Chinese rail lines and Lafite

JimHow · Post by **JimHow** » Thu Jun 23, 2011 4:25 am

I was just reading an article about what a mult-trillion-dollar albatross the Chinese rail system is going to become.
That the country has made a phenomenal miscalculation on rail investment.
That they are going to meet about 5% of their passenger goals, after the expenditure of trillions upon trillions of dollars.
(In other words, they're making the same mistakes we've made.)
In another article I was reading about China's lone aircraft carrier.
This from a country whose per capita GDP is microscopic.
Not to mention that they have invested heavily in this shell game of an economy here in the west.
The real estate market there seems unstable.

I'll repeat a question I've raised previously:
Is China a myth?
Is it a fraud? Overrated?

Is the Lafite/Bordeaux phenomenon just another example of the phony economy that is China?

If so, I think Bordeaux is playing a VERY dangerous game.
Putting all their marbles in a very dangerous place.

Be careful, Alfred Tesseron and J.M. Cazes, and all you Bordelais smitten by the fancy suitor from the east....

Be very careful indeed....

JonoB · Post by **JonoB** » Thu Jun 23, 2011 10:54 am

I agree... I've just done an interview (I won't say for who, because I don't know yet if they will actually use my quotes) about AN Other Countries exporting wine to China, and I took the view I always take.

Even if China becomes a behemoth, do they really think all the billions of villagers in the countryside are going to drink fine wine? Of course not... Not everyone in the oldest wine buying market in the world drinks wine. Of course, if even a small percentage of the Chinese ELITES start then that will affect the market, but it is not in their culture or their mindset to delve deeply into the world of wine (however similar it is to tea, where the only connoisseurs frequent the tea markets like we frequent wine shops) then you can see that it is a false game.

On a real socio-economic stance, China has massive problems that they are papering over... Their are major cracks because for me it was a state driven false economy where everything revolves around the state rather than genuine enterprise. It is for want of a better word... Communism in the guise of Capitalism (simply because they trade with the west and have a stock market doesn't make them capitalist). They also seem to forget that their economy is held up by foreign investment and exports from these factories. What happens when these leave to Cambodia or emerging African economies? The market in China has grown a bit, but it all revolves around the Communist Party, and now you can flaunt your wealth to look Capitalist whereas in the past you would be locked up for six months... And released without charge. But people don't realize that the difference is that those who were in the middle class are allowed to spend money now, so it looks like the middle-class has grown, iy has a bit but not to the extent that people assume.

In terms of white elephants, there are plenty... You only have to go to areas that use to be bustling little markets with lots of quiant old houses that were bulldozed on mass to find, 8 lane boulevards with brand new empty buildings because there isn't the demand from shops and offices. If you get invited, they don't take you down those streets!

but they are there in their hundreds. If you want more from the ground info, I can give you my father's email address, and also some friends whonwork in Shanghai (which is a little bit more civilized but then it always has been!)

To put it simply... It isn't just the Bordelais who are putting all their eggs in one basket...

Houndsong · Post by **Houndsong** » Thu Jun 23, 2011 12:33 pm

The Bordelaise rely on the JimHow put like everyone relies on the Bernanke put. If know you'll buy my Lafite for $150 any day, why not put all my eggs in the $1500 basket for a few years now?

Claudius2 · Post by **Claudius2** » Thu Jun 23, 2011 1:28 pm

Jim
Putting the anecdotes about rail aside (I actually think their dams are a bigger disaster) there is CAGR of 10%+ GDP and a LOT of new neuveau riche with lots of RMB to throw around. While lots are still living on a few dollars a day, the rich are chucking cash around.

Don't forget that the Chinese population is at least 1.4B (and the Bureau of Statistics in Australia reckons itsw higher to cover up single child policy failures).
Also add 1.2B+ in India.
Ouch.

Now the number of rich is growing and they buy lots of silly toys (like my jerk of a neighbour with 2 Ferraris, a Lambourghini, a Maserati, BMW tank et al).

Don't think the Chinese economy is going to tank soon.
The current growth rate is NOT sustainable beyond the s/t but growth will in future be driven more from domestic consumption.
Having said that, their environment is a disaster.
Luckily Singapore keeps away from the pollution.

