Vol. 1 No. 3 …French Laundry update; Wine ‘Investment’ Clubs

According to the Napa Valley Register and other sources, most of the wine stolen from the French Laundry on Christmas Day was recovered in…of all places…Greensboro, North Carolina? Don’t have the details on how, or why it was there, OR how they located it. Those of you who have had property stolen know the frustration of having the property held pending trial – which in this case may or may not occur since they have no suspects in custody, or even identified. So where is the wine now? In the ‘safest’ place the authorities could find: the French Laundry’s OWN wine cellar. Wait…wasn’t that where it was stolen from? Worse, they cannot sell it until the investigation is complete. (Why does the evidence have to be held when there are so many ways of authenticating evidence today…and it is not ‘unknown’ for evidence to disappear even while in police custody (aren’t you shocked?)

Unanswered:

First and foremost: was the wine damaged? How was it cared for after the theft and AFTER the police recovered it? Would you buy the wine if you were dining there? Not TB, no way! Keller most likely would have done better had he been able to collect the insurance and buy more wine like it!

Next item on the agenda: According to the January 23, 2015 issue of Financial Advisor magazine, “more than half a dozen firms peddling wine investments, in the U.K. alone went belly up last year. “Why have there been so many flops?” There are lots of reasons…the article cites one fund, The Wine Trust, in the U.S., where investors put their money for eight years, but here’s the rub (at least to TB): they have $15-20 million in assets. When something goes wrong what can they do? Sell? To whom?

Another fund, Belgium-based, had wine assets worth 102 million Euros ($115 million in today’s market – $125 million according to the article which illustrates yet another risk: currency – at the end of 2012, then someone questioned their valuation methods! Like a fire in a theater, investors headed for that small ‘doorway’, and the fund could not meet ‘net redemptions’ (a not uncommon problem of any mutual fund – stocks, bonds, options, etc.

Besides ‘questionable’ appraisal methods (remember they use last price at auction…and there could be just one fool…or there could be trading among several holders…it happens in small stocks…and especially penny stocks, so why not wine? This is not to imply that the fund managers are dishonest (talking about wine), but they wouldn’t know why the price was being bid up if the ‘group’ consisted of several high-profile members.

Why would they do that? Why would a known billionaire and expert on wine have created counterfeit bottles and attested to their authenticity? Why did Cruse, a famous French wine negociant (not to be confused with a California firm with the same name), would risk, and eventually destroy the firm’s long-established  reputation by bottling cheaper wine as Pouilly-Fuisse? They were eventually charged, convicted and heavily fined. There have been several scandals, the worst being when methanol was put in Italian wine, killing six and injuring at least 30. The point is that wine prices are especially susceptible to scandal. To TB it is like people who don’t trust the U.S. Dollar, so they are investing in Bitcoins!

Back to investment clubs and the FA article. They discuss a 2009 bottle of Chateau Smith Haut Lafitte which rose by 143 percent between June 2010 and December of the same year! Meanwhile, French first-growth wines rose by 345 percent between 2005 and 2011 before falling 41 percent through November 2014. Let TB clarify this for you: that 41% decline is off the 345% which would reduce the gain to 203% – which means you had better have gotten in very early! Conversely, to get back to the high would require a 70% increase (something even stock investors fail to understand!).

But the real catalyst for price escalation was the Chinese, who shifted their attention from first growth Bordeaux to premier cru Burgundy, causing a reversal of fortune. Worse yet, the Chinese government cracked down on bribes of public officials (TB is SHOCKED), thus slashing demand. Recall TB’s comments in the first blog, citing Red Obsession, which stated that all of the great wine would be bought by the Chinese? TB’s response was: the same was said in 1988 – the year before the Japanese economy imploded and hasn’t recovered since then. Even diamonds aren’t forever, right Mr. Bond?

So TB will close with the same advice that he began this blog with: drink what you like, and buy what you like…not what some industry-anointed expert says you should…you will be happier and you will have more money in your pocket.

