks (SKS), Williams Sonoma (WSM),
Sotheby’s (BID), and Luxottica
Group (LUX).
All of them should see improving sales numbers, and that news should
push their stock price even higher.
• Natural Gas (Over $3.50 per mmBTU)
Natural gas touched a low of $3.20 just a few weeks ago. The commodity
has been moving lower, while most of the market moves higher. Natural
gas
stockpiles are near record levels. We're just now seeing drilling rigs in
production fall off. Might this be the start of the rally?
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