Are expensive wines the next bubble?
Bubbles. By their very nature, they get big, and then, Splat! They burst. Dom-com stocks were bubbles. The housing market was a bubble. The Dow Jones of the last few years was a bubble. What did they have in common, and what does a bubble have to do with wine?
What they had in common was values so high, they were unsustainable. The Dow peaked at just below 14,000 in October, 2007, by far its highest ever. Now it’s scraping 9,000. Here in the San Francisco Bay Area, the newspapers reported two days ago that home prices, after rising to ridiculous levels, plunged in December to 31% lower than they were a year go, with the end nowhere in sight.
Now consider expensive California wine. These wines, led by Cabernet, are like the real estate market: Just as the number of million-dollar homes soared between 2001 and 2008, so too has the number of expensive wines. Robert Reich, the former Labor Secretary under Bill Clinton, recently analyzed the housing market in this gloomy article he wrote for the online periodical, RGE Monitor. Briefly, the economic downturn will force Baby Boomers to sell their homes over the next few years, downsizing to smaller homes and condos, or even renting. That will dump even more homes on the market than there already are, what with all the foreclosures, and that in turn will force housing prices even lower. Sounds like a death spiral. There were simply too many big, expensive homes built in the first place, and then easy credit led to a dash to buy. It was an unsustainable bubble, and now it’s burst.
Sounds to me like the expensive wine market. Just as there were too many pricey houses and not enough people who could afford them, so too there are too many pricey bottles, and not enough people able to buy them. I went over Wine Enthusiast’s database and counted 336 wines I’ve reviewed since 2004 that retailed for at least $80. Broken down by the year I tasted them, they were:
2004 and earlier: 1
So the number of expensive wines (judging by my unscientific count) appears to be growing, with the over-$80 segment up 47 percent in 4 years. That tells me it’s over-heated, just like home prices were.
When supply exceeds demand, there’s no getting around the economic consequence: prices must fall. That popping sound you hear is the cult wine bubble bursting. Who survives the shakeout? We’ll just have to wait and see. Not everybody will.