JonoB · Post by **JonoB** » Thu Jun 23, 2011 3:39 pm

I for one would like to see genuine independent figures with regards a Chinese middle class and their growth. My father lives in Beijing and feels the crash will come a lot sooner than people think.

Houndsong · Post by **Houndsong** » Thu Jun 23, 2011 6:18 pm

Game over

http://finance.yahoo.com/news/Report-Mo ... 5.html?x=0

Asia has big mo on its side and I don't think we can run out the clock on them.

JimHow · Post by **JimHow** » Thu Jun 23, 2011 6:40 pm

Sigh. When sorrows come, they come not single spies, but in battalions

JonoB · Post by **JonoB** » Thu Jun 23, 2011 7:41 pm

Hound, I wouldn't always believe the press... Yes, of course there are more, their populations are enormous, and they will grow, but China is slowing in this respect in comparison to the rest of Asia. That is my view and I doubt it can be denied.

What isn't taking into account by this article of "hard fact from yahoo" is how much is this due to: a)corruption, b) links to corruption c) links to foreign investors and d) all of the above. All in affect are linked to FI... What happens when FI moves?

In percentage terms, the wealth is still in the Western world, and those in the West who have wealth haven't exactly lost it. In fact they have gained more from being part or parcel of (b) and (c) in the East and emerging economies.

Whilst I don't see China being the be all and end all, but somewhat important... I do see Brazil, Russia and India in particular being hugely important in the future, and whilst this will create genuine wealth in those emerging economies that doesn't transpire into another bubble in the wine market. And even if it does, it will be a sustainable growth because it will be more even in its structure and allow those at the lower levels to catch up/be more price conscious. With China it is a fad... Mao Tai costs more than Lafite in China now!!! Times change...

I do however stand by my observations from the ground, having relatives living in working in India, Hong Kong and China, not to mention many friends from University. What we hear over here is mainly hearsay and figures... To which I might add that if the person in China in charge of the particular figures doesn't show an increase they either go to jail for a while or lose their job, depending on how important their position is... Hence the fact that whilst the numbers of fish being caught by fishermen is constantly depleting, the figures of fish caught, rises every year... Who is to say that when a millionaire makes an extra million who is to say that the Chinese government don't say, that husband and wife have separate new fortunes in order for figures to increase.

All "official" statistics are government controlled by individual states, would you always believe your own government and politicians?? I don't trust my local MP? So why would you trust the Chinese government??

If you have issues with my arguments I can happily scan a copy of my Masters degree in International Politics!

Whilst I don't agree with anything other than the Social Theory of Das Capital and disagree with Communism as a wealth creator due to the fundamentals of human nature, there is one thing they got right during the Cold War in the USSR and PRC...

... You teach all your Civil Servants about politicaleconomy as part of their training/or subsequent degree studies. Something that the West had severely lacked during all our recent travails.

JonoB · Post by **JonoB** » Thu Jun 23, 2011 7:42 pm

JimHow wrote:Sigh. When sorrows come, they come not single spies, but in battalions

Can we add a Facebook Like to this post??

Houndsong · Post by **Houndsong** » Thu Jun 23, 2011 8:12 pm

Who reads articles? I take headlines as the gospel truth.

Claudius2 · Post by **Claudius2** » Fri Jun 24, 2011 4:06 am

Folks
I use a lot of data on international economics (including having taught international business for 20 odd years at various Unis).
What a lot of Europeans and Americans don't get is that power is spreading out.
In the post war era, the world was dominated by the five UN permanent members with a little help from their friends.
Not any more - I don't mean just China, I mean India, Japan (sluggish now), Russia, Brazil, Middle East, you name it.

The west is pissed as it does not have it all its own way any more.
You may like to know that SIngapore (where I am) has a significantly higher average income level than the US and all but a few Euro nations.
The highest incomes in the world now are in the gulf states.

Don;t know why everyone thinks China is going to implode.
I think it is just as likely that India will.
Of course it will slow down.
10-15% CAGR is never sustainable and the Chinese govt is trying to wind in speculation and paper transactions (like property markets).

