Dreams And Fables... And Sables...

I re-watched this week, a fairly recent interview with the diamond expert Chaim Even-Zohar, covering his thoughts on what the future could hold for De Beers in the hands of its new majority shareholder - Anglo American Group - and in the absence of people like Nicky Oppenheimer and Varda Shine. One of the things he said as an incidental aside, was that 'big corporations and big groups like to sit on a lot of money so that they can do the things they like best – which is to use the money to give them opportunities to buy things.'

Now that is an interesting remark, and it's certainly true about what companies like to do, but it is a standard strategy that applies only when the circumstances are standard also. Which they are not now.

The opportunity for profit, say in the trading of diamonds for example, where the average price per carat is arguably a structured one (let's not go into it too deeply right now) - that opportunity is a highly privileged one that is not necessarily going to be able to function in most economies over the history of Mankind. Government direct increases to Money Supply, and the effects of past eras of inflation, allow for much more simplistic attitudes to profit opportunity than is often credited by those looking at 'success stories' such as the De Beers' one. For instance, in hindsight, is it really the brilliance of De Beers original marketing campaigns – as economic folklore credits – that created demand at such elevated prices; or, is it more likely to have been the fact that there has been so much money surplus in the hands of high end consumers due to high circulation velocities, and vast increases in Money Supply throughout the period.

So let's go back: 20th century 'standard' profit opportunities are based around the idea that premiums can deliver you profits. You pay a premium to secure a position in the beneficial outcome of a market transaction (and scale it up to maximize the results, of course), and because everyone has easy access to vast amounts of money, whether as debt (velocity and inflation effects), or as reserve funds (during this period largely a Money Supply-side factor), if you buy 'right,' almost regardless of the premium, there is simply guaranteed to be a way up or out. It's easy to look like a product development, or a sales, or marketing genius.

But in this century, last century's standard approach cannot be applied wholesale and be made to function successfully. Money velocity and fiscal policy conditions are very different.

Velocity is catastrophically low - so buying a diamond, for example, might as well indeed be 'forever' that is if you ever intended to sell it again for cash at some point...!

All of this is not to say that the perceived value of diamonds is actually misplaced in principle – and many people want to say this kind of thing about diamonds although I personally do not. Diamonds can physically last a very long time requiring very little or no maintenance, and they hold a certain amount of liquid value over that very long time, and therefore they do represent a reasonable means of establishing a family legacy that can run over at least more than one or two generations. As a commercial business though, they rely on the availability of consumers with cash to spend.



Rubellite ring from Hardy Brothers Jewellers

Yet if I were to consider some form of legacy creation that was meant to run over the whole of two or more generations, personally I would be acquiring rubellite gemstones rather than too many diamonds. Rubellite, even by today's low money velocity standards, is not expensive in the market. But that is not to say that it won't ever be...

Marketing companies say that diamonds are incredibly valuable – and this alone is not going to undermine the fact that they continue to be exorbitantly priced. But if you want to actually have a ten or twenty carat top grade diamond, the average person is simply not going to be able to afford one. But you might be able to get a ten carat top grade rubellite gemstone, even one with an inclusion that actually looks like the famous fictional Pink Panther! I don't think there's many people that realize that certain minor inclusions are prized in rubellite, unlike inclusions in other gemstones. Yes, The Pink Panther is a fictional Hollywood tale about a large fictional diamond with an inclusion that looked like a pink panther. But no, the tale is not entirely mythical, but may have been based on Eastern legend about rubellite. Frankly, if I told you what I know about these legends, you might rush out and buy some rubellite right away, stick it next to an old Arabian oil lamp and start to rub it to warm it up.

But there's plenty of time. You will want to get a lot of quality rubellite stones at $200 a carat so that you will have a treasure trove of them to sell at $600 a carat.

Put it this way, if you bid along with Steinmetz's more-or-less own diamond agent for the Steinmetz pink at $1.6 million per carat, you are going to be waiting a hell of a long time to sell it at $3.2 million per carat, unless you were using your own money; a waste of time and money you would suppose...

But going from Even-Zohar's terrific book “From Minesite to Mistress” being able to sit drinking champagne among millionaires and have your expensive friend sporting a ten carat top grade rubellite cocktail ring on her gloved hand, is the stuff of legend not of myth.

 

 

Calvin J. Bear

The 'Thermidor' Financial Market

The word for the month of July, in French, is 'Thermidor.'

And, it is from this word that the dish 'Lobster Thermidor' gets its name.

Lobster Thermidor

Well, in fact, it is a specific July that the name is derived from – the one in 1794, during which Robespierre was overthrown.

