01 Aug 2019

Is Australia About to Run out of Luck?

Some of the team from Australian Diamond Portfolio, myself included, have just completed three days on the Gold Coast, where we attended this year’s Australian Investors’ Association National Conference.

Aptly titled; “Investing Beyond the Boom”, the theme of the conference and the data presented very much reinforced why investors needs to look at alternative solutions in an age where property markets are still jittery, cash rates are at all-time lows and falling, whilst equity and bond markets are at all-time highs, with risks everywhere.

Given this background, we were delighted, though not surprised to witness first-hand the interest from would be investors in alternative assets like rare coloured diamonds, with our booth swamped with inquiries over the three days.

One talk in particular, titled “Is Australia About to Run out of Luck”, delivered by highly respected independent economist Gerard Minack shone a spotlight on the risks in the economy right now.

What did this talk highlight?

Minack’s talk, and other material he has published this year essentially covered the downside risks to the economy, looking at falls in house prices, and the negative wealth effect this has as consumers close their wallets and try to save more. This was something we covered in last week’s “In the Loupe” where we included four charts which combined, give us great concerns regarding the ongoing risk in the housing market.

Other factors included the fall in building approvals, which by definition means less work for those in construction, with all the negative implications that has for income growth and consumer spending etc.

Most importantly, it will negatively impact employment, where leading indicators are weakening, which means unemployment and/or underemployment may well rise in the months and year ahead.

Add it all up, and Australia is a facing tough road in the next 10 years economically, with a real chance of recession. None of us can control that, but we can make sure our portfolios are positioned to protect and grow wealth as these economic forces play out.

Australian Diamond Portfolio at the 2019 AIA Conference

Australian Diamond Portfolio at the 2019 AIA Conference

What was the Feedback from Investors?

In our conversations with investors at the conference, five key themes emerged in terms of the ways they saw that rare coloured diamonds could assist in their portfolio.

The first of those was diversification, with many of the investors we spoke too recalling the negative experiences they’ve gone through during market crashes in the past. They have no desire to see their portfolio go up in flames should there be another GFC-like event in the years ahead and realise there is a need to spread their assets around.

The desire for diversification fed into the second point, which is that investors increasingly want risk hedges, both against inflation even though it is low right now, and especially against the stock market. Given rare coloured diamonds are scarce in supply, they can be expected to hold their value against inflation, whilst the performance of diamonds during previous periods of financial market stress prove they can protect wealth when its needed most.

A third reason that came up often in talks was the Australian dollar, with many investors expecting it to fall meaningfully in the years ahead. That will obviously benefit anyone who owns rare coloured diamonds, which is another attribute it brings to a portfolio.

The final two reasons are ones we communicate often to our clients at Australian Diamond Portfolio, but which we think are underappreciated in the wider investment community. Those two reasons are discretion, and estate planning.

Owning discrete assets has its advantages, especially in a world where everything is being digitised and financialised, and where governments are forever on the lookout for more tax revenue.

Meanwhile, estate planning is another underappreciated benefit when it comes to rare coloured diamonds. Not only are they valuable and likely to rise in price in the years ahead, but they are also tangiblebeautiful and personal in a way a share certificate or a bank account could never be.

Channel Nine Highlights Argyle Closure

To finish off this weeks “In the Loupe”, we wanted to share a segment from Channel Nine news. The segment highlights the pending closure of the Argyle mine, and covers a lot of information that subscribers to our database will be familiar with – namely the terrific investment returns rare pink diamonds can and do offer investors, the fact that supply is set to drastically reduce once the Argyle mine closes, and that this supply restriction will put upwards pressure on prices.

The reason we are sharing the video is that this kind of message is only now starting to make its way into a mainstream audience. Over time this will lead to more buying demand as more and more people become aware of the potential returns rare pink diamonds offer, and the true scarcity of this supply.

Couple this growing consumer awareness with the investment risks we saw so clearly highlighted at the AIA conference this week, and we are more confident than ever in the outlook.

 

 

We hope you’ve enjoyed this weeks “In the Loupe”, and the video, and if there is anything we can do in terms of helping with an investment into rare coloured diamonds, please get in touch.

 

Share this