In the meantime, Eric Asimov has a recent piece in the New York Times on the benefits of a sliding wine auction market: good wine for less!

“It’s kind of a buyer’s dream right now,” said Daniel Johnnes, wine director for Daniel Boulud’s restaurant group, who trawls auctions for older vintages to add to his lists. “Now, the opportunity is for extraordinary value.”

I wouldn’t quite call it a buyer’s dream, but it’s a start. Prices are down but not anywhere near 2006 levels yet. I recently cleaned out a bunch of emails and found an old offering from Vinfolio. The offer featured several 750ml bottles of 2000 Lafite Rothschild priced at $480. The wine is back in stock at Vinfolio, sale price is $1195.

Link to NYT article

It was only a matter of time that this invaded the world of wine. Crushpad sent an email to inboxes across the land this morning touting their new wine release: Bailout Napa Cabernet. Crushpad had some extra barrels lying around, perhaps having over-anticipated demand for boutique wine making… in….

wait for it….

these difficult economic times.

Yes! Awesome! Difficult economic times, you guys! Sweet.

Here’s the deal, the price is $39 per bottle and for each 100 point drop in the Dow between now and release bottling in August of 2009, the price of the wine drops $2 per bottle. And, you’re protected on the upside. If the Dow goes on a big run, you won’t be paying $100 a bottle.

Ooh, and there it is, right on the The Wine page

Plus, this is a great way for us to have a bit of fun in these dour economic times

Winner!

The kicker is that the price of the wine is $39 and the price starts moving with the Dow on the day you buy it. You can time this. Wait for a huge run up in stocks then sell your shares and go running to Crushpad to order your wine. Warren Buffet could buy up all the Bailout wine, move the market by himself, then have a sweet deal on his hands.

I have no doubt the wine will be good. I suspect that it’ll be closer in quality to $39 than the $75 that they’re hyping it up to be. Crushpad does have a history of getting some serious fruit. One wine maker in the Anderson Valley once told me that he “has no idea how Crushpad gets the fruit from the vineyards that they do.”

Bailout is a blend of fruit from premier Napa vineyards in Oakville, Mt. Veeder and Pritchard Hill that routinely go into $75 to $275 wines.

Sounds good to me, though not good enough to plunk down $100 for a two-bottle gift pack. I don’t think the Dow is going this way or that way with any resolve over the next year or so, so the odds of getting a steal are slim.

Bailout Wine product page.

Demand has spiked and retailer’s phones have likely been ringing off the hook for the juice ever since the announcement (Something from Portugal that isn’t Port? I MUST drink it now!). Zachy’s has the 2005 Quinta do Crasto Reserva listed for $54.99, *on sale* from $59.99. Both of those numbers are a 50% premium over the retail average of $36.70. Quite a sale they’ve got going on up in New York.

To be fair, I’m sure Zachy’s distributor ran up prices on them so they, in turn, ran up prices. A market is a market and if you want the cool hip wine of the moment, then you’re going to pay for it. Zachy’s has the #2 2005 Rauzan Segla listed at a reasonable $149 a bottle.

Surely, the good times can keep on rolling, right? Some people think so. In the back of the September 2008 issue of Decanter, hidden behind all the gentlemanly and refined five-star wine ratings, was a blurb in the Collectors’ News section that headlined

£10m case of claret, anyone?

Setting the bar high right off the bat, no doubt. The small article in Decanter cites ancient wine retailer Berry Bros & Rudd releasing their “Future of Wine Report.” There are some good nuggets in the report, reasoned predictions, and some bold claims:

Berrys believes, by 2058, global bidding wars will take place for the top wines and the most soughtafter wines will become prohibitively expensive and extremely difficult to obtain.

Okay, sure. Sounds reasonable.

Simon Staples, Fine Wine Sales Director at Berry Bros. & Rudd believes: “If values increase by 15% per annum, as they have been doing recently, a case of 2005 Ch. Lafite-Rothschild, currently available for £9,200, could be worth just shy of £10 million by 2058.”

Without question, a stratospheric projection that is meant more to raise eyebrows than to be a solid prediction of future returns. Mr. Staples qualified his claim. “If values increase by 15% per annum…” he starts. Well, sure, that is a factual statement. If value increases by X%, value will be $Y on date Z. I have a compound interest calculator that can do that too. Here we go.

Gary, Senior Blogger at Vinotrip, believes: “If values increase by 26% per annum, a case of 2005 Ch. Lafite-Rothschild, currently available for £9,200, could be worth just shy of £1 billion by 2058.”