The more logical option is internal problem and some internaitonal isssues from their crappy human rights record - and this goes thru cycles and is in a bad place now.
I would not live there on principle (as well as the fact it is too polluted).
The changes over the last 30 years are enormous and some arbitrary and despotic controls are largley due to having a communist govt running a bull capitalist economy.
Hmmm. Not too many text books cover that.

There are going to be a lot of bumps along the way but the US and European economies are the ones dragging the world down now.
I see the value of my investments nose dive whenever Greece, Spain, Portugal, ireland, the US or whover else becomes debt burdened and is bailed out.

The biggest economic threat to the world now is Europe.
For god's sake, unemployment there is phenomenal.
Visited Spain, Portugal, France, Monaco, Italy, Germany, Austra, Hungary, Czech Rep, Slovakia and a few others over the last 18 months and things are looking bad.

Secondly, instablity in the Middle East is ongoing and much of that is economic, with rising commodity prices and high unemployment.

My overall point is why be concerend abut the countries doing well????
China and most of Asia is booming.
Guys, come over here and I'll show you the money being sloshed around everywhere.
Much of Europe, the US and middle east is struggling economically and socially.
And I see little "real" signs of progress, just more of the same.

JonoB · Post by **JonoB** » Fri Jun 24, 2011 9:22 am

I can't disagree Claudius, but I don't see the point for many of the reasons you have mentioned why so many people are putting all their eggs in the China basket.

I see India, Brazil and a few others as having many more of the institutions to actually grow sustainably. For me both politically and economically, a communist government with a bull capitalist (or rather neo-patrimonial) economy is not a good thing IMHO.

Claudius2 · Post by **Claudius2** » Sat Jun 25, 2011 3:21 am

Jono
I actually don't understand what the point of your argument is.
Sorry but not a lot of it makes much sense.
I have to say I don;t see many investors here or elsewhere putting "all their eggs in one basket".
Rather, there is a lot of money coming into all over Asia - Singapore and HK are internaitonal financial centres with close links to global capital markets.

So let's have a look at annual growth rates and stick to your own government (yes, the US govt):

China - CAGR of around 10% 2008, 2009, and 2010. Previous decade (pre-GFC) was 11-15% CAGR. 1.4B people
India - CAGR of 10.4% in 2010 and 6-7% for the pevious decade. 1.2B people
Thailand - CAGR of 8% in 2010, and despite being hit by the GFC in 2007-09, has maintained growth of 5%+ over the medium term. 90M people
Bangladesh - 6% CAGR over the last decade and no GFC affect at all. 160M people
Indonesia - 6.5% CAGR in 2010 and 5-8% CAGR over last decade. No GFC effect. 250M people.

Now, CAGR was 14.5% in Singapore in 2010 - okay, a small country but there is an obscene amount of cash here.
LT trend of 5-10% CAGR over the last decade despite nil growth in 2009 (entirely reversed last year). 2011 forecast of 10%.

In Brazil, CAGR was 7.5% in 2010 (203M people) though it was badly afected by the GFC, while Asia hardly missed a beat. Growth of -2.5% in 2009.
Russia - 4% CAGR in 2010 BUT -7.8% in 2009. Good 2010 growth but a lot of rises and troughs.

USA - CAGR of NIL over the last 3 years overall. Slight growth in 2010 offset by -ve growth in 2008 and nil growth in 2008.
Yes, NIL growth 2008,9,10. 305M people.

European Union - uneven but no better than the USA except for a few countries. 1.8% CAGR in 2010, though -ve during the GFC.
There are heaps of Euro countries that are a disaster at the moment.

So the point I'm getting at is putting the anecdotes aside, growth has been consistently strong in Asia for the last decade and the region was not affected to any degree by the GFC.
Of world population of 7B, Asia also dominates.

In relation to government, I already commented on the bi-polar form of Chinese govt.
Communists one day, rampant capitalists the next, then round in circles again.
Yet India is more bureaucratic, corrupted and plain incompetent.
Don't let me start - too loong a story.

In relation to Europe, maany of their govts are incompetent.
Sorry, but the majority of Euro govts are self-serving, beholden to vested interests, lacking in insight and unable or unwilling to upset any pressure group due to fear that it costs them votes.
Let me let you a story. In France earlier this year, the Luxemborg PM said that in the EC, everyone knows the problems, and what to do to address them, but we don't know how to fix them AND get elected as well.
So the decisions are entirely political - which makes them a bunch of self-interested harlots.
Sorry, but the quote is true.

