12 Sep 2019

Biggest Fund Manager in the World Makes Case for Diamonds

It seems barely a month goes by without some high-profile commentator from the funds management industry warning about the risks in financial markets; and why investors should be protecting their wealth with tangible hard assets.

This time around, it’s the world’s largest asset manager, Blackrock, who last week published an article titled; “The monetary policy endgame”.

The article looks at the current state of financial markets, discussing some of the themes we have been talking about with readers of “In the Loupe” this year, including the implications of negative interest rates.

Most importantly the article looks at what central banks will do in the years ahead. Their key takeaways are as follows:

  • Don’t expect today’s low interest rates to go away anytime soon as according to Blackrock, real interest rates will need to be negative for the foreseeable future.
  • Don’t be surprised if we see helicopter money, which is basically central banks printing money outright and giving it to people to spend.
  • Expect to see a currency war, as countries engage in what is called competitive devaluation, each trying to push down the value of their own currency more than other nations.
Australian dollars being printed.

We could potentially see helicopter money – central banks printing money outright and giving it to people to spend.

What can an investor do?

The article itself ponders the investment implications of such a monetary environment, noting that any “nominal instrument will be devalued in real terms”. This means that going forward, whilst cash will still be useful for day to day transactions, it looks like it will be useless as a savings asset as it will continue to lose value.

The bond market isn’t going to be much good either. Many investors in the bond market are already guaranteed losers, with over USD $16 trillion of negative yielding debt.

Real estate and the stock market do offer some protection in the environment we are heading into, but even there – Australian real estate is amongst the most expensive in the world, with many Australian households drowning in mortgage debt.

Meanwhile we are 10 years into a bull market for shares, which is about the longest on record, and investors are now paying sky high prices for those shares. There remains substantial risk in both real estate and equity markets.

In reality, this leaves hard tangible assets as the go-to asset class, with Blackrock themselves noting that “the solution is to hold an asset that maintains its real value – an asset that cannot be printed.”

That sounds like a very good case for rare coloured diamonds.

2019 tender stones

64 tender stones from this year’s Argyle Pink Diamond Tender. Image © Rio Tinto 2019

The Last of the Argyle Pink Diamonds

At Australian Diamond Portfolio, we are busy working on a special report on the outlook for rare coloured diamond investments once the Argyle Mine closes, which we will provide to our regular readers of “In the Loupe” in the next few weeks.

In the lead up to that, we wanted to share a recent article dealing with the pending closure of the Argyle mine. Titled “The Last of the Argyle Pink Diamonds”, it deals with the history of the Argyle Mine and how the Argyle brand was built. Most importantly, it helps explain why there will be a strong secondary market for rare coloured diamonds, even after the Argyle Mine closes in 2020.

Key to that is the continued development of the investment market for this asset class, with investors the world over looking to capitalize on the long-term investment opportunities rare coloured diamonds offer. Industry participants are also still very optimistic on the future, with some openly admitting to bolstering their holdings of rare coloured diamonds today.

Further to the investment potential of the diamonds themselves, which is only magnified by the market and monetary environment that Blackrock discussed, is the sense of history that comes from investing in this asset class.

As the article states; holding a stone is like capturing a moment in time. As such, the closure or the Argyle mine won’t be where the story ends. More likely, it is the beginning of a new one: the tale of a robust secondary market, as Argyle Pink Diamonds (APD) establish their open-market value and investment potential as a finite, unrepeatable natural resource and achieve the status of outstanding heritage stones.

We couldn’t have said it better ourselves. For all of these reasons, we believe the next years will be very profitable for rare coloured diamonds investors.

You can access the article in full here.

As always, we hope you’ve enjoyed this weeks “In the Loupe”, and we look forward to any feedback, comments or questions that you may have.

 

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