Rapaport Magazine

Happy New Year

By Martin Rapaport
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 Cash

So 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 Values

The 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 Value

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. Source: U.S. Internal Revenue Service

Article from the Rapaport Magazine - January 2009. To subscribe click here.

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Happy New Year?
Jan 3, 2009 2:21PM    By Isaac Mostovicz
Although people who don't know me claim that I am pessimistic, this is not true. However, this time is different. Again, it does not have to be so, but it looks that this will be the case - The diamond industry is going through a serious correction. We will see members of the industry disappear from the horizon, we will see centers of trade lose their importance and I leave the rest for you to imagine.

This article just illustrate two of the reasons for my thinking. First, it speaks about positive attitude and approach we should adopt. This is a new twist of the past approach of the industry. In the last half a year I counted at least four world gathering that talked and looked for ideas to start-kick the industry. Nevertheless, with talking you cannot change. We need actions and it seems that nobody knows or cares to act, so we talk. I spent the last three weeks with colleagues in the US and Belgium and they talk but nobody really act. No one can guarantee that the actions will succeed but if you are really into cheering up, start to act. On my side, I keep offering whoever wants to listen a plan that will eventually turn the industry around, but nobody seems to care. Not that I am hurt, but do you have a better alternative?

This leads to the second point, to what behavioral economists call "economic fallacy". Not even one serious marketing expert, especially those from the Scandinavian School, the leading force behind marketing research will see "fair market value" as a serious claim. Actually, as the pinnacle of luxury, diamonds has NO value and consequently are always overpriced. After all, any price you pay for something useless is excessive. I do agree that within the industry, at a professional level, diamonds do have a price and I expect the rapaport list to continue. But, as Martin says: “Sheister bleib bi dein lyces” -- “Shoemaker, stay with your laces.” You cannot hold the stick at both ends; Either you deal with diamonds as commodities or you deal with them as luxury. These are two opposing mindsets and as I do not think that the industry suffers from schizophrenia, you cannot play at both fronts.

I hate to be wise and to keep telling the industry that we are heading a suicidal route, something that I keep doing in the last fifteen years. I keep saying that, in spite of the obvious difficulties, THERE IS WHAT TO DO. My office is filled with boxes of excellent data and research (most is not mine, though...) that when used properly can help the industry to turn around. One interesting finding is that the influence of the current economic situation is rather minimal. It is all in our hands. START ACTING.

Dr. Isaac Mostovicz
Janus Thinking LTD.

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Agree with some opinions, while others are very biased/lop-sided opinions about the industry
Jan 3, 2009 1:56AM    By Abhishek K
As a trainee in the jewellery industry and one who has received basic training in the rough and polished diamond industry, I find some of Mr. Rapaport's opinions very interesting. It is indeed the need of the hour to revert to cash-based trading. His contentions against the unnecessary credit trading of goods deserve attention. Further, the industry would surely benefit by shifting to cash-based transactions in bringing about some transparency and shifting the focus of the industry to add value beyond what is being currently added.
However, I beg to differ when it comes to the industry players taking undue credit for the survival of this industry. This credit should be reserved for De Beers' ingenius marketing. Taking a product of no inherent value from where it was to its current highly coveted stage cannot be attributed to anybody else. Undoubtedly, the industry players made their contribution but it is an ounce of the role De Beers' marketing has played. Anyway, this is just a layman's opinion and I invite others to correct any misconceptions I might have.
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Jan 2, 2009 1:03PM    By DiamondonNet.com
How about not reducing rapaport prices. Keep it the way it was...
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new year message
Jan 2, 2009 10:36AM    By concerned diamantaire
I am sorry to reiterate my conviction that Mr. Rapaport knows very little about the diamond trade, in particular about the trade in polsished diamonds at the wholesale level. Statements such as diamonds are about people and not the stones are platitudes. The paragraph about " it is time the diamond industry to do this or that "is simply empty bla bla.
The truth is in my view is that there has been and still is a huge drop WORLWIDE in demand for polished due to the world financial crisis and the drop in prices of inflated larger stones prices is a consequence thereof. It will take time for the US economy and then the European and Far eastern economies to improve gradually and we will then see a gradual pickup in demand at the wholesale level. Prices will have to be adjusted to the demand as it improves. So let us discuss the whole matter again somewhre mid 2010.
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Interesting Comments from Mr. Rapaport but
Jan 1, 2009 7:57PM    By Jacob A
the diamond and jewelry business as we know it is collapsing. It will take some strong leadership from WITHIN THE DIAMOND COMMUNITY to cut through the negativity and give some direction to the thousands of us who have been affected by this current downturn. WE NEED New ideas from brilliant minds to improve consumer confidence in diamonds and improve the shopping experience.
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+ reducing the list is not a solution
Jan 1, 2009 1:34PM    By Shlomo M
buyers will wait for lower prices , people are trying to hold on the prices
don't reduce the list and make any statement regarding the list, or something to restore lost confidence
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I agree with your satatements and your I believe, but
Jan 1, 2009 7:50AM    By Shlomo M
the diamond industry players always believed in their
diamonds, and that what kept diamonds steady,

we face with a situation that the industry starting to doubt
itself , we need something to grasp on , something to restore confidence
to keep believing , please set a bottom to this
we cant hold on to much with no support on any true fundamentals to grasp on
please give us a BENCHMARK for the future and not for today
because today the spread between buying and selling is enormous

I count on you to find our engine
I think you need to invest more at your site , video conferences live chats , I don't want to do it myself but I will if no one else will

please boost your site it will help you and everyone in the diamond industry
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