Businesses are putting their greenbacks, Euros, yen and RMB in Asia simply as it makes sense.
So where would you invest? Singapore or Greece? China or Portugal?

The above does NOT mean that Europe and the US are going to the dogs, it means they are taking a long time to recover and painful structural change is slow in coming.
I hate trying to do business in some Asian countries - but the same is true in several others too.
What is a pity it is that govts only ever seem to focus on s/t political gain and follow the line of least resistance when dealing with entrenched self-interest.
cheers
Mark

JonoB · Post by **JonoB** » Sat Jun 25, 2011 8:21 am

Claudius, I never said that the West wasn't in a bad way, and being a wine merchant/ political thinker, economic figures do not register in the same way with me as social theory.

You could argue that if China and Asia don't grow at that sort of pace they will have similar social implosions to the Middle East! Of course, culturally you can argue against that because culture and social structures are different, but you are already seeing unrest in Asian nations, various upheavals etc.

Thr eggs in one basket was mainly to do with wine not economics. Whilst I don't disagree that the East is now important economically, I am still skeptical about viniously. Simply because, let me put it very simply.... Not everyone in the UK (the global traditional market) drinks wine, let alone fine wine. So how do so many people expect billions of people in Asia to do the same. Yes, in percentage terms they might but I think it is more to do with fashion and face! Times CAN change...

In terms of India being corrupt, it can't be denied, but you can't exactly skim over this issue from any country in Asia. You could say the same about Thr West (just slightly more sophisticated a d usually called fraud). Ignoring Chinese corruption and incompetence and blaming India Nd writing them off is a bit of "pot" "kettle" "black" IMHO.

If we look at the way Chinese growth works, it generally revolves around the elites and the party. The Communist party does what is best for the party. Not what is best for the country. Make of that what you will...

JimHow · Post by **JimHow** » Sat Jun 25, 2011 12:52 pm

The west is pissed as it does not have it all its own way any more.

Other than the fact that I can't afford Lafite and Lynch I'm not pissed, Claudius, I'd love to see some other countries share the load for a change and have the U.S. focus on paying our bills here at home.

When you say China is "booming," for whom do you mean? That small percentage of super-rich? If that's your definition of booming then the U.S. is booming too, because we have a percentage of our population that is getting richer and richer in the current state of affairs.

Is the Chinese economy booming for the factory workers and the farmers? If the Chinese economy is booming, why is the per capita GDP only a small fraction of what it is in the U.S., Japan, etc.?

In a one-party state, are there ever going to be enough freedoms and civil liberties and rights of expression, etc., for the nation to truly succeed? There was an interesting piece on National Public Radio a week or so ago. Everyone has been bemoaning about how the U.S. is supposedly falling behind in math, and science, and technology, etc., that like only 25% of the population knows what Abraham Lincoln stood for, etc. But the fact of the matter is that we have never been tops in education, and math and sciences, and that fifty years ago the same percentages of the population knew anythining about Abraham Lincoln. What we have in the U.S. is personal liberty, freedom of expression, reliable laws and judicial systems, etc., that have fostered our successes in the past century. We don't cane people for chewing gum, or put them in prison for 8 months for questioning their government, etc. Do women have equal rights in Asia? I was reading about all these Malaysian and Indonesian women who have been going off to saudi Arabia to be house servants and getting abused and raped and beheaded there. Can a female worker in China sue for sex discrimination in the workplace? Can an elderly worker in China sue if he has been discriminated against on the basis of his age? The second-biggest state in the U.S. just passed a gay-marriage law last night. We've got a long way to go on the issue in this country, but success is inevitable, as younger, less-uptight, more liberal people enter into government and the voting population. Does China afford equal rights to gays? When someone is arrested in China, do they have the right to remain silent? Or a right to trial before a jury of their peers? Do the middle classes in Asia get to sit on their back deck on holidays, grilling cheeseburgers and listening to Ray Charles (or the equivalent)? Is it true that you can only get good health care in China if you have some cold hard cash in your pocket? I'm sure Asia has gotten great at making lots of money, but that is far from the top of the list (my list, anyway) of what constitutes greatness or success in a people. Sure there seem to be a lot of yucky luxury-item conscious Asians out there (just like in the U.S.) sipping their Lafites-- I'm sure things are great for them-- but in a lot of other ways Asia seems like a pretty grotesque place to me. Why should anyone from the outside believe that anything will change dramatically there anytime soon?

