While the Global Trading Dispatch focuses on investment over a one week to six-month time frame, Mad Options Trader, provided by Matt Buckley, will focus primarily on the weekly US equity options expirations, with the goal of making profits at all times. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
January 2, 2018
Fiat Lux
Featured Trade:
(JANUARY 3 GLOBAL STRATEGY WEBINAR),
(HAS THE WORLD HIT "PEAK DIAMONDS"),
(NILE), (AAL.L),
(THE NEW COLD WAR)
(TESTIMONIAL)
My next global strategy webinar will be held live from San Francisco on Wednesday, January 3 at 12:00 PM EST. Co-hosting the show will be my colleague, Mad Day Trader, Bill Davis.
I'll be giving you my updated outlook on stocks, bonds, commodities, currencies, precious metal, and real estate.
The goal is to find the cheapest assets in the world to buy, the most expensive to sell short, and the appropriate securities with which to take these positions.
I will also be opining on recent political events around the world and the investment implications therein.
I usually include some charts to highlight the most interesting new developments in the capital markets. There will be a live chat window with which you can pose your own questions.
The webinar will last 45 minutes to an hour. International readers who are unable to participate in the webinar live will find it posted on my website within a few hours.
I look forward to hearing from you.
To register for the webinar, please click the link we emailed you entitled "Mad Hedge Fund Trader Bi-Weekly Webinar - 1/3/2018" or click here
Is the world running out of diamonds?
No, it's worse.
The world is running out of diamond demand.
That is the only conclusion one can reach when looking at the chart below for polished diamonds for the past four years showing a 25% decline.
The diamond industry now produced 125 million carats a year, well down from 187 million ten years ago.
This is clearly not your father's diamond market.
In the old days you could rely on this highly concentrated form of carbon to appreciate an average of 5% a year over the long term.
Just for fun, I recently appraised the diamond I bought for my late wife, which I bought from a Hasidic Jew in an alley off of Manhattan's West 47th street. He kept his inventory hidden in an envelope in his sock.
How times have changed!
The two-carat, VVS1, round cut, yellow diamond that I paid $3,000 for in 1977, would fetch $39,800 today. Great trade!
However, now the rock solid investment thesis that underlay diamonds for so long is now turning to sand.
The problem is the millennial generation, which fails to see the value in the sparkly rocks seen by previous generations. Their discretionary spending instead goes into the latest electronic device, game, or Tesla.
Indeed, there is far more competition for the luxury dollar than in the past.
A luxury "glamping" safari in an African game reserve can easily set you back $30,000, the cost of in investment grade two carat diamond ring today. So will the private jet to get you there.
Kids this age are still about ten years away from when incomes, family formation, and spending patterns start to favor diamonds.
That leaves the current Gen Xers to support the market. However, there are only 65 million of them, compared to 85 million Millennials. Hence the softness in prices.
In 2015, global sales of diamond jewelry fell by 2% to $79 billion, the first decline in six years. Sales of rough diamonds plunged by 30% as dealers cut inventories in a soft market.
Structural changes in the industry are also having an impact.
DeBeers had a 90% world market share during the 1980's, and spend massively on advertising its product, some $200 million a year.
Now they account for only 31%, and the advertising spend has similarly withered.
Another problem is that the buyers of the very large diamonds in the Middle east have seen oil incomes shrink beyond imagination.
Industry analysts were shocked when the Lucara Diamond, at 1,109 carats the largest discovered in 100 years, failed to sell at auction in June.
Government anti-corruption efforts in China have had a similar drag.
And lets face it. The diamond industry has not exactly been at the cutting edge of technology.
Stodgy marketing strategies enabled Internet start-ups like Blue Nile (NILE) to come out of nowhere and seize an important part of the retails trade. (NILE) recently announced blockbuster sales that took is stock up an eye popping 35% in a single day.
In 2011, Anglo American took control of the Oppenheimer family owned DeBeers for $5.1 billion.
Another problem can be found in the middle tier of the diamond market, the so called "sightholders." These are the dealers, cutters, and retailers largely based in Antwerp, Belgium (great moules mariniere there by the way).
Since the 2008 financial crisis, banks have withdrawn loans from the industry, citing secrecy and the lack of transparency. This has lead to a wave of bankruptcies of small firms, and the consolidation of the rest.
Industry veterans are still optimistic about the future.
The US accounts for about half the world market, so the new frugality will be a challenge. Perhaps Trump inspired inflation will jolt this market back to life.
As standards of living steadily rise in China and India, and more western social practices are adopted, so should diamond consumption.
This could also be the greatest Millennial play of all time. If the past is any guide, Millennials DO eventually adopt their parents spending patterns.
They just do it much later than we did, another possible outcome of the financial crisis.
To avoid a week on the sofa, you might even think about buying next year's Valentine's surprise early, like NOW.
My friend, Ian Bremmer of the Eurasia Group, a global risk analyst who I regularly follow, has published an outstanding book entitled The End of the Free Markets: Who Wins the War Between States and Corporations.
I find this highly depressing, as it takes me as long to read one of Ian's books as it takes him to write another one. To read a review of his highly insightful tome published in 2008, The Fat Tail: The Power of Political Knowledge for Strategic Investing, please click here.
The world is reaching a tipping point. For the past 40 years, global multinationals with unfettered access to capital, consumer, and labor markets have driven the world economy. There is now a new competitor on the scene, the "state capitalist," where political considerations trump economic ones in the allocation of resources.
Of course, China is the main player, joined by several other emerging nations. The Middle Kingdom has posted double-digit annual growth for the past 30 years without freedom of speech, economic rules of the road, and independent judiciary, and credible property rights.
China's leadership is clearly worried that Western style freedoms will enable wealth to be generated outside their control and be used to orchestrate their overthrow.
Private Western companies can only engage in transactions, which stand on their own economically and deliver the short-term profits, which their shareholders demand.
In China, long-term political goals enable them to pay through the nose to obtain stable supplies of oil, gas, minerals, and materials. That keeps the country's massive work force employed, off the streets, and politically neutered.
The bottom line is that there are now two competing forms of capitalism. The recent financial crisis has accelerated their entrance to the global stage, moving us from a G7 to a G20 dominated world.
Globalization is not ending, but it is definitely entering a new chapter. For those of us who read tea leaves to ascertain major, market moving economic trends, this will be a must read. To buy the book at Amazon, please click here.
"Liquidity is a coward. It's never around when you need it." said market commentator, Jeff Saut.
