Fair Warning

In October 2007, nearly a year before Lehman Brothers filed for bankruptcy protection, leading stock indices peaked and from there started to fall, a decline that ended only in February 2009. The plunge was an unheard early warning.

I'm not sure with what impression people returned home with from the different trade fairs this week in Las Vegas; probably positive overall.

A survey by IDEX Online found that 80 percent of respondents thought business was "good" or "OK," while the remainder found it "below the low expectations."

If expectations were low and you left the show pleasantly surprised, there is a decent chance that, objectively, business was not that good after all. There is a warning hiding in the results.

The U.S. is slowly climbing out of its difficult situation. However, considering this is an election year, much talk centers on the economy, and the administration will not make any unpopular steps necessary for further growth.

In Europe, the situation is dismal. The Vicenza region in Italy is a good microcosm. A center of jewelry and textile manufacturing, the region used to have one of the biggest economies in Europe – on a par with certain countries. Today, it's facing high unemployment as jobs migrate to the Far East.

A successful jeweler living in Vicenza told me he feels uncomfortable driving through town in his restored classic car these days. "How can I do it with so many without work? It's wrong."

A series of elections in Europe resulted in change. Not a shift to the right or the left, simply a replacement of those in power. This includes the rise of fringe parties promising changes that are pleasant to the ear, but which won't improve the economy. Worse, these parties can't deliver and the stagnation will exasperate the situation.

Greece is the forerunner. The recent elections there have simply led to another election being called.

In the Arab world, another important consumer market for jewelry, the situation is politically very charged. The riots in Egypt, a bloody civil war in Syria that has no end in sight and the ongoing tensions around Iran and its nuclear plan are threatening to keep the region jittery for a while.

India is suffering from an unstable currency. Unlike the U.S. and Europe, which are mainly finance and service-oriented economies, India is manufacturing oriented. This requires a stable currency to maintain competitiveness in exports.

Consumers are also suffering from the situation. Although the value of gold is declining in dollars, for an Indian consumer, the price is all over the place due to the rupee's fluctuations. This does not instill confidence, resulting in sinking sales.

The last stock exchange peaks, mainly around December 2009, are nothing like those seen in 2007 and therefore the downward slide seems less dramatic, but they are there.

Since May, the declines have been sharper. Is this another early warning? Were the low expectations of the Las Vegas shows reasonable? Indeed.

In the polished wholesale market, demands are sporadic and specific. Traders don't want to hold an inventory or speculate. Sightholders, understanding that they don't need much rough now, asked for larger than usual deferment of their allocations.

A test is ahead of us – the Hong Kong Jewellery & Gem Show later this month. Slow demand will equal a slow summer. The global economy is telling us "expect matters to get worse." That is fair warning.