Well well, it’s been quite a week. We’ve seen a meltdown in the financial markets that has unsettled even the most experienced players. In fact, it took on such proportions that there was a very real, systemic risk of the whole financial system breaking down. Not surprisingly, this has triggered a global response from governments. After the US took the initiative in announcing measures, it now seems that the UK has initiated the right response in buying stakes in the troubled banks, forcing them to own up to a much larger figure of cash needed than they previously communicated. On top of that, there’s the buying up of troubled loans. All in all, European governments have announced packages worth a stunning 2 trillion sterling. It now seems the US package of "just" 700 billion US is rather puny.
Now that investors feel that the extreme risk has passed, stock markets have rallied by about 15% from their Friday lows. For us wine investors, the big question now is what the effect will be on the wine trade. The past week has been very slow in volume with only the best vintages selling at significantly reduced prices. The one exception seems to be Asia. There is still strong demand there – especially for wines in the Lafite stable – partly triggered by the bargains being presented at the moment. As a whole, most traders have been very cautious in taking on stock, waiting for the storm to blow over. My expectation is that this will take a few weeks. In order for that to happen, we need to see proof that the worst is indeed over and then have more of an idea how much the "real" economy will be effected.
One thing is very clear though: the wine market has now turned to a buyers market. Taking advantage of thin trade and still a lot of stock being offered, buyers are in the driving seat. Fundamentally, wine is still a very good investment: availability is low and gets lower every day as wine gets consumed while demand still greatly outstrips supply. As an indication of that, apparently Lafite could sell 50 times more cases if there would be more supply. This will not be changed by what’s happening these days.
As a last thought, one of the historically most reliable indicators of market sentiment is the ratio of company directors buying and selling shares in their own company. The average is 2.5:1 (in favor of buyers). It previously peaked at 12:1. Now, it’s at 25:1....
As we always say, whether you’re a buyer or a seller, Ditton Wine Traders do both, at very hard to beat prices.