Maximilien Robespierre was a truly abominable person, who made much of his integrity and honesty, and yet who could not resist manipulating and exploiting the clamor of the crowd, for his own power-hungry ends. His time at the top of power in France was known as the Reign of Terror, a period during which almost anyone might have been executed on the strength of a trifle because of the self-serving zealotry of Robespierre in particular.

And it is with this little item of history in mind, that I wish to address the matter of taking financial risk today. Risk is of course, as you no doubt know, not about the potential of loss, but about the degree of volatility, over the expected course of any investment. When the word 'risk' is used by the less learned, and is meant by them to apply to things like race horse gambling and so on, they are actually talking about the relative 'odds' for any outcome occurring, and not about professional investment risk as such. These people are generally looking at some very very quick event, in which money might be made on an immediate expected outcome. Professional investors want to have some ultimate result averaged out over a long period, say, ten years, for example.

We might well inquire into the consequence for our definition of risk (which is the standard economics textbook one, by the way), of a Central Bank and their political accomplices manufacturing a 'zero risk' climate for interest costs and share prices.

Revenues and profits by companies ought to have the most significant bearing on share prices, but, if they don't because of Central Banking policy to support equity price levels regardless of all other factors besides the government and bank determination to ensure liquidity (by which, they really mean, 'to preserve the remuneration levels of executives at unprecedented and unjustifiable heights') – then we are being faced with a similar form of hypocrisy that Miximilien Robespierre indulged in.

Will there ever be a 'Thermidor Reaction' – which is what the overthrowing of Robespierre was called at the time – against contemporary Central Banks and hypocritical and self-servingly hypocritical, zealot-driven, governments?

On the surface, since there is no volatility, it seems that there is no risk entailed in investing in stockmarkets. But there are also no standard ways of understanding profit opportunity either, because of the artificiality of the price of money... And many people also complain about the hidebound nature of the rules and bureaucratic red tape involved in launching productive capital of any kind.

Thus, one thing is clearly rising – public dissatisfaction. And this, like the recipe for Lobster Thermidor, is also a recipe full of mustard powder, if only metaphorically.

Holy Grail?
(...why am I always posting Maserati pics?!)

If there are any of you still out there who cherish the idea of being an individual – and individualistic - money-making private investor, then you must look at non-standard ways of perceiving profit opportunity. You must abandon the standard route, go into the deep silence similar to that of a Benedictine cloister, and hope that you will gain a vision of the investor's equivalent of the Holy Grail! There are many knights on this Quest for the 'holy grail;' but like the myth, only one or two out of many will ever see it I fear. This I certainly know – no major name in investing is even close to seeing it. No. Not even one of them. Not Buffett, not Gross, not any of them. These times have found ALL of them wanting.

 

In the next post, I shall outline some non-standard profit opportunities.

 

Best

 

Calvin J. Bear

 

Risk and Incentive

I was a bit startled last night while watching a very recent interview of the Kaiser, Karl Lagerfeld..

He casually commented out of the blue that social occasions like cocktail receptions were fewer and fewer these days; almost non-existent really.

The industrialist's son,
'Kaiser' Karl Lagerfeld,
still relevant.

Well, there still are a small number of product presentations and corporate functions and top shareholders' meetings that centre around some kind of catered event starting 'not before 1 p.m.' - as the standard demands for a cocktail reception. But he may be quite right when it comes to the non-business gatherings of the well-heeled social set. Hey, who are these 'well-heeled' folk, anyway, nowadays? I'm sure I don't know...

But Karl has provided me with a scrap of incentive to go down one particular prospective road at least that doesn't look to me to be totally adventureless from the get-go, as most other things are becoming these days: entirely forgettable, dull, thoroughly boring.

Indeed I was also rather taken aback by my own response to a sudden and largely unexpected turn-around in one of my own business ventures. Filled with almost countless ideas while ever I had to stick a lot of things onto the back-burner from lack of a decent budget, as soon as the prospects of having to hand, another round of 'meaningful' moneys (has been a good long while between those...) I found myself suddenly utterly devoid of those thrilling ideas that I usually can generate from simply out of my own head, and found too that I was able to see almost nothing exciting going on around me anywhere else either. Perhaps it was the shock of having money again. It's done something to me perceptions, I think.

Spending, money – just plain spending it when you have it – is one thing but it is a very lazy thing. And it's not what I only desire to do, personally. I like to see and hear the ideas and ventures of other people, especially of those really bright kinds of people who are intensely interesting because of their intellects as much as any other attribute.

