Market NewsCommentBunch of Jokers

Bunch of Jokers

By Charles Wyndham.

Maybe it is that now that the evenings are closing in so quickly that I am wallowing in the joys of retrospective predictability.

You never know we might even be surprised by another Black Swan, but I hope not the one I am contemplating.

Black Swan, also the title of the book by Nasim Taleb which I have mumbled on about for sometime, is not only where a totally unexpected event happens, but when a highly expected event does not happen.

I read with interest Daniel Horowitz’s commentary on PolishedPrices laying much of the blame for today’s traumas or the severity of the trauma in the diamond industry at the door of De Beers and its failed policy of Supplier of Choice (SoC), though he is careful not to mention De Beers by name.

I think that I can lay claim to being the first or one of the first, and certainly the most consistent, to criticise Supplier of Choice as being doomed on the grounds that above all it was intellectually flawed.

This was not a view that garnered much support initially and even started to attract hostility as I kept up repeating my misgivings.

You the reader, may recall the rather fun statistical ping pong played by Derek Palmer at the DTC corner and our analyst Richard Platt in the rational corner, where Richard demonstrated time and again that against the DTC’s own criteria, namely growing demand for diamond jewellery for the measuring the success of SoC, it had failed miserably.

During much of the time of SoC sightholders had the opportunity to make fortunes as the premiums for most of the period hovered either near or over the stratospheric.

There are many reasons why SoC was doomed and I am not going to troll over all of them here, or ever.

To me the key point was that it was a deliberate attempt at market dirigisme without even a clear objective as it sought to solve economic and legal issues at the same time.

Basically it was cuckoo.

SoC is I agree with Daniel a significant contributor to our present woes, but I would not lay all the blame at that particular door.

Blame I would suggest rests pretty much always with management, be it diamonds or anything else.

De Beers have got it so terribly wrong on too many occasions and have obstinately refused to change tack when it was quite clear that it was wrong.

The self congratulatory preening when the De Beers accounts benefited from selling down its stockpile cheaply has really come to haunt them.

Like other diamond mining companies benefiting from a surfeit of cash, De Beers rushed off to pour it down the drain. In their particular case one of the biggest black holes was the charge into Canada, more as a political move and in particular to try and put pressure on the Botswana Government than for sound economic reasons on a specific project.

That De Beers made a mistake in buying Snap Lake in the first place is one thing, but to continue to pump money into it in staggering quantities is what I still cannot cope with beyond understanding that it is always difficult to admit to being a complete chump.

We all have and will have to go down that humiliating path of self revelation, but they refused to do so.

There was that huge write off (around a billion if I recall correctly) of the capital costs in Canada presumably to wipe the slate clean.

Instead, the day after one announcement from De Beers that production would be slowed the next day there was an announcement that there would be lay offs at Snap.

To be ‘closing’ a mine just after opening it and when its capital cost has been written off, is ….. is….is … what words can you use to describe it?

De Beers half year figures this year showed a debt of $4 billion, it is difficult to think that it has got any smaller in the interim.

Sales have collapsed and profits fallen even faster, as the profits will be leveraged against the fixed costs of the mines.

Rumours that Nicky Oppenheimer has banned travel for his executives and if it has to happen for it to be economy is telling, be they true or not, just that there is the possibility that this could be the case and that it is not immediately ridiculed is the point.

I read with amusement about the Congressman who asked the three American auto chiefs who had come to beg for money from the government if they had travelled commercial instead of each in his own private jet, of course none had.

The sad thing about the inevitable demise of De Beers / DTC as we know it is that those responsible will get off relatively Scot free, something I wish we could do in England.

The clowns who brought it about will be wallowing in their troughs of comfort, whilst so many excellent people will bear the brunt of the consequences.

It really does rile me.

DTC will be trotting around with its begging bowl asking clients to buy special businesses or whatever euphemism they choose to call it.

I would suggest that anyone who falls for this, like a moth to a flame, at this moment in time will surely regret it.

There must come a time, very soon, where a tremendous business opportunity arises but this will only be an opportunity once the incompetent management has been removed.

Otherwise it will simply be shoring up a failed model installed by a failed management.

As Oliver Cromwell said when dismissing the Rump Parliament in England in 1653, “ you have been sat too long here for any good you have been doing. Depart, I say, and let us have down with you. In the name of God, go!”

I just hope the next Black Swan isn’t this bunch of jokers surviving.

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