RAPAPORT... As the New Year begins, it is correct and appropriate for the diamond trade to develop a new, optimistic approach and attitude. Many of us are sick and tired of the bad news, the grave warnings and the negativity of the past year. We are searching for new ideas and a new way forward. A new way to bring hope, optimism and positive thinking to the diamond trade.
When you get right down to it, the diamond business is not about the stones. It is about people, you and me. How we feel about diamonds and our business is of paramount importance. If we believe in the power and value of our diamonds, then the diamonds take our positive feelings to a higher level in the mind and imagination of our customers. Diamonds do not just reflect brilliant light; more importantly, they reflect our positive attitude and confidence in their value. If we believe in the scarcity, beauty and true value of diamonds, then so will our customers.
Let there be no confusion about this point. It is the people of the diamond trade who give value to diamonds. We who invest our life’s work and family wealth in diamonds are the true believers and foundations of the diamond industry. Without the trade, diamonds are nothing. With the trade, diamonds are everything. The people of the diamond trade are the keepers and maintainers of the value of diamonds and the diamond dream.
Diamonds Are CashSo what’s the real story? Can or should we believe in diamonds? Should the diamond trade be investing its wealth and future in diamonds? Are diamond values merely an illusion based on some dream built up by De Beers advertising executives? At what price level should the diamond trade have confidence in diamonds? What are diamonds really worth?
In fact, diamonds are worth the cash price that you can sell them for. No more and no less. It should be clear that the value of a rough diamond is not the value of that diamond after it has been cut and polished, set into designer jewelry and sold on credit to a retailer. The value of a rough or polished diamond is the value of that diamond in its current form as sold for cash in the current dealer market. Consider the definition of Fair Market Value by the U.S. Internal Revenue Service (IRS): “Fair market value is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.”
Now some misguided sellers might have you believe that loose polished diamonds have no price because they are not a cash commodity. They speak of romance and illusion as if to imply that diamonds are some magical, mystical product that transcend price. Some might even tell you that, in the current market, no one knows the price of diamonds, or that diamonds have no price since there are few buyers. They might tell you that it is impossible to establish cash markets for diamonds because everyone in the diamond trade is fully addicted to long-term credit and memo. This is nonsense.
What is really going on is that some sellers do not want the cash price of diamonds to be known so that they can overcharge buyers while protecting the overstated value of their diamond inventory to the banks. The denial of cash-commodity diamond values and markets by those who seek to overprice diamonds is a fundamental factor in the destruction of trade confidence in diamonds. Lower diamond prices do not destroy the confidence of buyers as much as the fear of being unfairly overcharged.
Cash diamond markets will not restrain the development of added-value downstream marketing initiatives. On the contrary, cash markets will coexist with and support such initiatives. Firms will continue to sell on credit, provide memo programs, create brands and participate in other downstream projects, basing the prices they charge on the value they add. The debundling of diamond prices will ensure that added-value suppliers get a fair share of the extra profits they generate and keep the mining companies from clawing back downstream diamond profits through the overpricing of rough diamonds. It should be clear that we are not against those who create downstream marketing initiatives; they are the customers of the cash markets.
Clearly, there is nothing wrong with diamonds as a luxury product and anyone who can make more money by presenting them as such in a free market is to be commended. But the essence of the diamond’s real value transcends the concept of luxury. Diamonds symbolize and reflect an instinctive, eternal, subconscious message of emotional and financial security. Attempts by De Beers to raise diamond prices by forcing the presentation of diamonds as yet another luxury product do not do justice to diamonds and are not “up to diamonds.” Diamonds go much deeper than luxury.
Fundamental ValuesThe history of the diamond business is that diamonds were always worth cash. The refugee escaping war, the rich divorcee, the diamond dealer in a booth on 47th Street all knew that diamonds were synonymous with cash. Diamonds always were and always will be an ultimate, transportable store of value that is easily convertible to cash.
I believe in the future of diamonds because I believe in the honest and competitive nature of the people in the diamond trade. Furthermore, I believe in the great power of free market forces to create equal-opportunity honest markets. Accordingly, a primary goal of the Rapaport Group this 2009 will be the establishment of fair, honest, transparent, efficient and competitive cash diamond markets.
It is time for the diamond industry to return to its roots. To recognize the fundamental value of diamonds established well before the creation of De Beers and its marketing campaigns. It’s time for the diamond trade to regain confidence in diamonds as a cash commodity and reestablish firm cash markets where payments are settled weekly. It is time for the diamond trade to regain its pride, independence, self-confidence and respect.
This New Year will bring many challenges and opportunities. Above all, it will require us to reinvent ourselves and our businesses. Let us take a few minutes to remember the world of our fathers and grandfathers. How did they do business? What were their values? How much confidence did they have in themselves and their diamonds? Let us take on the challenges of the future with the strength and confidence of our past. And let us remember the century-old Yiddish advice from the elders of the diamond industry, reminding us to retain fundamental values. “Sheister bleib bi dein lyces” -- “Shoemaker, stay with your laces.”
I take this opportunity to sincerely thank all of our readers and clients for their loyal support throughout the year. On behalf of all of us at Rapaport, I wish you and yours a very happy, healthy, wealthy and prosperous New Year.
Watch Martin Rapaport’s New Year Video
Fair Market ValueFair market value is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.
Source: U.S. Internal Revenue Service
Article from the Rapaport Magazine - January 2009. To subscribe click here.