Until next time: don’t ‘stay thirsty my friends’ – drink up! This ain’t no library! (said by the bartender at an enlisted men’s club when TB was in the Navy).

TB

©Copyright 2015 TBOW, all rights reserved.

 

 

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How did Trader Bill originate? It was conceived by me as a way of providing information summaries of global financial markets so that friends and associates could bring themselves up to speed on events and changing market conditions upon their arrival at work. In addition, it provides information on speakers and economic releases that day with consensus estimates and level of last release so that the reader is prepared to react, or knows how the market might react upon the release of information. Who is Trader Bill? Initially any reference to me was as ‘i’. This is to remove the aura of ego and to suggest that i am but a humble reporter, albeit with 35 years of investment experience. Investments are demanding of ego, however, or one would not feel that he was qualified to manage someone else’s money in the first instance. Therefore i needed an ‘alter-ego’. Like Winchell and Mahoney, Edgar Bergen and Charlie McCarthy and especially Trader Vic and Mai Tai’s! Why Trader Vic? Because he was a likeable man who delivered pleasure to his customers and knew exactly what their desires were. The reason for the alter ego became obvious once I introduced Trader Bill into my commentaries: people started asking what Trader Bill thought. They had never asked me what I thought before, but suddenly they wanted to know what TB thought! Now mind you they KNEW that I was Trader Bill but for some reason he became bigger than life. Maybe it was the small ‘I’? What does Trader Bill try to do?His goal is to educate from his years of experience. Consider that most of the traders and people managing investments weren’t even around in 1987 for the crash! Consider that Graham and Dodd, and even Warren Buffet are not relevant to them, too old hat. Their historical perceptions of markets and fundamentals (earnings, price/earnings ratios, bonds, debt service coverage) are irrelevant in this fast moving world. This is the NEW ECONOMY, or is it? How did your style originate?Years ago i found that i had a knack and talent for writing. In addition, i developed an ability to analyze market news about 15 years ago. It took the Crash of ‘87. Prior to that i was just listening to what others said about the economy. But bond yields had been soaring in ‘87 yet the stock market just kept hitting new highs. That was when i began to learn about markets. i have both a dry and witty sense of humor (some call it inane!). Therefore i attempt to make even the worst news somewhat amusing: whether it is the absurdity of an economic release, or the comments of a CEO. This is trading desk humor (or gallows humor). It isn’t politically correct but it does ease tension. Ironically, it is seeing the light at the end of the tunnel (in the Navy they say: it’s always darkest before it’s pitch black!), that allows you to be more objective in your analysis, as bad as a situation is there will still be a tomorrow! You will see that i practice three-dot journalism, a style made famous by San Francisco reporter Herb Caen, whom i idolized. At least to me it is effective. What is so special about your analysis?Frankly, i don’t know that it is special, but at least it beats “the market closed down today on profit taking.” What i do know is that most of what you read is spat out without considering whether or not it is rational, like the above statement. Is it right? Sometimes yes and sometimes no, and that is the key to what is different about my analysis: it is meant to make you think. Is Dan Rather right or is Trader Bill right? If it causes you to stop and think about it, regardless of whether you agree, i win! Because THAT is my goal…not to have you think i am a guru, got that? Bet you never heard that ANYWHERE before in my business! Instead they want you to think just how smart they are but remember in this business if you are right 60% of the time you ARE a genius! Another thing that is different is when i am wrong on an analysis i will tell you, not hope you forget what i said. So now you have the tools to do what the speculators and hedge funds do: challenge authority, and if you make money it is because YOU did it not me. i was just a tool, your flunky to do the grunt work and let you decide…course you could be wrong too but at least you looked at the big picture. But the goal is also to have fun! This shouldn’t be a business of hushed tones and grim faces. It is a living, breathing thing and nowhere else in the world do you have the odds as much in your favor as here. Just beware of the guy who wants to put his arm around you and tell you he is your friend. So there you have it. I hope you select me as one of your sources for market information. If you do I promise to work my best for your financial success. Trader Bill

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