The Boomerang Effect

At 7:05am I usually arrive at the pool. If I am on time, Fred is just finishing shaving the left side of his face, Mark and Haim are in the middle of some political argument, and lovely Mrs. Betty is already swimming her laps. Turning up at the pool early Sunday morning is always a heavenly encounter, as the water is crystal clear, reminiscent of a light blue diamond. In fact, because it is so peaceful I write my President’s Corners under water during the half hour daily swim. I make up the story in my head in the pool, and then begin writing it out on the following 30 minute train ride towards the office. I operate on a firm daily routine: I wake up at 5:30am, go for a swim, and then leave to work. Upon my arrival, the first thing I do is attend a daily Talmudic lesson to start off my day in the office.

 

Leibish Polnauer

Leibish Polnauer - President of Leibish & Co.

 

 

Regretfully, the world doesn’t operate on a regular preset pattern like me. Rather, it flows according to insane actions and fully unexpected reactions. Still, the US is trying. They are now running a large campaign trying hard to stop money laundering around the world, which is fine with me. The basic goal of this powerful effort is to interrupt the flow of drug money and financing of terrorist activities. The only problem is, in reality, none of that is really happening as drug lords simply change the routes they use to filter in the cash, and terrorist organizations are thriving as never before, chopping off the heads of innocent victims daily. The real effects are on banks worldwide. After having been hit with hundreds of millions of dollars in fines, the banks are now reluctant to open new accounts for diamond companies, as they are suspected to eventually launder money.

 

But, no one can stop the flow of money. Cash will always find a way around, especially in Asia like how salmon swim upstream.

 

"The run up the river can be exhausting, sometimes requiring the salmon to battle hundreds of miles upstream against strong currents and rapids. They cease feeding during the run. Chinook and sockeye salmon from central Idaho must travel 900 miles (1,400 km) and climb nearly 7,000 feet (2,100 m) before they are ready to spawn. Salmon deaths that occur on the upriver journey are referred to as en route mortality. Salmon negotiate waterfalls and rapids by leaping or jumping. They have been recorded making vertical jumps as high as 3.65 metres (12 ft). The height that can be achieved by a salmon depends on the position of the standing wave or hydraulic jump at the base of the fall, as well as how deep the water is." (Wikipedia - Salmon Run)

  

In order to operate our Chinese website www.leibish.com.cn, and serve our growing Asia clients, we needed to open a new bank account for Leibish Asia. We have a AAA bank rating, so naturally I assumed it would be a piece of cake and all Hong Kong banks would greet me with open arms. Five of the leading Hong Kong banks didn’t even want to see me, even though we are currently working with two of the largest worldwide banks without any problems. One of the biggest Asian banks indicated “it has nothing to do with you sir. We even refused the Colombian Embassy.”

  

I needed four hours to convince them that we don't sell heroin. Our business is focused on diamonds and jewelry sold online, all over the world. It was only after an hour that they finally agreed to allow me to just sit down with them. Even after having sat at the New York Stock Exchange on CNBC in an interview with Melissa Lee, and having interviewed with Cathy Yang on CCTV China News it still took another three hours of convincing until they finally decided to allow me to open a Leibish Asia account.

 

/in-the-news

The company is interviewed on The Street 

 

The truth is however, I actually understand them. The banks, after having paid fines over $350 million, are petrified from everything that looks questionable.

 

The diamond business is suffering from these stiff policies. There are many wealthy clients who don’t even know what money laundering is and know terrorism only from CNN. These people have money that they cannot even use in their regular banking channels. People in Asia used to pay cash for everything, from inexpensive to luxury items, counting their greenbacks on the table. But today, that is a big problem as most banks don’t want to accept USD100.000, in cash. This behavior, regardless of whether the funds are offered by good legitimate individuals, looks too ‘suspicious’ on the books for banks to operate. So if you don’t have a bank account and can’t accept cash, you have a problem.

 

Today, to have money is almost an even bigger problem than not to have money. The world is upside down, like the old saying: ‘I was poor and I was rich, though I am not even sure that rich is better.’

 

China and India started the big campaigns to eradicate corruption. I am an old India hand who has visited Bombay about 120 times. It is easier said than done. We count on the China business. They will surely eliminate the old guard who accepted bribes, but the new ones who got rid of them want their fair share as well. Eliminating corruption usually comes at a high cost and creates many new candidates who want to take their part.

 

It’s like the problem of the Aboriginal hunter. When he buys a new boomerang, he will have trouble throwing the old one away. Every time he tries, it simply comes back.

  

Bad habits die hard. Chinese and many South East Asian people are accustomed to deal in real physical cash. They will not use their iPhone as a means to pay a bill for the next ten years.

 

According to Lloyd Blankfein, the United States welcomes the Chinese century. Even when China slows down we will have double growth of the USA in 2015. According to the IMF, by the end of 2014, China will make up 16.48% of the world's purchasing-power adjusted GDP (or $17.632 trillion), and the US will make up just 16.28% (or $17.416 trillion):

Read more: http://read.bi/1ExOpPn

  

Still with all that said, the majority of our Internet sales and especially the big ticket items are still coming from the USA. Obviously, alternative ways will be found for transferring and safekeeping of billions of dollars which are affected by compliance decrees. They are not going to disappear over night and they are not getting declared either. The tax collection will be substantially less when countries forbid the use of cash, and it will only raise the value of cash money in all areas. Money is like water - it will find the way to filter through.

 

There are a lot of fish in these turbulent waters. As the salmon can run upstream and travel hundreds of miles each season to reach the place they were born in order to spawn before they die, so too money will find its way around. Simply said, hard money will never go out of fashion. When one considers putting a million dollars away for the next generation, a pink diamond ring will probably beat cash, gold, or any stock.


Leibish Polnauer

 

Best regards,

Leibish Polnauer, President and Founder of Leibish & Co. Fancy Color Diamonds

 

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