Coronavirus Covid-19 Proves Emotional Stock Trading More Turbulent Than Ever, But Fancy Color Diamonds Are More Stable

February 19, 2020 was a turning point for the financial markets. That day was the height of the markets in one of the longest bull markets in history, when the Dow Jones hit 29,219 points, the S&P hit 3,337 points and the NASDAQ hit 9750 points, all records. The next day, reality check comes in and ever since, swings in daily trading and emergency breakers took over. In the last 6 weeks we have seen trading swings like zig zag. I am sure shorting has never been higher, and so have their covers. According to S3 Partners, from February 19 to March 19, short sellers made over $343.67 billions in profits. Bill Ackman alone made over $2.5 billion on his short sale covers after he appeared on CNBC a week earlier and talked about how “Hell is coming”. Volume trading keeps on climbing. All is caused by something that we cannot see, hear, smell, taste or even feel on our fingers. But one thing is for sure, it is the fear that it had put in us that made us push that “Sell” button on our smart phones or “Enter” command on our desktops.  Even 9/11 or the financial crisis in 2008 did not have such an extent swing and impact. If everybody is selling, who is buying? and whoever is buying, with what money are they buying? should people really be able to short sell stocks at times that major contracts would call “Force Majeure”? how are we affected by such trading? is it ethical to trade in such circumstances? taking advantage of such situations?

Thankfully, diamond prices cannot swing to this extent. It is just not possible. why? because of the lack of liquidity, and this is a great thing! it is great that you cannot short sell diamonds! it is great that diamonds are not listed on major stock exchanges and I hope they never will. Even more so for Fancy Color Diamonds.

Martin Rapaport published a price list almost two weeks ago reflecting an average decrease of 7% for each of the categories of diamonds. How did he come to this decrease and conclusion? If people were confined to their homes, flights have dwindled. How can a commodity that is traded based on face to face interaction lose such value? how can prices go down this much in a week, when all we hear in the market is that “there is no market”, “there’s no trading taking place”! I have called upon Rapaport back in 2015 to stop publishing his price list and allow for the market to self manage, to self regulate. it works perfectly for Fancy Color Diamonds. In recent weeks many dealers have completely removed their inventory from Rapnet (trading platform by Rapaport) in sign of mistrust, bringing down the inventory value from over $8 billion to just $4 billion, and counting down.

All the major shows for diamonds have been either cancelled or moved later in the year. The Hong Kong show from early March has been moved to the month of May, for now. Auction houses have moved their Hong Kong and Geneva auction from April and May to June and July. Gem Geneve has also moved its show dates. The Famous BaselWorld show canceled this year’s show.

Next week the FCRF will publish its quarterly price index for Fancy Color Diamonds, more notably Yellow, Pink and Blue Diamonds. I would not be surprised if prices in some rare categories of pink and blue diamonds have actually increased while most likely, prices for yellow diamonds have decreased in the single low percentage. The price index will reflect the first quarter. I think that overall, the rare pink and blue diamonds will continue to hold prices strong. The only thing that may make sense is the following:

China has been facing the Corona problem since December. They closed down specific provinces in the country and had tens of millions of people stay home under quarantine. Things have started to open up in the last week or so. while China was “closed”, the USA has been wide open for business and many traders had trading activities there. By mid February, the USA had started to actually realise what was going on and started to slowly react to the Corona virus. Most countries in Europe and middle east have started to take drastic measures by end of February. By mid March, Israel was almost closed for business and schools were also closed. Flights were minimal and the diamond exchange was working on a skeleton crew. Now china is opening again, and so we should see some activity there. People are hungry to go shop and celebrate the fact that they are even alive!

I think that we will see a stronger negative affect on diamonds by the end of the second quarter in the USA, and it will last for quite a while due to the size of the market there. From what we see in Europe, it will be a while before we see them going back to a new “normal”. With technology, money works 24/7 no matter what, even at hard times like this. It may sound horrible to some and good news to others, but after this virus will pass, and it will pass, society will come out of it stronger than ever, markets will return to those highs again, and even higher, but more cautiously. 

The main difference right now between the financial markets and Fancy Color Diamonds is the fundamentals. Financial markets trade on sales and profits while diamonds such as pink and blue diamonds, trade on rarity. Those fundamentals have not and will not change for diamonds. Supply continues to be rare and demand continues to exist. Even if demand slows down, supply is slowing down even faster. The only supply that soon will be available is the second market. Pre-owned and older diamonds that have been in safes and jewelry for over 50 years and now are passing onto the next generation who either do not appreciate what they own or prefer spending it in other ways. The majority of rare and unique blue diamonds that have been selling at auction since 2018 come from a single collection that was acquired by a trio dealer group from an estate of a Middle East Saudi family of which the original owner has past away and have sold by his heirs. Another major collection of diamonds, also owned by a major Middle East family is now being available for the last 6-9 months also into various auctions as well as via a well known dealer with a value in excess of $2 billion. The collection is slowly passing by GIA for the purpose of new certificates.

I will write a separate article discussing the blue diamond collection and this new $2 billion collection in a separate article, as previously mentioned. 

For now I am busy being the Chief Zoom Operator at home with the kids. Be well and be safe.