The point of the quote was not to stress low-level accounting. Mr. Staples’ point was to promote the strength of fine wine as an investment vehicle for the long-term future. Decanter has published Wine Investment Guide to this end. The website of The Wine Investment Fund prints front and center “Fine wines can make you money*. It is a fact.” (The asterisk leads to the disclaimer that past performance does not guarantee future returns.) A cool £10,000 gets you into the fund. Liv-Ex, a platform for merchants to trade fine wine, has an index that they publish alongside the numbers for the FTSE 100, S&P500, and the Nikkei 225. Their indices, the Liv-Ex 100 and Liv-Ex 500, have beaten the other markets handily over the last few years. Their Fantasy Cellar has appreciated 16% this year alone.

All of these factors—from Berry, Bros & Rudd handing out rosy speculations of future performance to a fine wine index blowing past traditional investments–sound a lot like those NASDAQ cheerleaders from 1998: just buy, buy anything, it’ll go up over time.

One can look back even farther if bigger returns are necessary to lure you in to buying a case of First Growths. In her book Emperor of Wine, author Elin McCoy writes of wine critic Robert Parker’s motivations for starting The Wine Advocate in the 1970′s. One such motivation that McCoy cites was Parker’s displeasure over a bottle of Ch. Lafite-Rothschild that cost twelve dollars. Picture that for a moment. A First Growth Bordeaux being bought for $12, and the consumer thinking that was too much for what he was getting. It is a staggering thought.

So, it’s a rosy outlook for people who invested in wine ten years ago. When everyone finds out bout it though, it’s time to bail. Let’s take a look at the five year auction result chart for nearly any First Growth Bordeaux. They all look the same.

That’s 1982 Latour on the left and 1982 Petrus on the right. Up up, and up. There is a problem, though, on the far right of each chart. The one-year charts all look the same too: and they’re flat.

More charts can be found on Wineprices.com

The usual culprits can be named in this flattening of wine prices. A huge rise has to stop sometime. Global fear and catastrophic losses in the stock market. China is slowing down. Russia is on the verge of complete collapse.

I’d love to recommend that you move some money out of the market and into fine wine, but I can’t. Stock prices are too juicy right now and it looks like the fine wine market is going to putter around flat or even recede a little bit. To make money in wine, you need homerun-style returns because of the cost of storing the wine and the cost involved with shipping it and selling it. Flat prices don’t mean you break-even with your wine, it means you lose 20%.

I can, though, recommend that being selective about investing in wine can be a healthy add to big investment portfolio. If you have over $10,000 of cash in your portfolio, call in someone who specializes in this sort of thing and see what they have to say about purchasing, storage, and selling. The usual wine cliche applies: even if the value goes to zero, you’ve still got some good wine on your hands.

Production is down at Ye Olde Screaming Eagle Winery, and that can only mean one thing: prices are up. A 50% rise over last year is expected so those on the mailing list are going to fork up $750 per bottle for their allocation.

Anyone who follows this stuff knows that Screaming Eagles fetch far more than $750 on the secondary market so the bottles remain one of the best slam-dunk arbitrage opportunities involving wine. Some deride this, thinking that wine is somehow made to be above capitalism. But, as long as release price continue to rise toward market rates, what’s he problem with unloading bottles that double in value the minute you receive them?

You have the purists that shed tears into their Chardonnay when seeing 50% vintage-over-vintage price hikes, arguing that wine is art and art is over there, on the pedestal, not subject to market influences and hype.  I suspect this is also rooted in the fact that they can’t afford a bottle, and feel this is unfair.

Across the tasting room sit the greedy capitalists who shrug and say that Screaming Eagle is like anything else, and when demand is so overwhelming, prices should rise (see also: Oil).   These people often drop off the mailing list when prices go past what the wine is worth to them, and they don’t have many regrets about doing it.

The whole system is a lot like tickets to sporting events.  Maryland basketball games are constantly sold out and buying the tickets second hand means you’re going to ring up a 50% premium.  If ticket prices rise to meet demand, it means two things: that they’ll have to adjust ticket prices in good times and in bad and that fans will go absolutely nuts.
Regardless, there will continue to be lots of flipping of Screaming Eagle, SQN, and all the other swanky labels as long as there isn’t a microchip in our wine that will allow the wineries to go after flippers.  Until then, capitalism trudges on.

Wine will continue to rise (though not at this stratospheric pace) for the next few years as new money continues to pour into the hobby. But as with everything else, those prices and returns just can’t hold forever.