Wednesday, June 4, 2014

The Wine Bubble Implodes (It’s China’s Fault)

I confess: I’m biased. I love wine – almost as much as I love craft brews. I get hung up on Californian wines; they are awesome and grow in my back yard, so to speak. Actually, I lovedrinking wine, not keeping it in a refrigerated vault as an asset class. So I don’t get the gut-wrenching feeling that investors get who didn’t sell in time and then ride out the implosion of a bubble. And their guts are being wrenched.
Blame China and central banks. Wine as an asset class became airborne during the pre-Olympics China bubble when rich Chinese began plowing their money into it. From the summer of 2005 through the Beijing Olympics in 2008, the Liv-ex Fine Wine 100 index – the “fine wine industry’s leading benchmark” – skyrocketed 152%. But in the four months after the Lehman Moment, the index plunged 22%.
Frazzled by the seizing wine market, the Fed and other besotted central banks began to douse certain layers of the world with free money so that Chinese wine buyers would re-indulge in the game. It worked. By July 2011, the index had soared 76% to 365. The peak of the wine bubble. Then all heck broke lose.
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