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Last Call For Lafite? | China International Business

By ANDY XIE

Carruades de Lafite 2004

A few months ago I wrote that Carruades de Lafite wine is a bubble, because it is misconstrued in China as being the little brother to Lafite, similar but a bit less good. I thought, though, that one could still make a case for the skyrocketing price of Lafite being a revaluation caused by new demand from China. However what I have seen and heard in the past few months convinces me that the whole fine wine market, not just Lafite, is a bubble. Like many other assets, the force driving the bubble is the low interest rate environment. Bernanke is more of a reason for high fine wine prices than 1.3 billion Chinese.

In the 2000 Internet bubble, many worthless companies were trading at billions of dollars of market capitalization. Some were genuinely good companies but were priced several times higher than their intrinsic worth. It’s the same with Lafite.

It’s never easy to call the top in a bubble. I believe China’s tightening due to inflation marks the peak for Lafite, as well as for Chinese property. What will follow is sluggish trading volume and sideways prices. The crash in the wine and property sectors will come when the US treasury market crashes, forcing the Fed to tighten monetary policy. That will probably occur in 2012. So now is the right time to sell your Lafite.

Continue here: Last Call For Lafite? | China International Business.

Photo from Flickr, by Paco Penas


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