December 2nd, 2010

More on Lafite in China.


Back in August I linked to Andy Xie's column about Chinese demand for fine French wine, and those of Château Lafite Rothschild in particular. Now there's more news from the Wall Street Journal: "Decanter.com, a British wine magazine, ran a story on its website that Chateau Lafite Rothschild 2008 was to feature a Chinese symbol for the figure eight “in celebration of the First Growth’s new vineyard venture in China.”"

Decanter.com adds: "The symbol, which is considered especially lucky in China, will be on every bottle and magnum of Lafite 2008."

Mr. Xie has more analysis, just out today:
Summary

I wrote a few months ago on why Carruades de Lafite is a bubble, because it is misconstrued as the little brother to Lafite in China, similar but a bit less good. I thought that one could still make a case on skyrocketing Lafite price as revaluation due to new demand from China. What I have seen and heard in the past few months convince me that, not just Lafite, the whole fine wine market is a bubble. Like other assets, the force for the bubble is the low interest rate environment. Bernanke is a bigger reason for the fine wine price than 1.3 billion Chinese.

In the 2000 internet bubble, a lot of companies were worthless but were trading at billions of dollars of market capitalization. Some were really good companies but were priced several times higher than their intrinsic worth. Lafite is like the later.

It's never easy to call the top in a bubble. China's tightening due to inflation marks the peak for Lafite, I believe, just like for China property. What follows is sluggish trading volume and sideway prices. The crash happens when the US treasury market crashes, which forces the Fed to tighten monetary policy. That is probably in 2012. Still, now is the right time to sell your Lafite.
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If I had a lot of Lafite, I would be selling.
The whole article is worth reading.