December 31st, 2008
By Charles Wyndham.
As the mushroom cloud continues its ascent as we all bear the direct consequences of the atomic bomb that has hit us through the collapse of the financial systems, I am beginning to think about may happen to our world of diamonds.
The first thing that has to be said is that I do not think that anyone knows what is happening as the percussion waves from the explosion continue to push outwards, let alone what may happen when the aftermath of the fall out sets in.
This is even more so when I read today’s Reuters report that the US season was the worst since 1970 and expectations are that it is going to get worse, is about as gloomy as one can get.
However, what strikes me beyond the dismally bleak horizon is that it is going to be such a different world once some normality returns, when ever that may be.
Thatcher, Reagan, Friedman, Putin and even Bush seemed to have marked a decisive change in overall economic policies.
Even dirigiste Europe was not that long ago showing signs of significant changes in attitude if not that much in practice.
There seemed to be a general consensus that growing the cake was more important than interminable discussions as to how the state should distribute what was not theirs.
Suddenly in Britain our Scottish brethren have seized upon the incompetence and stultifying greed of many in the system to return to all those bad habits that we, or certainly I, had hoped had more or less been consigned to the dustbin.
Dirigisme has not only reared its ugly head but is seemingly biting off the head of capitalism, which however an appalling inadequate system in many ways remains preferable to being told what to do all the time.
Not being an economist, not that that profession seems to help in making too many cogent decisions, I do not know all the causes of the explosion from which we are now reaping the consequences. But one key issue has without doubt been the total collapse, inadequacy and politicisation of the regulatory authorities.
Laissez faire has taken on a new meaning of corrupt clubbable politics of mutual back scratching.
Now in the UK Labour is putting up the top levels of taxation, Government is taking an ever higher share of GDP. In America the proposed auto bail out is coming with stringent government controls etc etc.
Since when have governments been able to run car manufacturing companies? They cannot even do what they are meant to do let alone do what is supposedly others’ expertise.
Not only are they stepping into run badly managed companies, they are keeping the old management, being assuaged that for one year the poor CEO will only get paid $1.
Those CEO’s should not be paid a cent and should be out of a job so fast and preferably permanently; just as the morons in the UK who lent 125% on the ‘value’ of a property at 5 times the salary of the borrower should be consigned to solitary confinement to contemplate their greed and stupidity that, in my opinion, amounts to as close as you can get to theft without going into a bank wearing a Balaklava and toting a six shooter.
The consequence is going to be that ‘capitalism’ is going to change.
The outrageous hedonistic days of the 90’s that spilled over into the new millennium have been consigned to history.
I believe that it is going to be a very long time indeed before such excess is deemed the norm.
For our industry I think that it is going to be a very long time indeed before we have a repeat of the self indulgent boom cycle.
The politics of envy is not going to be good for our industry.
When I read the results of the De Beers study that demand is moving from conspicuous to discerning consumption, apart from the timing of such a study; it actually sent a shiver down my spine.
Diamonds above all depend upon the feel good factor. Of course bar those caught in the epicentre of the current explosion, people will still get engaged and diamonds will bar other events, be the preferred expression of the moment; as they will remain for many other emotional passages of life.
But can we count upon the same resurrection of ‘bling’ in even the short term that has driven so much of the growth of demand.
In a curious way this might not be as bad as at first glance it may appear, as if things had continued as they were the shortage in supply of new rough was going to have some significant impacts and not as necessarily as beneficial as all thought.
Some shortage is no bad thing, too big a shortage for too long can kill a product.
Over the next few months once the fall out starts it is going to be interesting to see what changes may come.
Unsurprisingly, one view I hold is that this meltdown is going to change how the rough is sold into the market. The Luddites against change are going to be swept away as the sheer practicalities of bank finance, volatility and competition will strangle transparency into the system….however slowly, but inevitably.
Tendering in whatever form it takes is going to become the norm, the good old days of an exclusive club to sell in a bubble of self congratulatory support is dead, as payment for favours robs the producers of their livelihoods.
The argument that tendering is not suitable for a downturn market is I believe false logic. What tendering will do very quickly is bring to producers attention what is the real value of their production, and force decisions.
Just look at how some of the biggest beneficiaries of this system of mutual self adulation have been the first to go into hiding…. The eclipse of some of the doyens of our world in such a remarkably short time is nothing beyond staggering, and in itself a significant indictment of the current system, be it those who direct it or those that have directly benefited from it.
Things are going to have to move on and the quicker the better as the old order is dying around us.
The end of the Great War saw a new world of no Kaisers, no Czars, female emancipation, communism and the seeds of fascism; what is going to be the impact of the equivalent financial catastrophe we are going through?
One thing that seems inevitable is as governments rush to push more and more money into a decayed system, once this bout of deflation is over there is going to be a most unpleasant spurt of inflation.
Talking about the demise of systems, reminds me of a jovial quote from my old Benedictine headmaster who when asked what the purpose of the school was, replied, “We prepare them for death”.