March 18th, 2008
By Charles Wyndham.
On the plane to Johannesburg from Heathrow I read the Telegraph’s obituaries which seemed an appropriate form of life celebration having survived that ghastly airport one more time.
Unfortunately I left the paper on the plane so whilst I can recall the obituary I cannot recall the victim’s name, only his soubriquet; not that it is going to bother him too much, it is much more worrying for me.
Anyway, he was the chap who ran the Phillips and Drew investment fund and in the lead up to and at the peak of the dot com boom refused to invest in these bubble shares and instead stayed in cash and what he termed ‘value shares’.
His success was such that one month after being fired for under performance where his fund was rated last but one, the bubble crashed and his fund leapt to the number one position and his clients made fortunes.
I do not know what perverse wiring in my brain caused me to think along these lines but my immediate thoughts were to compare this fable with the words that I recently read from good old Boney, I have never thought of him as Dr Doom till this moment.
As he ratchets up his price list in some desperate attempt of catch up he is now openly warning about the perils of speculation.
Well well, that must come as a surprise to him and everyone else!
There can be no clearer demonstration of the dangers the industry has willingly subjected itself to in allowing one man and his opinion to be the arbiter for the industry’s prices.
What I termed Boney’s ‘Apologia’ or explanation for his pricing system in ‘As clear as mud’ set out that he aimed to allow a discount of around 25% to be the margin in his prices.
Throughout 2007 in particular this goal was so off beam as to be laughable when swathes of goods were being traded at premiums to his list let alone a 25% discount; this is without going into the rights and wrongs of a figure of 25% or any figure for that matter.
Suddenly for some reason Boney tried to catch up and it is this almost weekly price hike of his which is proving to be one the main drivers for this price frenzy.
This is not a criticism that can be made of his list for smaller goods; there he simply does not change the prices at all….. he must be totally disinterested in them.
Apart from whatever market factors and whatever over exuberance displayed by individual diamantaires, there will be one person who bears the bulk of the responsibility if the market spins out of control.
Whilst concerned about the rate of the recent increases at which the very top end large goods are being traded, I believe that it is too early to claim there is speculation, though there is obviously real danger of it becoming speculative.
A key driver for these price rises has been the fall in the dollar. For the principle buyers of these stones, primarily it would seem from Asia and Russia, the price increase in their currency is nothing compared to the paper dollar increase.
The danger of course is going to come when the dollar starts to strengthen, then the benign circumstances that have allowed such rapid rises will stop abruptly.
On the other hand, another key driver for these prices is the realisation that these top goods are genuinely very rare.
However much in the past one tried to explain to people that these goods were not limitless there was a huge scepticism that De Beers was hoarding truck loads.
Firstly, in my experience De Beers never did hoard large stocks of +10 caraters. Even in downturns the +10’s were used to sweeten deals so the figment that De Beers never reduced its price could still be claimed. Its stock was concentrated in more mundane areas.
Secondly, there has been no new production to come on stream to truly upset the apple cart.
Letseng mine which was reopened to full production in 2004 must produce by far the largest number of large top quality D colour stones of any mine. Even when it doubles its production this year it really is not that many stones, as whilst it produces the most that does not mean that every stone it produces is D and top colour. It is not.
No, as I said earlier I see no reason to shout speculation though I do think that the risk of this is increasing and none more so because of the actions of Rapaport.
‘Quem deus vult perdere prius dementiat’
Those whom the Gods wish to destroy they first make mad.
The question is, is that Boney or those that use him.
December 31st, 2008
December 8th, 2008
December 1st, 2008
November 28th, 2008
November 25th, 2008
November 24th, 2008