Diamonds: Another Sign of the TopsteemCreated with Sketch.

in economics •  2 months ago

I was on a business owner mastermind call a week or so ago and we got on the topic of what to do when the next crash comes. I made the point that one of the things that happens in a contraction is that the middle class pulls back on luxury goods. How much depends on how severe the crash is.

So instead of getting on a plane and booking a hotel for a nice vacation, it becomes travel by car and visit the national parks. Instead of buying filet mignon, the middle class buyer downgrades to brisket.

This sort of step-down in buying behavior hurts some businesses and benefits others. My friends who run an outdoor sporting equipment company say they actually see an increase in sales as less expensive, recreational activities take the place of those sporting events and vacations.

But diamonds are definitely in the luxury-only category. People buy diamonds for jewelry. It's an "unnecessary" expense. Sure, if you're getting married you might spring for one anyways, but that marginal middle-class buyer isn't going to be buying diamonds just for fun when the economy looks uncertain.

And that is what we are seeing as both mining activity and prices are falling.

It's another indicator that people are preparing for the crash.

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well, you could say the same for gold but that is a safe haven hedging commodity. any idea why diamonds are not the same? they are both industrials and hedge?

Gold has a monetary function and diamonds do not. So gold receives a safe haven bid and diamonds don't.

At best diamonds can serve as a speculative asset, but they aren't very good at that either.

interesting indicator I will have to investigate further and compare against the SPY going back to 2000.

I'll be interested to see the results.

De Beers has been manipulating the diamond market for a long time but it’s getting harder and harder to suppress the fact that diamonds just aren’t as rare as people used to think they are.

That's true too, but I don't think that's a new factor.

Yeah, there are so many signs that we’re hurtling towards a financial cliff. The Fed’s open the floodgates response to the repo market is eerily like 2008. Central banks everywhere seem to be engaging panic mode. Not to worry, we’ve got it under control. Remain calm.

Bubbles Are Brutal:

Interesting, didn't have that one in my repertoire!