Bacchus · Post by **Bacchus** » Sat Jun 25, 2011 2:03 pm

Congratulations to NY and all Americans on the passage of the new marriage law in NY. I knew it was on the docket, but being in a much later time zone than NY (+1.5 hrs), I hadn't heard the results of the vote until now. Soon you'll be as progressive as Canada!

And as a Canadian I've got to agree with Jim, I measure success in terms of personal freedoms and legal protections for the individual, not the number of millionaires running around the place. Now if only you guys could repeal the Patriot Act. It just doesn't seem to be true to the genuine spirit of America.

Ramon_NYC · Post by **Ramon_NYC** » Sat Jun 25, 2011 2:42 pm

Yep, those rampant discrimination in Asia sure can't comapre to the the spotless one in the USofA.

JimHow · Post by **JimHow** » Sat Jun 25, 2011 2:50 pm

I think that's a bit of an unfortunate comment, Ramon. I think my writing here has been just as critical of the problems in the United States when I've seen it. From what I've been able to see, there are nonetheless more civil rights here than in Asia. But maybe I'm wrong? Maybe those discriminated against in Asia have more rights?

I'm just a country lawyer from Maine, so I don't know too much about these things. I do live in a somewhat culturally challenged area. When I was mayor, Lewiston was amongst the 12% of the municipalities in the country that did not celebrate Martin Luther King Day. I was able to get that changed, but not without political bloodshed. Then I spearheaded a sexual orientation anti-discrimination ordinance, or so-called "gay rights law," and you would have thought I was Satan himself. When the Somali population moved into the community, I marched with the Somalis in opposition to the infamous letter that our local mayor wrote to the Somali community, asking them not to move here. Later, when an alleged neo-Nazi rolled a frozen pig's head into a Somali mosque during prayer, I defended him. I defend murderers, child molesters, I defend whites and blacks. The country has a sorrowful history of bigotry and discrimination, manifested most recently by the opposition to the Muslim mosque near Ground Zero and the anti-immigration laws in places like Arizona, but I still think that, at least outside of Texas and Louisiana, most people are still basically free to pursue their civil rights. Claudius, Jono, etc., how do citizens of China, Singapore, other parts of Asia, etc., perceive where they stand when it comes to civil rights?

JonoB · Post by **JonoB** » Sat Jun 25, 2011 5:21 pm

In China, I would say there are a core of academics and critics who fight hard and do time for hit... Some from within the establishment itself... However, it is long and drawn out. I have gone on and on about China and how growth revolves around the elites... And now the world seems to be starting to o deeper.

There was an interesting article today in the (London) Times about social issues and inequality in China today. I will dig out the title or maybe email it to anyone who wants to read it!

Claudius2 · Post by **Claudius2** » Sun Jun 26, 2011 8:51 am

Jim et al
I think that across the globe civil rights have gone way backward since 9/11.
That is such a pity.
Just getting thru virtually any airport in the wqorld (and I see more than a fair share) is a nightmare.

Jono
Please relax, okay.
I am not being personal.
Sorry if I sound like an academic as I was one for 23 years.
My argument is that the wine market is not dependent totally on China, Asia or anywhere.
The internaitonal press suggests that the 2010 vintage is doing very well in Europe in particular (despite all the economic gloom).
The overall size of the Asian market is not great at least yet.
Wine is an internaitonal market and the estates and negociants will sell to anyone with cash.
Same as investors. They put cash where is gains a return.
But I keep reading articles here that China and Asia will implode - yet the economic indicators are the opposite.
Of course the growth rate will not be 10%+ in China for decades.
There are however a lot of adjustment issues. And the Chinese govt often feels it is losing control of the economy and over-reacts.

