subscribe: Posts | Comments      Facebook      Email Steve

2016? Here’s what I think



This is not a Top 10 predictions list. It’s just stuff I’ll be talking about in 2016.

Here in California, it’s all about the money: profits vs. losses. It comes down to the nesting circles of financial health:

  • how is the overall economy doing?
  • How does California fare within that?
  • How is my tier doing?
  • And how am I doing within my tier?

We do see the overall American economy recovering, but 2015 ended on a weak note, with many economists predicting a slide back into recession this year. Obviously, this is not an economics blog, and I claim no expertise in that area. But the economy feels shaky, and, since perception is reality, it’s likely that American consumers will continue to withhold spending, or limit it, while the insecurities persist.

This is good news for value wines; bad news for expensive wines. Within the overall economy, California will continue as a beacon of success, based on the gold mines of Silicon Valley and Hollywood. But California wine producers can’t depend solely on California consumers. They need the rest of the country, as well as foreign counties; and, abroad, China’s a mess and Europe’s barely breathing. So tough times for exports.

But individual wineries have to consider the tier/s in which they operate. As I said, the value tier seems likely to remain strong, but it also will become increasingly competitive. My feeling is that established value brands will go from strength to strength; the consumer is in no mood to experiment, when she has access to a few dozen wineries with proven track records. Just above the value tier is the ultrapremium tier—let’s say, $20-$35 a bottle. That always has been a challenging place to do business, and it remains so today. Laurels go to the cleverest; existing brands will have to double down on their efforts to stay relevant, but they do have the edge.

Finally we get into the super-ultrapremium luxury tier, and this is where I think things are the grimmest, especially if we do slide into a recession. Of course, the proprietors of many of these brands have almost infinite resources to hold on; but, despite the proliferation of Parker 100s in California, I see no way that enough people want these $80-and-up wines, especially when you consider that the few people that might want them tend to be older. Why would a Millennial want Harlan, Marcassin, Sine Qua Non? These are the very wines that represent the elitism of the old order—an order they renounce.

Finally, though, the performance of each winery is individual. You can succeed even when your tier is having trouble. It takes, beyond sheer luck, a remarkable amalgam of ingenuity, blood, sweat and tears, and a ground game. And this brings me to the marketing side of things we’ll be talking about this year.

Wineries will continue to try and find a balance of concentrating their efforts (and money) on social media and guerrilla marketing techniques, as well as more traditional ones such as magazine advertising and sales forces. This never-ending experiment will result in many anecdotal claims of success on both sides, but few provable ones; and what works for one winery—say, YouTube videos—cannot necessarily be replicated by another. There simply exists no demonstrable method of marketing that is guaranteed to work, although we do know demonstrably terrible ones, such as poor websites, lousy customer relations (which usually means lousy management above) and proprietors who are out-of-touch with the real world and thus not in a position to understand what consumers really want.

There will be more talk, and news, about winery consolidation. But big wineries buy smaller ones all the time: nothing new about that. Every ten years, a new generation of “wine writer” feels he has to discover this huge news, but it isn’t news. The usual number of wineries will be put on the market; the usual number will be bought. The news is that prices for California wineries have hit San Francisco real estate levels, which is to say: only gazillionaires need apply. Is that a bubble? Probably not. The few wineries that are gobbled up don’t represent enough of a critical mass to burst any emergent bubble.

Varietal-wise, we’re stuck in neutral in America. There will be no “breakthrough variety” in 2016, although umpteen bloggers and columnists will try to convince you otherwise because, hey, if there’s no real news, then invent it! (Orange wine, anyone?) The same wines that are popular today will remain popular in 2016 (and 2017, and 2018).

I suppose the best news on the horizon is that we—the chattering wine classes—will continue to explore the nuances of terroir in California. This is a good time to do it. The Coast is pretty much developed out. We pretty much have all the AVAs we’re likely to have, between Mendocino and Santa Barbara, for the foreseeable future. The thing to do now is to explore the nooks and crannies within those terroirs. (Of course, I don’t discount the creation of sub-AVAs within larger ones such as Russian River Valley and Santa Rita Hills; and I also think that parts of the vast Willamette Valley need to be sub-appellated.) This is fun, important, creative work, and it will occupy us for generations, as it has kept Europeans busy for a thousand years. In this sense, it’s a good time to be a wine writer. Now, if only wine writers could figure out a way to make some money! But most of them cannot, and that, too, will be something we’ll talk about this year.

  1. Bob Henry says:

    Here’s a more sanguine view of the domestic economy:

    “Economists See Downside Risks, Recession Odds Receding in U.S., Wall Street Journal Survey Says”



    “Last month [October 2015], nearly three-quarters of economists in a Wall Street Journal survey said the economy likely would underperform and raised their estimates of the possibility that the U.S. would face a recession.

    “This month, less than half see downside risks to their economic forecasts and estimates of recession risk fell.

    . . .

    “This shift in economist sentiment underscores why key Federal Reserve policy makers have expressed confidence the economy will be strong enough by next month [December 2015] to allow the first interest-rate increase in nearly a decade.”

