So - when is the great wine bubble going to burst?

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So - when is the great wine bubble going to burst? - 4/7/2011 9:15:08 AM

Ho Bryan

Posts: 423
Joined: 3/27/2011
From: London, UK
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An interesting post I just found in Jancis' forum. Interested in what people here think.

***

As we enter the madness of Bordeaux 2010 en primeur with what is shaping up to be yet another year of record breaking release prices, I thought it was timely to express some scepticism I have about the current bubble in wine prices, and to solicit the thoughts of others, since we have some very expert economics and financial types on here, as well as trade members.

I wonder if the discussion might contribute to restoring some sanity in the market, especially in light of the recent misgivings Jancis and others have also expressed.

1. Recent examples of the price bubble in Bordeaux

You all know this already, but I thought it would be helpful to set the context by highlighting a few actual recent trades, as I find that provides a bit more clarity than liv-ex market figures, which can seem abstract. (Sadly, none of these were for investment purposes or in investment quantities, and so the price movements actually present some unwelcome decisions about whether to drink or not).

All prices are IB for comparison, with the "now" price being UK prices sourced from winesearcher listings from reputable brokers.

(a) Carruades 2000. Jan 2010: £200. Now: £350. Up 75% in 16 months.

(b) Forts de Latour 1996. Jan 2010: £100. Now: £197. Up 97% in 16 months.

(c) Latour 2001. Nov 2010: £330. Now: £417. Up 26% in 6 months.

(d) Latour 2004. Sept 2010 (just pre Lafite HK auction): £287. Now: £399. Up 39% in 7 months.

(e) Pavillon Rouge 2004. July 2010: £58. Now: £120. Up 106% in 10 months.

(f) Latour 1994. April 2010: £220. Now: £349. Up 59% in 12 months.

2. China - a bubble set to burst?

We all know the reason behind the price explosion: the entry of China, and with that, the Lafite effect, which has had knock-on price impact on the related first growths and their second wines.

It strikes me that the most important reading anyone can do to form an opinion about Bordeaux 2010 is actually on the subject of China's medium term financial outlook. And there is a growing sense of unease in the financial journalism about whether China may be headed for a spectacular crash. Can high single / low double digit growth really continue forever?

"China Housing Market Bubble Bust Could Be Dubai X1000": http://tinyurl.com/6l4s93r

"China's Bubble Will Burst, and Take Asia With It": http://tinyurl.com/67fn3ok

"China's Bubble Waiting to Burst": http://tinyurl.com/325kozx

And, most tellingly:

"Hedge Fund Manager bets on China as next 'Enormous Credit Bubble' to burst": http://tinyurl.com/2fjhjvs

3. Some thoughts

Reading all of that, it's difficult for me to think that discussion in the wine press of "this time it's different" or "the new normal" surrounding the entry of China into the market isn't completely reminiscent of the same mistakes in the US subprime bubble, the tech bubble, or even earlier ones.

Time will tell, but if China goes I can only see the wreckage in the wine market being grisly. Perhaps Haut Brion 1995 (disclosure: I have some HB, but not this one, sadly) will maintain it's current level of £350ish - it is sublime stuff, and I am sure there will always be a market for it.

But 2009, 2010 EPs' at £750-£1000 a bottle?

My friends in the hedge fund industry have a saying for this: "All I can see is downside".

***

_____________________________

"and here drank a sort of French wine, called Ho Bryan, that hath a good and most particular taste that I never met with" - Pepys, 10 April 1663.

Post #: 1

RE: So - when is the great wine bubble going to burst? - 4/7/2011 9:18:54 PM

DoubleD1969

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From: New Jersey
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I am hoping Bordeaux wine prices keep going up since I don't plan on buying any more. The higher the prices the more it makes my 2000 and 2005 purchases look like bargains.

It's not just China that is driving up prices, but just about every country with a growing economy and consumer society are pushing prices upward. It doesn't take a genius to predict that Bordeaux prices will be impacted if credit or incomes to these buyers are cut. The question is when? Wine drinkers have been complaining about rising Bordeaux prices since the 2000 vintage. (If you are 50 or older, you were probably complaining since 1990 probably.) Which vintage do you think the Asian buyers will suddenly stop buying?

In the meantime, my suggestion is to move away from Bordeaux and into other regions that have not experienced

(in reply to Ho Bryan)

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RE: So - when is the great wine bubble going to burst? - 4/8/2011 12:11:25 AM

nwinther

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From: Denmark
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Saw an article in the latest Decanter, where a British merchant (BBR?) laid down the "number". Almost half the Bordeaux sold, went to UK buyers. Another 40% or so went to China.

The US didn't even buy 4% (four).

Question is, if the Chinese market is as loyal to fine wine as the US have been, and if a chinese bubble-burst will result in US to pick up the pieces at reduced prices, or if they've once and for all turned their back on Bordeaux.

The article mentions that it's not only the high prices that's keeping the younger US segment away, but availability in terms of drinking window, where Cali Cabernet is approachable much earlier than Bordeaux.

This could potentially put the rest of us in a sweet spot, if the bubble in China bursts. AFAIK, the Chinese are rather patriotic, and once they start making finer wines themselves will perhaps switch imperialist French swill with the worker-paradise Dragon Wine of China.

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RE: So - when is the great wine bubble going to burst? - 4/8/2011 9:32:14 AM

kelpcowboy

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From: Anacortes, WA
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Only 4% of the BDX going to the US is an eye opener. I too have been watching the Asain wine auctions with amazement. Perhaps when the Szechuan Sirah starts showing up on the shelves, BDX prices will return to reality.

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RE: So - when is the great wine bubble going to burst? - 4/8/2011 9:50:03 AM

ssimpsonjr

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From: Acton, MA
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I find 4% incredibly low, but does anyone know the level for the 2006 EP campaign?

(in reply to kelpcowboy)

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RE: So - when is the great wine bubble going to burst? - 4/8/2011 10:31:08 AM

GalvezGuy

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Joined: 5/10/2007
From: Galveston, TX
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That was probably just for that importer Berry Bros. (assumed) They are UK based and has a big presence in HK. Winex, K&L, JJ Buckley, etc, work directly with negociants to get their allocations. I do believe that the US market for Bdx is still bigger than China. Correction China imports more volume, the US spends more $$. Makes sense if you have been tracking the price of Cos, Montrose, Palmer, et. al.

According to this article

< Message edited by GalvezGuy -- 4/8/2011 10:36:47 AM >

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Burgundy makes you think of silly things; Bordeaux makes you talk about them; Champagne makes you do them.

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Post #: 6