Diamonds (no, not those diamonds) An Investors Worst Friend ?
Last week, Bloomberg had an article about diamonds. I clicked the link thinking it was the ETF. It turned out to be an article about diamond polishers. The more I read, the more interesting it became, and the more worried I became. The article is here:
You know those itty-bitty diamonds, where you think the labor has got to be worth more than the diamond itself? Well, those things are polished in India. The Bloomberg story is about thousands of these folks being laid off. Then it detailed about Zales and Ben Bridges (owned by the Oracle of Omaha) closing stores. One diamond wholesaler was worried about his stores closing and his entire route disappearing. It then said that De Beers was cutting back on diamond production.
The part that really stuck with me was the diamond trade changes. I saw a PBS program about the diamond trade in NY. All it took was a handshake to sell a $100K flawless diamond in a super-secured building. Now, so many people were not paying up, that this whole system has disappeared.
Consumer spending is like 60 or 70% of the economy, and it supposedly always leads us out of recession. That is why the Michigan consumer sentiment survey is a big deal. Besides: rich people are more or less insulated from economic downturns, so they always supposedly buy luxury goods like high-end cars and jewelry. I wonder if this diamond story is the beginning of a major change in consumer habits. Add to the mix that consumer credit (HELOC, plastic) is being dramatically cut back.