The market, inflation and some ridiculous wine prices

[Musigny 151]

A couple of days ago, I opened an e mail touting high end Burgundies. The one that really got my eyebrows twitching was a 2019 RSV of Arnoux Lachaux price $3850.

This is not a top tier producer.Good estate, probably at the bottom of the second tier. The price is of course ludicrous, but a reflection of how nuts the current market is. The problem is that it seems random. Otherwise I would understand why I cannot sell magnums of Jadot Chapelle Chambertin 2010 for $400 each while bottles of similar scored Cecile Tremblay Chapelle are $1800 plus. “But this is Burgundy” you cry. “Of course prices will be nuts.”

But Bordeaux is also increasing. According to Livex increases of 20% plus was the norm, while the bluest chips were much higher. Petrus, Lafleur etc reached new height.I had first hand experience, as I priced cellars , as was upping prices every month. VCC has gone up 55%, Magdelaine is on the rise.

Question: bubble, will stabilize or continue to increase?

[JimHow]

I wonder how markets will react when the US democracy dissolves in 2022-24.

Maybe it won’t be as bad as we think. Maybe we’re just not as important as we think we are in the grand scheme of things.

[Comte Flaneur]

The test will come as US real interest rates rise as needs to happen now to deal with high inflation, which risks becoming entrenched. A similar theme is that some notion of ‘financial conditions’ - the price of a broad array of financial (and real) assets - need to tighten - i.e., fall - possibly up to and including wine prices. House prices have also soared in the last year. So a correction in fine wine prices seems like a good possibility in 2022. Of course timing it is tricky.

[AKR]

All these $4000 Burgundies sound like trading sardines to me.

[JoelD]

All these $4000 Burgundies sound like trading sardines to me.

Funny you say that. Costco prices on my favorite sardines are nuts. I could clear 200% reselling on amazon. Borderline serious contemplation right now.

[marcs]

S&P 500 down 7% in a week -- pretty brutal for some of our 401-Ks. Guess I missed my chance to be in cash. At least this is probably pricing in some Fed tightening in advance, but it's hard to see it turning around in a major way given the fundamentals and the huge run up over the past year or two. This will be a test of my theory that luxury wine prices are in fact correlated with the stock market, despite all the wine fund sales people assuring us they aren't. The kind of people who look at their portfolio and find it's up $100K when the stock market zooms are exactly the demographic who would buy fancy wines, and similarly when it drops.

I think prices of the very very top end Burgundies will continue to climb, given scarcity and the fact that demand for a truly high-end luxury item like that is likely fed by a very small slice of extremely wealthy people in no danger of becoming un-wealthy. But I think this spells the end of the run up for what one might call the middling luxury segment of wines that we play in. Wine prices rarely seem to drop dramatically overnight though, it's more like they start to stagnate and fall behind inflation and other assets. I think that's what happened when Bordeaux got really overpriced for roughly the 2005-2010 vintages, but I might be wrong.

[marcs]

A couple of days ago, I opened an e mail touting high end Burgundies. The one that really got my eyebrows twitching was a 2019 RSV of Arnoux Lachaux price $3850.

A fairly hilarious argument broke out about this on Wineberserkers. I say hilarious because it was in a thread titled "Bargain Grand Crus" which rapidly devolved into a furious back and forth about whether A-L RSV was fairly priced compared to DRC. Some "bargains" there!

Some claimed that A-L has improved enormously since the son took over and is now at the very top end of producers. I think William Kelley says that.

[AKR]

S&P 500 down 7% in a week -- pretty brutal for some of our 401-Ks. Guess I missed my chance to be in cash. At least this is probably pricing in some Fed tightening in advance, but it's hard to see it turning around in a major way given the fundamentals and the huge run up over the past year or two. This will be a test of my theory that luxury wine prices are in fact correlated with the stock market, despite all the wine fund sales people assuring us they aren't. The kind of people who look at their portfolio and find it's up $100K when the stock market zooms are exactly the demographic who would buy fancy wines, and similarly when it drops.

I think prices of the very very top end Burgundies will continue to climb, given scarcity and the fact that demand for a truly high-end luxury item like that is likely fed by a very small slice of extremely wealthy people in no danger of becoming un-wealthy. But I think this spells the end of the run up for what one might call the middling luxury segment of wines that we play in. Wine prices rarely seem to drop dramatically overnight though, it's more like they start to stagnate and fall behind inflation and other assets. I think that's what happened when Bordeaux got really overpriced for roughly the 2005-2010 vintages, but I might be wrong.