India is more corrupt than China on all internaitonal surveys.
The Economist rates Burma (with its military junta) as the most corrupt but hell, the rest are not much better.
So Asia gets by DESPITE corrupted, incompetent and self-interested parties.
Now, do not start me on my view of US politics as you will hear the same stuff.
It is a testament to the spirit of man that humanity can survive despite governments.
As far I'm concerned just abut every govt in the world is a disgrace.
I'm not playing favourites. They just about all suck.

Jim
The distribution of wealth (GINI index - check the UN or CIA web sites) is less even than ever.
Economic growth since the mid 70s (when I left school) has been unbelievably uneven.
The middle classes are WORSE off now than in 1975 (see the Economist Magazine).
That applies in just about all OECD countries.
I wish it was not the case but economic growth is NOT even. Never has been.
Yet I have to say in several Asian countries like Vietnam, China, Laos, Cambodia et al, there is little evidence of mass starvation these days - there was heaps of it in the 60s and 70s, partly due to Mao and the Vietnam War.

There have been some very useful articles in the Economist that indicate that since 1975, the lower classes are marginally better off, the middle classes significantly worse off and the top 10% are several times better off in real terms.
The top 1% is so much better off it is obscene.

China is wierd.
The same politicians that defended communism a few decades ago are now espousing capitalism when it suits them.
Human rights in China and most Asian coutnries is terrible.
The Chinese govt totally over-react to any apparent threats. Same in lots of countries.
They always have been everywhere in the world and across all ages of man - with VERY few exceptions.
And I see no reason for it to change.

JonoB · Post by **JonoB** » Sun Jun 26, 2011 10:57 am

Being a merchant, I would temper what the press say about the vintage...

The Chateau have sold to Negociant (as always that won't change)...
The Negociant on the whole have sold well to merchants...
But the wines are not selling further down the line.
Futures is all about smoke and mirrors... No one really knows what's happening because figures and percentages of production that is released onto the market are not made clear.

I agree that Asia as a whole will be a player and to some extent already is in the global wine market, but the UK, Europe and USA for the moment are still the big players, and will be for a while. Even Jeannie Cho Lee MW commented last year how fragile and adolescent the wine market in HK and China is compared to Europe and the USA. Japan is the most advanced Asian wine market by a distance and they still lag behind. The question is will China develop how Japan has done in terms of wine? Will the adolescents find a new tipple or take it to their hearts like a percentage (similar in size to those in the West) have in Japan.

If you google any article about wine exports to China... Everyone talks about China being the saviour of their wine economy. This is not true to me... It is the same argument with how investment funds for wine blindfold people by saying China has a massive population and they will start drinking wine. We all know it is rubbish...

Jim's point is asking whether or not China will collapse per se. And to be fair, I stick by my social theoretical points. A strong economy doesn't mean that things can't go wrong. During doom in the West no one talks about problems until they have hit. China is still an export/production economy. I don't see a growing middle class and domestic market yet. Neither does my father or my mother and they live and work in the country and benefit from China economically. What they do see, is elites being allowed to spend their money and wanting status... That is why it looks like a growing market, I see it as the same people spending money. I have a client, who I took to dinner in London on two consecutive nights. A year ago, he couldn't care less about wine or Lafite, now he wants as much wine as he can get and doesn't mind what it is (he wants to learn/perhaps empty the bottles and make Fake Lafite, who knows?) because he wants to learn about wine to gain MORE face beCause he will know more about wine than those simply chasing Lafite...

If he becomes a genuine wine lover and converts many others, then that will have a bearing on the wine market beyond londons wine investment funds. If it is just a fad, it will all collapse. Nobody really knows and figures have no bearing on the whims and ways of human nature.

If it sounds like I am offended or upset, I am not... I have been stating these thoughts for a long time. I also think that many of my friends in the trade are starting to realize that things aren't so simple. They are simply my thoughts, and I don't think I have disagreed with your opinions, just that I find figures limiting in what they say.

Claudius2 · Post by **Claudius2** » Sun Jun 26, 2011 1:35 pm

Jono
Intertestingly, one of the local Singapore and HK importers here is 0nringing in lots of classed growths by the pallet and very reasonable prices.
I mean 1998 (right nak), 2000, 2001, 2002, 2003, 2005, 2005, 2006.
And for some wines (eg GPL, Calon Segur, Pontet Canet, LB aand LP) they have brought in a range of vintages going back to the 80s.
Now the negociants in France as loaded up with back vintages.
I reckon it must be easier to unload 2010 pre-arrivals than a lot of previous vintage based on Parker and other point scores.
The 2001 ans 2002 Pontet Canet was a third the price of 2010 for example and I could buy as much as I wanted (just took 3 bottles of each as the rest of my stock is in Australia). And a case of 2003.

