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The Year Ahead: Plusses and Minuses

February 2008

Usually at this time of year we offer forecasts for the year ahead. But at this, our 40th year, we are very uncertain of how things are going to look.

So instead, we decided to list the positive and negative indicators:

Negative Signs

It is clear it is going to be a difficult year ahead. A lot of bad news has come out for our industry, including lower sales for Zale and other retailers, a bankruptcy for Friedman’s, and, as we go to press, reports about a buyer for local retailer Fortunoff, which is close to bankruptcy.

These problems are along the lines of the general pessimistic outlook for our economy in general. Goldman Sachs recently said that a recession is inevitable, while other economists put the chance of a downturn as "50-50." Usually, in downturns, the jewelry market is the first one to suffer, since jewelry is not a necessity but a discretionary item.

Most of the downturn seem to be from what is called the "mid-tier luxury consumer." A New York Times article noted that the downturn has impacted retailers like Tiffany, with purchases between $1,000 and $10,000 the hardest hit.

The government want to help the economy with a "stimulus package" of tax rebates, but we don’t think a few hundred dollars in everyone’s pockets will make people run to buy expensive jewelry.

Positive Signs

Despite all this, it is not all doom and gloom, and there are reasons to feel optimistic. People will always get engaged, and will mark those engagements with diamonds, even if there may be some downgrading. For example, when Japan had its recession, brides and grooms still celebrated engagements with diamonds. But where they used to want only flawless diamonds, after the recession they started to go down in quality.

We also note that commodities have risen recently — gold rose to over $900 an ounce on January 11, a psychologically important milestone. Some think it may go even higher. Diamonds may eventually follow suit. In the 1970s, when gold also was at record highs, a one carat D-Flawless sold for over $60,000. We just received a call from a commodity broker in Chicago. He said that while other commodities had gone up, most diamonds had not yet, so he wants to buy while they were still reasonably priced.

In addition, the dollar’s fall has made diamonds cheaper for many people from overseas. Many tourists are now coming from overseas to New York to purchase jewelry at prices cheaper than they could at home.

Even with the downturn, as the Times article notes, the very wealthy will continue to have money. Even though the market is slow, prices of big stones are extremely strong and going higher.

Finally, the emerging markets of China and India will likely insure that there are healthy markets for diamonds, even if the market in the U.S. is experiencing a bit of a bump.

So in conclusion, we are going to lay off making predictions this year — already this year many predictions (like election polls) have been way off. We’ll just wish everyone the best in 2008.


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