Jeremy has been saying the same thing for more than a decade, but if you feel like some confirmatory bias ...

https://www.gmo.com/americas/research-l ... pus-begin/

[JimHow]

I was just scrolling through my Cellartracker wine valuations and it looks like my cellar has increased in value by $6,000 just during the three weeks I've been here in Alaska. Looking more carefully it seems like my Burgundy wines have skyrocketed in value, even though I don't really have much that is spectacular from that region. I mean, 2002 Domaine Dujac Gevrey-Chambertin 1er Cru Aux Combottes valued at $728? That can't be right, can it? I think I paid like $60 for that bottle.

[DavidG]

You have to drill down on the CT valuations for individual wines to see if they’re realistic. Sometimes they’re based on frequently auctioned wines and are pretty accurate. Sometimes they’re based on one or two auction sales that are not necessarily representative.

My seat-of-the-pants estimate is that you net about 20-30% less than CT valuation if you take your wines to auction. YMMV if you have a lot of cherries or cults/unicorns. I look at CT values as replacement or insurance values.

[JoelD]

Depending on your collection, I actually take CT values at very close to accurate as to what you'd net selling at auction. Before their commission.

Cheaper, more obscure wines are very undervalued. While some blue chips and ones that trade often are close but slightly overvalued. However like, David said, the expensive ones that aren't sold often seem to have some wrong estimates these days. Have to just look individually. I find it useful to sort my cellar by value and look at them. Usually evens out unless your cellar leans heavily towards one side or the other.

On a side note, it's going to be very interesting to see if my theory holds about the stock market correction causing these inflated wine prices to cool. I noticed it during the earlier dip 2 months ago. Not big discounts or anything, but none of the crazy auction bidding that we've seen in 2021.

[Gerry M.]

Pre-Covid I would agree with David as for auction yield vs CT valuation. A friend of mine placed a group of about 500 bottles at auction about 6 months ago and netted about 10% over after fees. For more recent vintages the CT minus 20% still holds true but for older years pre-2000 the pricing has escalated where CT values have lagged the current reality. I hope it's a temporary and CT pricing catches up indicating more stability and sanity in the market.

[Musigny 151]

Re Bordeaux.

The older wines are disappearing, and apparently Rudy is not making any more. So I expect prices to go up. Younger wines may experience a correction, but 2021 is a small vintage, and I understand 2011 and 2012 are selling finally and 2014 has almost gone. That leaves 2013 and some 2017s available in quantity, and the great vintages of 2016-2020.

As for Burgundy, small supply great demand and huge prices at the top. Who knows if and when when a correction is coming.

[Claudius2]

Guys
Bill Nanson analysed Burgundy prices recently and found that in the last five years, the EP prices and new releases increased 20% YOY. Yikes. The top wines increased considerably more.

When I saw Burgundy prices blowing out several years ago, I went pretty long on them. Wendy asked me why I was spending $100+ for 1ers Crus Though now accepts my argument when the exact same wines sell at auction for over $500. I got an offer for 2008 Mugnier NSG Clos de La Marechale at more than ten times what I bought it for a decade ago, and am just shaking my head. One importer has changed from listing case prices to bottle prices as the price per bottle read like case prices in any case.

The Price of Champagne is also rising but that is supported by more hot air and belligerence than economics as the houses refused to discount during COVID but some have created negociant labels to move some at lower prices. Imagine that.

In relation to Bordeaux, I maintain the same argument I’ve had for some decades. Putting aside the 1ers Crus, right bank Garargiste wines, prestige cuvees and whatever else got 100 points lately, most are not expensive. I bought a lot of 2019 EP wines for what seemed to me to be pretty good prices.

So despite my reluctance to buy more EP stock in my mid 60’s, I was pleased that I could buy middle ranked Cru Classes at reasonable prices. And that included all left bank ACs and some right bank wines and one Pessac (Domaine Chevalier).

Whilst I would like to sip the very top wines all the time, I’m pretty happy with the stash in the storage holds as it is. I have plenty of 2005, 2009, 2010, 14, 16 and now 19 plus smatterings of others from 95 onward.

One factor I’ve written about in recent years has been demand from China. Mass industrialisation and the new rich pushed up demand thus shifted the equilibrium. Prices rose especially for the top wines but over the last decade or so, the CCP has been stomping on plenty of throats including 60000 cases of public servant corruption just in 2021 and severe crackdowns on businesses as well. Sure Bordeaux is still selling in China but the demand has been literally beaten down. Increased demand from other Asian countries has helped but China is no longer a golden goose. Wine consumption rose in Singapore by 6% last year but hey that’s from a Low base. Still auction prices keep rising for everything.

My crystal ball suggests that Bordeaux prices will stabilise though don’t expect bargains any time soon though if there is war in Ukraine and escalation of disputes in the South China Sea, all bets are off. I do however expect prices for Burgundy to rise at a faster rate.

Cheers
Mark