A Contingency Plan for All Scenarios

Posted: 12/7/2016 by Sean Cohen

BenFranklinDisagrees-600x400 A Contingency Plan for All ScenariosThe Western World seems to be changing track. As we have seen for the past decade, the “experts” have not just been wrong, but increasingly, totally wrong. Most recently two big “never could happen events” of 2016 happened — and concurrently…Brexit and Trump. While some of us see these events positively, the fact remains that none of the conventional data analysis was correct.

The great recession, the “never could happen event” of 2008, or the oil price drop in 2014, none of the analysts or pundits got it right then either. Well a few did, but then broken clocks are right every 12 hours, and it’s never the same clock. Those who may have been right once are often not right a second time.

There is the old saying “There are three kinds of lies: lies, damned lies, and statistics”. If we are talking statistical analysis, the past decade proves one thing true, data lies and data misleads, even those who collect and form it. Having said that, it would then be foolish of me to make predictions about the future based on the limited data available. But we don’t need definitive predictions to plan contingencies, because we just need to plan for as many as seem reasonable.

As a student of history there are two old adages that always come to mind. “Those who don’t know history are doomed to repeat it” and “History never repeats exactly, but it sure does rhyme”. So, unlike stock market experts I will refrain from attempting to make definitive predictions, but like many of us there are certain issues and events I take notice of and try to plan for.

Some things we do know. We know for a fact that in the past decade the money supply has more than doubled. Actually, my friends who study this say I am wrong, because if you add the expansion of the fed balance sheet there is an additional US$ 4-trillion dollars on top of that number. Somewhere along the line this money supply expansion is going to have an effect, so planning for the various possibilities arising from this seems wise.

Those of us who have been around a while might also have observed that the world in general over the past decade or so seems less stable than it was during the post-WWII economic expansion.

My personal opinion is that the modern world is cyclical with large 50 year cycles of calm and disorder. 1900-1950 was fraught with instability. 1950-2005 were pretty stable. But look at what has happened since 2005 … the old structures of global stability are changing or breaking. What will replace these structures no one can say for sure.

If we are in a disorder cycle, then leaders of various countries can only ameliorate the ups and downs of the roller coaster ride in their countries. They can’t prevent them. Regardless of who you vote for, or what you believe is the correct political path, external events can and will affect things. The tragedy of 9/11 would likely have happened regardless of who was president.

We also know that almost every stock has been speculated. We know that almost every asset class, even solid assets like gold, have had miles of derivatives sold distorting its value.

Conceptualize then, a real tangible asset, one with a continuous 3000-year history of wealth preservation, one with balanced supply and demand, one with stable, incremental price growth, one that has yet to be speculated. Yes, I am talking about diamonds, Defined Value Diamonds (DVDs) to be specific.

Every pundit is talking inflation this week, next week it may be something else, and reality will be different still.

Let’s say growth does not hit expectations and global economies remain weak. Diamond supply is already balanced with demand, diamonds as a dollar-based commodity will retain their natural real value and will index up at the rate of inflation plus their normal 5% growth rate.

Maybe we are due for another recession. We know from prior recessions that diamond prices drop for 6-months and then, as mine output shrinks, they very rapidly recover.

Let’s be positive and assume that everything works out great, it’s certainly possible. The USA, and by extension the world economy, booms. Diamond demand, as with all products, goes up. Yet, as diamond supply cannot increase, the price of diamonds rises even faster.

What happens to diamonds when inflation kicks in? Perhaps the late 1970s are a guide — diamond prices shot up. With inflation, just add a multiplier on top of everything else.

I can go on and on demonstrating how stable and solid diamonds are for all contingencies. They have incremental price growth in slow growth periods, rapid price growth in times of economic booms and times of global instability. Diamonds have always been a store of wealth; their long-term price trend has always been upwards. The only question is how fast will external events drive prices up?

More than price increases and the absence of speculation, diamonds offer unparalleled security. In the end looking far into the future, what is paper really worth? What is money in the bank other than electronic blips on a screen? What happens if the Internet collapses?

The very best part is that diamonds are an investment you can enjoy. They are the gift of love. They are gifts of love and security for the next generation. They are the ultimate money under the mattress.

I’m the first to recommend a balanced wealth portfolio, don’t put all your eggs in one basket, plan for the future, as well as contingencies seen and unforeseen. A truly balanced portfolio is one that diamonds are a part of for now, for the future, and for generations to come.

No one can say what will happen, certainly not the “experts”. We can only speculate. However, in nearly every case from pessimistic to optimistic it seems wise to have some of your assets in DVDs.

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