Business & Economics: May 2006 Archives
Edward Jay Epstein has a fascinating look into the history of diamonds and how a single group of investors conspired to invent the world's premier luxury consumable. This story is particularly timely considering De Beers' ongoing campaign to promote right-hand diamond rings for single women.
In 1870, however, there was a radical change in this situation. Huge diamond "pipes" were discovered near the Orange River in South Africa.These were the first diamond mines ever discovered. Now, rather than finding by chance an occasional diamond in a river, diamonds could now be scooped out of these mines by huge steam shovels. Suddenly, the market was deluged a growing flood of diamonds. The British financiers who had organized the South African mines quickly came to realize that their investment was endangered: diamonds had little intrinsic value, and their price depended almost entirely on their scarcity. They feared that when new mines developed in South Africa, diamonds would become at best only a semi-precious gem.
As it turned out, financial acumen proved the mother of invention. The major investors in the diamond mines realized that they had no alternative but to merge their interests into a single entity that would be powerful enough to control the mines' production and, in every other way that was necessary, perpetuate the scarcity and illusion of diamonds. The instrument that they created for this purpose was called De Beers Consolidated Mines, Ltd., a company incorporated in South Africa.
As De Beers penetrated and took control of all aspects of the world diamond trade, it also assumed many protean forms. In London, it operated under the innocuous name of the Diamond Trading Company. In Israel, it was known under the all-embracing mantle of "the syndicate." In Antwerp, it was just called the CSO-- initials referring to the Central Selling Organization (which was an arm of the Diamond Trading Company). And in Black Africa, it disguised its South African origins under subsidiaries with such names as the Diamond Development Corporation or Mining Services, Inc. At its height, it not only either directly owned or controlled all the diamond mines in southern Africa, it also owned diamond trading companies in England, Portugal, Israel, Belgium, Holland and Switzerland. It was De Beers of course that organized the Japanese campaign as part of its worldwide promotion of diamonds.
By 1981, De Beers had proved to be the most successful cartel arrangement in the annals of modern commerce. For more than a half century, while other commodities, such as gold, silver, copper, rubber and grains, fluctuated wildly in response to economic conditions, diamonds continued to advance upward in price each year. Indeed, the mechanism of the diamond invention seemed so superbly in control of prices-and unassailable-that even speculators began buying diamonds as a guard against the vagaries of inflation and recession. Like the romantic subjects of the advertising campaigns, they also assumed diamonds would increase in value forever.
I wonder what the average gift certificate/gift card utilization rate is? I'm sure it varies by store, but I bet that gift certificates are pretty profitable. I keep pretty good track of things, and I know that I've got a fistful of gift certificates that I haven't used. Does anyone have any hard data? I bet that the percentage of gift certificate value used is less than 80%, which makes the sale of such certificates very profitable. (And even moreso, since the value of the certificates don't adjust for inflation.)
Last month I wrote about how ability and equity can be used as hedges against each other because when salaries go up the equity markets tend to go down and vice versa. Well today stocks hit a six-year high on news of a softening job market.
Stocks rallied sharply Friday as moderating job growth reinforced Wall Street's hopes that the Federal Reserve may soon end its series of interest rate hikes. The Dow Jones industrial average climbed more than 110 points to a fresh six-year high.Investors saw a slowdown in April employment growth as the latest sign of a softening economy, a reason for the Fed to stop raising interest rates. That countered worries over rising wages, which followed an upswing in employers' labor costs on Thursday. ...
In late afternoon trading, the Dow climbed 134.63, or 1.18 percent, to 11,573.49, about 150 points away from its all-time high of 11,722.98, reached Jan. 14, 2000.
Broader stock indicators were higher. The Standard & Poor's 500 index was up 13.03, or 0.99 percent, at 1,325.28, its highest level since February 2001; the Nasdaq composite index advanced 18.17, or 0.78 percent, to 2,342.07.
Most people have jobs, but job-holders should diversify their portfolio and buy equity so that they can take advantage of both ends of the cycle.