Coffee and News - a thing no more...

I remember when my own parents would attend cocktail parties – or what used to be termed cocktail receptions. You might not believe it now but back in those days people didn't simply just turn up when invited to these kinds of things, but they had this remarkable capacity to bring something of themselves that was new and different each time they went to something as swish as a genuine cocktail party. It was like they seemed to prepare to attend. Nowadays things are far less socially ornate, you might say.

Yet there is also a certain risk aversive attitude that has crept into the whole world of the affairs of humans. And a very bad thing it is too.

Actually I believe I need to begin pointing out a few of the incentives for the taking of risk. There is of course as you all know, an art to the taking of risk. And if you get out of the habit of risk taking, pretty soon you forget about all of the necessary methodology.

I intend the next few posts here to deal with present-day risk taking, incentives, and serious methodologies that work, as opposed to the folklore spewed out by stockbrokers and others who are only running promotions for their own fairly weak and contrived 'investment' products.

Circles Of Money And Power

I am absolutely a great fan of His Highness Prince Karim, the Aga Khan. He is, as you know, one of the only real living descendents of the Islamic World's Holy Prophet Mohammed.

The Aga Khan

What you don't know is that he is Greek.

The usual narrative goes that he is partly of Persian descent but let me tell you, if it is 'Persian' it is only Persian in the sense that Alexander The Great's wife Roxana was Persian; and she wasn't really Persian either but sort of Russian, as it would be now called although not at that time.

And what you also don't know is that whilst he is called the Imam of the Nizari Ismaili's (which he indeed is), his religious philosophy is rooted in genuine traditional Platonic teachings. And therein lies a most uncommon understanding about who and what the original 'Holy Prophet Mohammed' was and what this religion is really all about. Now there are things that I know about Nizari Ismaili innermost teachings that few anywhere in the world today would have any clue about, dare I say, not even the NSA!

But let me indulge in my usual Socratic irony - if I might egregiously call it that - and say that some Ismaili learned men hold that the Aga Khan possesses a holy right or privilege, to own and/or be able to befriend, the highest ranks of aristocractic Jinn, and that in fact, both he and his family have actually been photographed with Jinn females many times and that they even marry them and have children by them...

Aga Khan, friend of geniis

The secret of what I know about Ismailis is so powerful that I tell you, if the NSA knew it too, they would be able to quell all the present problems of radicalized Muslims around the whole world. But as they do not know it, I suppose we are destined for much more trouble still to come as they all blunder their ways through the minefields of religious sensitivities and cultural suspicions.

Alexander the Great, as you will also no doubt know from your readings of history, was a great horseman. And so is the Aga Khan. He has owned winners of the Prix de l'Arc de Triomphe although not on this occasion this year. This good fortune befell the Qatari Royal Family, which has also won races like the Mebourne Cup in very recent times and so their star must be on the rise, one might suppose.

Frankie Dettori is also a great horseman, and he should have been the jockey on this year's winner but apparently he 'hurt his foot' and couldn't ride on the day.

Dettori has a sore foot

And so I tell you all of this nonsense as a way of demonstrating that when it comes to big money people and big money horses and big money races, all kinds of smoke is blown everywhere obscuring what went on or is really going on and it's hard to see where the fires were or are, if any, and really, whether or not such fires might not even be from the flameless shimmer of geniis in the business in there somewhere. As you know, I do believe in geniis; they make things fall out of the sky that ought to keep flying, and other things fly away that ought to have stayed put.

Ruler Of The World

Ruler of the World... is a racehorse.

Ruler Of The World

It's owned by the world's wealthiest individual racehorse owner - if you go by only what is made through racing and breeding. John Magnier is the gentleman and he owns Coolmore Stud, which is now a global business.

Sheikh Hamdan and his Godolphin Racing, is outranked, I'm afraid, by Magnier.

The Prix de l'Arc de Triomphe - which is run this coming Sunday - is the world's premier horse race for gallopers. The Prix de l'Arc de Triomphe outranks all other races including the Kentucky Derby and the Melbourne Cup - and this year's event strikes me as being one of the strongest for a long time. The top contenders are robust and consistent racers who have the kind of fierce will-to-compete and mature skills and balance as racehorses that mark out the elite racing animal.

Orfevre

I have a firm opinion on this year's race - I favour only two horses: Orfevre (which means 'goldsmith' in French), and Ruler Of The World, Magnier's horse. These are two of the best conformed Derby horses you will ever see, and they have speed, strength, boldness, courage, racing skills, flexibility, and stamina. This will be a good race and worth watching to see what real horse racing is all about.