  2. redmond barry says:

    And the Dow dropped what, 400 , today?
    Steve, nice post, and a good example of the kind of thing loyalists look forward to. More about Gore Vidal would be ok with me.

  3. Bob Henry says:

    Redmond, et. al.:

    See this December 24, 2015 Wall Street Journal investment advice column on three metrics for projecting stock and bonds returns.

    “This Simple Way Is the Best Way to Predict the Market”


    By Jason Zweig
    “The Intelligent Investor” Column


    “Twenty-five years ago, John C. Bogle, founder of Vanguard Group, the giant investment firm, began publishing studies of stock and bond performance, seeking to determine the “sources of return” that have driven their results.

    “Mr. Bogle updates his findings in an article in the latest issue of the Journal of Portfolio Management. Combing through returns all the way back to 1915, he found that you can explain the past returns on stocks — and predict their future returns with decent accuracy — by taking only THREE FACTORS into account.

    “At first, that sounds so childishly simple it has to be wrong. But researchers in many fields have found that extremely basic formulas are often superior at making predictions about complicated systems.

    The FIRST of Mr. Bogle’s three elements is the STARTING YIELD, or annual dividends divided by stock price, currently about 2.2%. SECOND is EARNINGS GROWTH, which historically has averaged about 4.7%. Together those sources constitute what he calls the “investment return,” because they are based on the cash that companies generate.

    “THIRD is the ‘SPECULATIVE RETURN,’ or any change in the mob psychology of how much investors want to pay for stocks. …

    “As for bonds, Mr. Bogle has found that essentially all you need to know is their yield to maturity, or interest income divided by market price. …

    “None of these figures count inflation, which the Federal Reserve has targeted at 2% annually. Subtract that to account for loss of purchasing power, and stocks look likely to return an average of about 5% annually over time; bonds, less than 1%.

    “Note that these are expectations for the coming decade, not the next year — which is notoriously hard to predict.

    “By so clearly decomposing expected return into the factors that drive it, Mr. Bogle provides a model anyone can adapt. ‘If you don’t like my numbers [other than dividend yield],’ he says, ‘you can put in your own.'”

  4. Bob Henry says:

    The above link takes you to Zweig’s blog (which may be blocked by WSJ).

    This link takes you to Zweig’s article:

  5. redmond barry says:

    Some hot shot on Charlie Rose last night wasn’t too concerned. As for me, there are a lot of screaming bargains on French wines from 2009-14 on the web and more to come, plus overlooked gems from 2006-08, like Bouchard 2007 Corton ( 94s from a couple of less generous critics ) -a ten-lot went for $730( no buyer’s premium) yesterday.

    Ps How do you guys make the Captcha work?

  6. Bob Henry says:

    Update on premature recession talk.

    Excerpts from The Wall Street Journal “Money & Investing” Section
    (February 8, 2016, Page C6):

    “Recession Alarm May Not Ring This Time”


    By Ben Eisen
    Staff Reporter

    . . .

    Before every one of the past seven U.S. recessions, long-term interest rates fell below short-term rates, producing what economists call a yield curve inversion. Historically, the slope of the yield curve has been such a reliable predictor of economic conditions that economists at New York and Cleveland Federal Reserve banks use it to calculate the probability of recession.

    . . .

    The yield curve is a graph of interest rates arranged in order of bond maturities. Normally, it slopes upward because long-term interest rates are higher than short-term rates to compensate investors for accepting increased risk. …

    When the yield curve steepens, it usually reflects expectations of higher short-term rates in the future, signaling economic growth. A flattening curve indicates expectations that rates will tumble. That typically happens because the market anticipates the Federal Reserve will ease monetary policy to stimulate a slowing economy. An inverted yield curve implies the market expects short-term rates to fall sharply and stay persistently low, signaling an economic contraction.

    The difference between yields on 3-month Treasury bills and 10-year notes is regarded by economists at the Fed as the best yield curve predictor of recessions. …

    … By the New York Fed’s calculation, this means there is less than a 5% chance of a recession in 12 months. The Cleveland Fed puts the chances slightly higher, at 6.19%.

  7. Bob Henry says:


    Even more sanguine news.

    Today’s “above the fold” headline in The Wall Street Journal:

    “Dow Clambers Back Above 18000”


    “The Dow Jones Industrial Average closed above 18000 for the first time since July, a milestone that reflects how the outlook for markets has boomeranged since stocks tumbled at the start of the year.

    “The Dow has gained 15% since its 2016 low hit on Feb. 11, as fears about the U.S. economy have faded, oil prices have recovered and the Federal Reserve has signaled a cautious approach to raising interest rates.”

  8. Bob Henry says:


    You’ll be pleased with this “ripped from the headlines” news story.

    ~~ Bob

    From The Wall Street Journal Online
    (July 12, 2016 — posted one hour ago):

    “Dow, S&P 500 Close at Record Highs”

    “The Dow Jones Industrial Average hit a record and the Nasdaq Composite Index turned positive for the year, the latest milestones in a rally that also carried the S&P 500 to a new high for the second day in a row.”

Leave a Reply


Recent Comments

Recent Posts