So the market is artificial in that normal economic issues such as supply and demand are manipulated.
And it does not matter if it is a good vintage.
The local importer had a big 2005 sale recently, and I could pick up good 05s in Dubai recently at attractive prices.
So I can't work out why 2010 is about twice the price of the 05s I picked up at both ports.

I would love to check out the holdings of the negociants.

JonoB · Post by **JonoB** » Sun Jun 26, 2011 2:14 pm

There is a lot of talk about the prices being high in order to shift leftover stocks... But that either means that the negoc will take a big hit on 2010, or that the negoc make a bigger profit than people think? IMO I think they will take a massive hit... But the Chateau don't declare what price they sell to the negoc at... Obviousl it is high because otherwise some wouldn't have rejected some allocations.

Claudius2 · Post by **Claudius2** » Mon Jun 27, 2011 8:12 am

Jono
I think that this is unsustainable though.
You can get just about any recent past vintage a lot cheaper than 2010.
If the previous en primeur sales went that well, this would not happen.

JonoB · Post by **JonoB** » Mon Jun 27, 2011 8:49 am

I think the Chateau are pushing it... Someone will get bitten! Cos and Margaux released today! 9% cheaper and 9% more expensive from negociant to merchant than 09 for the respective wines!

Successful primeurs have been where value is seen or credit is easy to obtain. Like 05, 08... 09 was an anomaly because it is when investment funds bought heavily having made tidy profits on little outlay for 08s. The 09s haven't moved and there isn't the demand from investors or drinkers for the 2010s at these prices with little cash flowing at the moment.

Some people in Bordeaux have assumed that because 09 went well that 2010 will as well. The preview to a crash will be an amazing 2011, with even higher prices and a boycott not just from BWE!

JonoB · Post by **JonoB** » Mon Jun 27, 2011 8:50 am

On a positive spin, you could say they are trying to price investors out of the Market, but investors don't generally use their own cash and it just prices drinkers out instead.

stefan · Post by **stefan** » Mon Jun 27, 2011 2:43 pm

Wouldn't it be great if there is a crash so big that investors are driven out of the Bordeaux market? It has happened.

JonoB · Post by **JonoB** » Mon Jun 27, 2011 3:01 pm

Pavilion Rouge released at twice the 09 price!

Do they really think it will sell at that price! OK it is Margaux but it is still a second wine.
If the firsts released at Cos prices and the rest at 08 prices with the quality of the wines... People would be fallingnover themselves to buy these wines.

It isn't as if the Chateau lack the funds to make 2011!! So why not just sell all that they want at a price that the market can actually bear... Not the price that the investors can. Lafite is worth what €4bn right now? I'm sure they can sell at €2000 a case and not have the bank manager telling them they are overdrawn!

Bacchus · Post by **Bacchus** » Mon Jun 27, 2011 4:44 pm

They don't care who they sell to, Jonathan. They're running a business! They want top dollar for their product, whatever that is -- just like any other business. Oil companies could sell gas for less, but they don't. Banks could give mortgages for less, but they don't. Why should we expect wineries to sell their product for less than what the market will bear. Perhaps that's exactly what they're doing right now, exploring what the market will bear. Prices will rise until the consumer stops buying, and then prices will fall. Of course they get to take advantage of the growing chinese market at this point in time, where all kinds of nouveau riche are discovering what their money can buy. Who knows when and if that will change. Don't get me wrong. I'm not happy with these over-inflated prices either. Indeed, they'll probably force me out of bordeaux. But as unfortunate as that is, I don't think my predicament will tug at the heart strings of the Bordelais.

Should we change the name of this site to ABBWE -- Anything but Bordeaux Wine Enthusiasts? Just saying . . .

JonoB · Post by **JonoB** » Mon Jun 27, 2011 5:24 pm

From the grapevine, the Market doesn't seem to want to bear these prices.

