The Debt Story
By
From The Province:
This is the best article to date that I have seen that discusses the issue of indebtedness in the diamond industry.
As the article notes:
The global industry’s debt, which peaked at $14 billion to $15 billion US in mid-2008 according to banks and industry groups, plays a crucial role in financing some $50 billion to $60 billion of trade in cut and rough stones.
A positive sign?
Debt has tailed off and Rosy Blue’s Mehta believes it will drop to some $10 billion with a smaller, leaner market.
But a brilliant fellow by the name of Charles Wyndham of PolishedPrices.com makes it clear that this only tells half the story:
However, Charles Wyndham, diamond consultant and founder of industry website www.polishedprices.com, said turnover had fallen by much more than had the debt used to finance it, meaning the relative level of debt had risen.
And this really is the crux of the problem. No serious players in the diamond industry saw this coming. Everyone was milking the debt bubble for all it was worth. My former employer, for example, took the “roaring 2000s” as an opportunity to significantly increase the company’s rough allotment (and therefore its debt load). So even if these firms begin reducing inventory and debt levels now, after the fact, they will never be able to do it fast enough because there’s nobody around to buy their goods. Had they had any sense, they would have never gotten so far over their heads to begin with.
I tend to think that a sightholder CEO should have a bit more economic sense than your average housing bubble sucker. But the fact is they, generally speaking, have far less sense. The reason is simple: being a sightholder CEO is the ultimate example of having “all of your eggs in one basket.” If everything you are and represent is dependent on constantly rising consumer spending, then you are going to always believe the good news and never believe the bad news. Until, of course, the news is so bad it can no longer be ignored.
