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Well, basically Mamma and Papa's marriage fell apart. So she doesn't like to acknowledge that so she pretends it didn't happen. What she saw with her eyes and did not like, she pretended not to see or notice, imagined it was something else, like smoke, and magic, gone.
Seems like its a song about ignoring known problems. I think the reference to diamonds and roses symbolizes her unwillingness to fall into the same slump, sorta like, "Who needs love, when there's diamonds and roses?"
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