Fine wine vs gravity

Is there a link between the movement of the fine wine market and Felix Baumgartner’s death-defying leap from the edge of space?

Source Liv-ex

There is, it’s tangential at best like all the other entries in this series so far but if you’ve sat through the bizzaro world of fine wine and Super Bowls, Cambridge degrees and the alphabet you should know what to expect by now.

Clearly when we say gravity we’re not talking here of pushing a bottle of Lafite off a table and hoping it will levitate instead of splintering into a million, wine-covered, pieces on the kitchen floor.

We need to think big here. Take a look at the graph above from Liv-ex. It shows the movement of its Fine Wine 100 index from March 2008 to March of this year.

Since March of last year to the present, it has suffered 12 consecutive months of decline. Looking back to a period in 2011 when the market nosedived we can see that the current decline is not as dramatic but it is steady.

On the other side of the 2011 slump we saw a comparable rise from early 2009 when a bull market driven by China drove fine wine into the realm of super-asset and super prices.

So much for the wine market, let’s consider now the gravitational element of this essay.

Felix Baumgartner is an Austrian stuntman and extreme parachutist who in 2012 teamed up with Red Bull to attempt the highest parachute jump ever undertaken by man – so high he had to wear a pressurised suit to prevent his blood boiling in his veins and his eyes popping out like that bit at the beginning of Total Recall with Arnold Schwarzenegger.

The record had been set in 1960 by a USAF colonel, Joseph Kittinger, who jumped from a balloon 19 miles up and fell to earth in free fall for nearly five minutes before pulling his ripcord.

The “Red Bull Stratos” event took Baumgartner (above) 24 miles above the Earth’s surface. After leaping into the void he broke the sound barrier (Mach 1.25 or 843.60 mph) after just 40 seconds.

Following that he was in free fall for a little over four minutes before he deployed his parachute and landed five minutes later.

He broke the record for the highest jump as well as being the highest any human has been outside of an aircraft and he’s technically the fastest man on the planet (or was until he slowed down in the lower atmosphere) – Kittinger still holds the record for the longest free fall by around 20 seconds though.

“All very interesting,” you say, “but what does this have to do with fine wine?” Well, in and of itself absolutely nothing but it’s more of a metaphor – innit?

But seriously there are parallels – as usual if you use your imagination and squint just the right way. Let’s now transmogrify the Fine Wine 100 index (which charts the progress of the 100 most traded fine wines on Liv-ex) into a sky-diving para-naut.

Evidently he has ice for blood and nerves of steel, a dash of Burgundian earthiness, Italian flair, Californian swagger but he is, at heart, a Bordelais (Bordeaux being the dominant region on the index).

First, record breaking rises. Baumgartner went higher than man has ever been within our own atmosphere outside of an aircraft. Similarly, China and the record-breaking 2009 Bordeaux vintage followed by an even more astronomically expensive 2010 propelled fine wine into previously uncharted territory.

Funnily enough it took Baumgartner just over two hours to reach the 24 mile mark, just as it took the fine wine market some two years to hit its peak. Once the ceiling was reached however, both went past the point of no return.

If Baumgartner was ultimately a subject to gravity, fine wine had to answer to market forces. Baumgartner had to jump or he’d be in space (and dead) and the market had to fall.

Again, like Baumgartner, when the fall came it didn’t take long to hit terminal velocity. When the market turned, between July 2011 and January 2012 it fell to a point not seen since late spring 2010.

In seven months the market fell to a point it had previously taken nearly a year and a half to reach. Despite some small rallies the market has continued to decline and is now approaching early 2010 levels.

If the declining trend continues then a return to late 2009 pricing can’t be too far off.

Back to the allegory, remember that Baumgartner hit the sound barrier 40 seconds into his descent after falling some 29,000 feet; yet his freefall lasted around four minutes in total and he slowed down gradually as he hit the denser air of the lower atmosphere.

The fine wine market has certainly broken through the sound barrier stage and its descent has also slowed somewhat in the denser atmosphere of less reliance on Bordeaux (which has gone from 90% to 85% of trade of the Liv-ex market place) and those high-flying (expensive) wines coming down to a level the market finds more acceptable.

So free fall has slowed and stabilised a little but it’s not clear yet if the ripcord has been pulled – or if there’s any likelihood of that happening anytime soon. At the moment, the crucial Bordeaux element of our fine wine action man has gone from urbane château-dweller to fired-up adrenalin junkie and is doing the equivalent of pushing its body – and very possibly its luck – “to the limit” and taking the rest of the market down with it in the process.

Where will the market level off? Hard to say, the cheapest Bordeaux on the index is the 2003 Léoville Poyferré for just over £1,000 a case, the 2008s are also falling after a price boost in 2010/2011 when they were good value and the 2009s and 2010s continue to sink to a mere fraction of their en primeur releases.

So no billowing white canvas yet, might this year’s en primeurs do the trick?  Again, who can say, it might add a bit of extra drag but only if there’s a compelling reason to buy.

News out of Bordeaux now is that 2013 is a “pleasant surprise”, itself no surprise to hear but the fact it is not an outright disaster does not mean that prices can merely be “symbolically” lowered.

If that happens the fine wine market will definitely be aiming for Kittinger’s rather than Baumgartner’s free fall record.