As you avid readers of Talented Blonde are aware, I have been extraordinarily bullish on the luxury goods space for at least the past two years. Why?
According to a new presentation by Stephen Kraus, Bob Shullman based on Ipsos Mendelsohn survey data from September and October 2011, 94% of affluents (defined as adults living in households with at least $100,000 in annual income) had purchased luxury in at least one of the 15 categories measured, and 70% intend to buy luxury in at least one category in the coming year. Even among those making less than $100K in annual household income (whose points of view we also measured for this presentation), the pull of luxury is widespread: 92% had made a luxury purchase, and 59% plan to do so in the coming year. Only 15% of Affluents and 8% of non-Affluents tell us they simply aren’t interested in luxury. http://luxurysociety.com/news/22427
The uber wealthy will still spend on the items that they want, but are on the sidelines when it comes to capital investment, due to the lousy economic conditions, uncertainty, lousy tax structure and Government over-regulation.
Since 40% of the households in the U.S. are responsible for 60% of consumer spending, how can one really gauge the sentiment of the uber wealthy? One could argue the sentiment of the hyper-rich is just as important as the sentiment of Joe SixPack in indicating a turnaround in global economic conditions. I believe fine wine is the best barometer, since it has served as a real-time indicator of global sentiment the past 3-5 years. The equivalent in this realm to the University of Michigan sentiment number is Chateau Lafite-Rothschild, the Big Daddy of Bordeaux — specifically the 1959, 1982 and 2000 vintages.
One tool accessible to individual investors and wine fund investors alike is the relatively new London International Vintners Exchange, which operates the Liv-Ex 100, an index created in 2001 that allows wine investors to track the prices of 100 of the most sought-after vintages.
Currently, the index is almost exclusively focused on Bordeaux, although it also tracks Champagne and a bit of Italian wine. Although the Liv-Ex universe is limited, given the number of regions that produce great wine today, investors who have focused on the index’s top wines have seen solid annual gains of around 16 percent. (By contrast, the S&P 500 was up a mere 5.5 percent in 2007).
Some details to consider:
• Fine Wine Auction markets are demonstrating double-digit growth
• Fine Wine is uncorrelated with stocks & bonds, thus offering a risk hedge
• Fine Wine is a luxury category appealing to less price sensitive consumers
• The supply of fine wine is somewhat fixed and depleting regularly
• New regional markets are emerging for fine wine consumption growth
The Liv-Ex Fine Wine Index calculates the leading 100 fine wines in the world at any time, and uses a number of factors, not only price, to gauge the overall fine wine environment. Wine investors are seeking bondlike security with stocklike returns,” says David Sokolin, author of Investing in Liquid Assets. “People invest in wine because they think it’s interesting.”
The funny thing is how wine was generally 2-3 months ahead of the Dow/S&P if you look at the past 5 years.
From the tippy-top of the housing market in 2006 to the Lehman/AIG debacle in 2008 to the Greek tragedy this summer/fall, it seems like fine wine prices are just slightly ahead of the equity markets.
They say that the stock market is 6-9 months ahead of the economy, so using that logic, one might pay more attention to wine as an important indicator. Here’s to finding a little Chateau Lafite in your stocking–or cellar. Cheers!
- Talented