“Diamonds are nothing more than chunks of coal that stuck to their jobs.” — Malcolm Forbes
Chart of the Day
Good morning!
When Anglo American and Canada’s Teck Resources announced plans to merge recently, the immediate takeaway revolved around what could become one of the largest copper miners in the world. Copper would comprise up to 70% of the proposed new company’s revenues, with zinc, iron ore, and other metals making up the rest. Left off the list was diamonds.
However, Anglo American owns a controlling stake in one of the most prominent names in the diamond industry, De Beers, with Botswana owning a 15% stake as well. Yet Anglo seems committed to divesting its stake in De Beers before its merger with Teck is completed, and Teck doesn’t seem to mind.
Taylor Swift might have reignited interest in diamonds after the Aug. 26 announcement of her engagement to Travis Kelce. Taylor’s happy news is credited with having sparked a short-term boost in jewelry-related shares such as Brilliant Earth (BRLT -4.43% ) and Signet Jewelers (SIG 0.03% ). But though she can sell out stadiums, it seems unlikely that her new bling will make a lasting impact on the years-long decline in the diamond industry.
That’s more readily seen in spot diamond prices, as tracked by the Diamond Standard Index. The index, which tracks the price of a basket of natural diamonds representing a standardized variety of carat weights, color, and weight, surged on Sept. 4, going from around $3110 to $3340 on Sept. 7. However, by Sept. 11, it had plummeted to levels lower than before the announcement ($3070.00), continuing a downward trend that has been going on since March 15, 2022, when the level was at $6720.
That timeframe is significant: Recall that Russia invaded Ukraine on Feb. 24, 2022. Russia also supplies one third of the world’s rough, uncut diamonds. In the leadup to the invasion, companies bought in large quantities and stockpiled them in anticipation of sanctions on Alrosa, Russia’s state-owned diamond miner. However, though the U.S. and allies did enact an escalating series of sanctions on Alrosa, plummeting demand hit the market: that stockpile has yet to be depleted, further weighing down prices.
The invasion itself likely played a part in that lower demand, adding to longstanding ethical concerns about whether purchasing mined diamonds might be funding violent conflicts. Globally, economic uncertainty in China – until recently viewed as a promising growth market for luxury goods — also weighed on the industry.
Some in the jewelry industry suggest that Kelce’s choice of a lovely vintage-inspired old mine brilliant cut diamond engagement ring invoked nostalgia, hearkening to “the sense of character, provenance, and the idea that each stone has lived a long life since being cut centuries ago.” That’s somewhat similar to the only argument that producers of mined or natural diamonds have had when asked why a prospective customer might eschew lab-grown diamonds – intangible, emotional appeals. And they certainly sound nice.
Alas, most people do not have the net worth of Travis Kelce (estimated at $60-70 million), to say nothing of Ms. Swift’s far larger fortune. A lab-grown diamond, which can be as little as one-sixth the price of a natural diamond of comparable size and quality, thus represents an attractive proposition — “sense of character” notwithstanding.
In her illustrious entertainment career, Swift has had a positive impact on the earnings of entertainment companies like AMC (AMC -2.52% ) and Universal Music Group (UMG). Her tours have been credited with boosting revenues in the travel and hospitality industry, as well as local economies. But even her star power must have some limits (we think), and the diamond industry might just be where we see it.
Perhaps that’s what Anglo American is betting on?
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Do lab-grown diamonds diminish the appeal of natural diamonds to you? Click here to send us your response.
📧✍️Here’s what a reader commented📧✍️
Q: If you’re a business owner, how do you approach balancing the short-and long-term picture?
A: I am in favor of it, you can’t take a very short term view of every 90 days for a company. It takes a lot of time and effort an at a cost for company to perform quarterly reporting. What does a 90 view really tell an investor, every 6 months would more than suffice.
Catch up with FS Insight
The Fed made a dovish cut of 25bp on Wed and this is supportive of stocks over the next 12 months, as a cutting cycle is starting. We do not see a bubble yet, as NVDA 3.38% continues to only trade at 26X forward P/E.
Technical
Market breadth has declined in the short run (last two weeks), but Thursday’s recovery still hasn’t allowed for any technical breakdown of the most recent uptrend since early September.
Crypto
Yield curve steepening points to growth optimism. Crypto rallied yesterday with BTC leading and ETH lagging, though mNAV expansion in ETH DATs suggests it could play catch-up in the days ahead.
News We’re Following
Breaking News
- RFK Jr.-Backed Panel Advises Against MMRV Combo Vaccine for Young Children WSJ
Markets and economy
- All the Reasons Trump Would Be Wrong to Ditch Quarterly Earnings WSJ
- New Grayscale ETF holds multiple cryptocurrencies together, combining bitcoin, Solana and others CNBC
- Inside the big boom in ‘business development companies’ FT
Business
- Victoria’s Secret CEO Is Pushing ‘a New Era of Sexy’ WSJ
- Is Nvidia Intel’s Savior? Not Quite WSJ
- FedEx offers this number in an early sign that trade uncertainty is easing MW
- Is AMD in trouble as Nvidia and Intel pair up? Not so fast, analysts say. MW
Politics
- Trump’s Team Explores Government-Backed Manufacturing Boost WSJ
- What happened behind the scenes that led to Kimmel suspension CNN
- Here’s What Could Come Out of Xi-Trump Call. It’s More Than TikTok. BR
Overseas
- Why Asia’s Gen Z Is Angry With Its Leaders WSJ
- Stocks sell off as Bank of Japan unveils plan to unwind $250bn of ETFs FT
- Autocrats Move Quickly to Fill Void as Trump Retreats From U.N. NYT
Of Interest
- Ray Dalio says gold, non-fiat currencies will be stronger stores of value as U.S. debt mounts CNBC
- The Race Is on to Make Rare Earth Magnets Outside China NYT
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| Date | Time | Description | Estimate | Last |
|---|---|---|---|---|
| 9/23 | 9:45AM | Sep P S&P Manu PMI | n/a | 53.0 |
| 9/23 | 9:45AM | Sep P S&P Srvcs PMI | n/a | 54.5 |
| 9/24 | 10AM | Aug New Home Sales | 652.5 | 652.0 |
| 9/24 | 10AM | Aug New Home Sales m/m | 0.1 | -0.6 |
| 9/25 | 8:30AM | 2Q F GDP QoQ | 3.3 | 3.3 |
| 9/25 | 8:30AM | Aug P Durable Gds Orders | -0.5 | -2.8 |
| 9/25 | 10AM | Aug Existing Home Sales | 3.98 | 4.01 |
| 9/25 | 10AM | Aug Existing Home Sales m/m | -0.75 | 2.04 |