The feedback should be telling them something. Ducru and Cos did te right thing... But not a big enough drop IMHO.

I agree the Chateau can charge what they like and for Lafite people will probably pay for it, but if they carry on ignoring what the Market says and prices on hearsay and speculation, they will be in for a shock!

JimHow · Post by **JimHow** » Mon Jun 27, 2011 5:45 pm

Totally agree they are free to charge what they want, bacchus.
Just as we are totally free to not buy, indeed, to boycott even.

Bacchus · Post by **Bacchus** » Mon Jun 27, 2011 7:11 pm

I don't disagree with either of you two gentlemen. I too hope the market is speaking to them (and that they can hear it), and I too agree that we are free not to buy from them. We're even free to change the name of the forum -- well, at least Jim is since it's his site.

JimHow · Post by **JimHow** » Mon Jun 27, 2011 7:16 pm

Ah, who are we kidding, Bacchus, there are too many rich people in the world and not enough classified Bordeaux wine grapes.
Those 2010s will sell out. Why? Who knows their business, who knows their markets, better than the Bordelais.

Houndsong · Post by **Houndsong** » Mon Jun 27, 2011 7:53 pm

I can't imagine Lafite is short on intelligence for their market. I appreciate your insider's view Jono, but I assume Lafite knows as much or more as you do about the market for its wine. Or, since you know the Chinese so well, has Lafite made a mistake and is now in the position of having to save face (or is that the Japanese)?

Houndsong · Post by **Houndsong** » Mon Jun 27, 2011 7:53 pm

Just read Jim's last.

JonoB · Post by **JonoB** » Mon Jun 27, 2011 9:27 pm

Well, if the "insiders are correct" everyone with 08 Lafite won't ever have to work again!!

The Chinese don't buy futures of Lafite because they need bottles now... For lubricate business deals, keep face, bribe some people, whatever else they blend their Sprite with that needs doing... Yes they buy, but as I say, the Chateau listen to the negoc and their marketing people... Not necessarily to the Market! Why all the fuss about Vinexpo every year. It is all about marketing and how people react to it, not about what the Market is saying per se.

For the Chateau everything sells regardless, for the negoc, it is when it gets good reviews and the price can be absorbed by the Market... The merchants only buy what they sell with a bit for extras on shelves... Or because they can sell it for more down the line. That is how everything seems to go.

2009 sold on speculation that the Chinese were buying. That didn't happen and more expensive 2010s are sitting around. The Market for Bordeaux now is speculation and investment. Luckily on your side of the pond you don't have genuine investment funds like in the UK that think they know what they are doing but are essentially failed /or stupid /out of the job bankers.

The Chinese are drinking now! They are not necessarily drinking in 5-10 years when the futures become presents/gifts/bottles to be drunk!

Houndsong · Post by **Houndsong** » Tue Jun 28, 2011 2:22 am

Let me see if I understand. For Lafite then, the "market" are the negociants to whom they sell. Then in setting the price, Lafite listens to the negociants and "their marketing people". Fine. The negociants sell to "merchants" which I understand to mean wholesalers (distributors) and if not, retailers. Fine. Shouldn't things take care of themselves? The implication is that Lafite doesn't care about the "market" (consumers or retailers) because it can always sell everything to the negos. The negos don't care because they can always sell everything to the merchants. But the merchants do care because they'll be stuck with the wine if it's too expensive. And the merchants are completely at the mercy of the negociants? I've heard about allocations and you have to buy this lousy year to get the next good one, but to whom do the negos sell when all their merchants go bankrupt for having paid too much for an allotment that doesn't sell?

Tom In DC · Post by **Tom In DC** » Tue Jun 28, 2011 3:27 am

The negociants often get stuck with wine they don't want -- they buy everything offered every year -- but they suck it up believing they'll get well in the long term. It's always worked out for both the negoces and the chateaux.

Maybe it is different this time? (Right...)

JonoB · Post by **JonoB** » Tue Jun 28, 2011 8:15 am

The merchants now... don't just buy everything! Because since the credit crunch, cash isn't flowing!

Bacchus · Post by **Bacchus** » Tue Jun 28, 2011 8:29 am

And what happens to all the wine when the negoc go broke because the merchants have gone broke?