Money

An “Investment” Even More Ludicrous Than Government Bonds

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“Exactly what about purchasing tough possessions like diamonds?”

I get asked this often so figured I ‘d cover it here.

I wrote the listed below piece some years back and it responds to the concern about whether diamonds need to be dealt with as a shop of value in an investor’s portfolio.

The word monopoly has its roots in the Greek words monos (single) and polein (to sell). It initially appeared in Aristotle’s Politics where Aristotle explains how in Greece in the Sixth century BC the theorist Thales of Miletus cornered the local olive press market:

“Thales, so the story goes, since of his poverty was teased with the uselessness of viewpoint; however from his understanding of astronomy he had actually observed while it was still winter that there was going to be a large crop of olives, so he raised a small sum of cash and paid round deposits for the entire of the olive-presses in Miletus and Chios, which he employed at a low lease as nobody was running him up; and when the season arrived, there was an unexpected need for a number of presses at the exact same time, and by letting them out on exactly what terms he liked he realized a large sum of cash, so proving that it is easy for thinkers to be rich if they pick.”

Historically one of the most intriguing and controversial monopolies is arguably that of the diamond market in current times.Throughout history the

supply of diamonds has actually been very limited. A lot so that it was really hard even for the creme de la creme of society to get hold of these little stones.Things, however, began to alter in the late 19th century when diamonds were found in South Africa and a lot of supply all of a sudden flooded the marketplace. The cost of exactly what had been important just due to its deficiency was bound to topple. To prevent this happening, in 1888, a cartel with all the movers and shakers of the diamond mining world was formed under the name De Beers. And oh, what a cartel it has actually shown to be. When the supply of the diamonds was under their control, they needed to look after the opposite of

the equation- the demand.To do this they joined forces with an advertising firm N. W. Ayer & Son to affect “social mindsets of the public at big”and thus carry American spending toward larger and more costly diamonds rather of”competitive high-ends “, as they put it. To prevent any cost fluctuations triggered by selling the diamonds they had to encourage the masses to hold onto them and not to”trade”. This is where the slogan”diamonds are permanently”was born. With an advanced marketing and PR campaign they turned diamonds into epitomes of everlasting romance and love. In the next few years, sales of diamonds in the United States increased a hundredfold. Not bad? However, it didn’t end there.They then proceeded to broaden to other worldwide markets. In Japan they actually turned a 1,500 years of age Japanese marriage custom upside down as the number

of men providing diamond engagement

rings to their females rapidly increased in a simple 14 years. Let me inform you, altering Japanese cultural norms is no small job, but today Japanese males purchase diamonds for their brides as easily as Americans or Europeans. Whenever a brand-new diamond deposit was found worldwide De Beers entered and bought it to decrease variations in diamond rates. They had been relatively effective at that till the very end of the 20th century. At the turn of the century a few of the diamond producer nations chose to bypass De Beers’circulation channels and options started to hit the market.Determining the validity of a diamond takes a professional, and nowadays even the experts battle to tell an artificial diamond from a natural one. The typical man on the street hasn’t a hope in Hell of understanding the difference.There are 2 alternatives to diamonds I

‘m aware of: moissanite and cubic zirconia, and neither of them have problems, which incidentally is one method of identifying phony from real diamonds. Synthetic diamonds have also been developed in labs for years now and these diamonds are identical from genuine diamonds since they are, in truth, diamonds. They are also produced at an outright fraction of the cost of genuine diamonds. For anybody who does a little research study they’ll find that diamonds are clearly as rare as macaroni cheese and if they’re not uncommon, they’re not important. Certain diamonds, such as graded diamonds, are somewhat uncommon, however diamonds themselves are certainly not uncommon.

Even if we pretended for a minute that yes, diamonds are uncommon, we’re faced with the problem that synthetic diamonds can be produced by the ton for beside nothing.Diamonds aren’t liquid, either. Attempt selling a diamond back to Joey the jeweler and you’ll discover that normally Joey will pay in between 75 % and 80% of the purchase cost if the diamond wasn’t purchased from his store and isn’t verifiable. In fact, numerous jewelry experts won’t buy a diamond back unless you’ve previously bought that same diamond from them and have the documents to show it. Even then, they’ll usually only do a sell, whereby you purchase another higher priced diamond and trade your old diamond in.In my book, diamonds are a horrible financial investment. Not uncommon, not liquid, and not valuable.That’s my viewpoint, which is clearly not shared by the world at large. It’s the understanding of rarity that matters. Not unlike the understanding of security afforded JGBs, US Treasury bonds, and EU bonds, individuals value these assets because they are perceived to

be important. They’re not, however that’s next to the point … until, well … until it is

n’t. How come individuals buy Rolex watches when many of the fake variations today are indistinguishable from the genuine ones and, according to a variety of jewellers, function just as well? Why do individuals buy Coca Cola, paying more than any variety of the cola variations out there which cost less and have the exact same amount of disgusting active ingredients? How is it that diamonds, which are not unusual, and which can be produced for a fraction of the expense, offer for such ludicrous prices?The answer seems to be that the con task pulled off by perhaps THE most successful marketing campaign in business history lives on. 15 years back, De Beers managed about 80%of the marketplace however that figure has actually now fallen below 40 %. I’m simply shocked that their hold on the market has lasted as long as it has. An extraordinary accomplishment. Well done, chaps.A great friend of mine who is a successful real estate representative likes to say that the key to a sale is guaranteeing that the female is pulled over the line. A guy will rarely buy a home his spouse does not like. I believe the same is most likely real of diamonds. Try informing your future husband that you purchased her an artificial diamond engagement ring and,” Oh, honey, aren’t you grateful I saved a few grand?” See how well that goes down.

PS: Always remember to share this short article if you liked it, and if you disliked it, do not forget to send it to everyone you know telling them how bad it is. Have a terrific weekend!”A diamond is permanently.”– N.W. Ayer & Kid Agency

Source

http://www.zerohedge.com/news/2017-04-09/investment-even-more-ludicrous-government-bonds

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