What’s going on with Napa? Questions and concerns

[Rohit_B]

@HoosJustinG

I know of at least one Napa producer that buys their own wine back at auction (including driving up the price) to create the illusion of demand.

This is bonkers

[Arv_R]

That Tusk thread is truly one of the great ones… worth pulling up here.

[Rohit_B]

@HoosJustinG

But unless you truly believe your bottle of George III is vastly different than the 20 other bottles of wine already on the market from the same vineyard … you don’t have to box yourself into that cost structure, either.

This is extremely well said.

[Chris_Crutchfield]

@HoosJustinG

Don’t agree all “cult” (term I hate) Napa cab tastes the same, though. I think that’s kind of a pejorative - and antiquated - view that some drinkers of primarily old world wines like to tell themselves.

I don’t think it’s pejorative to observe that most Napa cab is relatively more homogenous across producers and vintages, compared to other regions. It doesn’t mean they are all the same, just less different from one another than elsewhere.

It can be seen as both a good thing and a bad thing. No need to be offended by it.

[Greg_K]

@Bweiss

I find it curiously coincidental that when crypto prices are elevated, the secondary values on luxury goods like sports cars, Rolexes, and blue chip wines take off.

My working theory is that a lot of folks are using luxury goods to launder their crypto gains. I have zero evidence for this, but I just find it to be way too coincidental, and I find it to be particularly annoying as both a watch and a wine lover who enjoys wearing great watches and actually consuming great wines.

The correlation makes sense, but there’s no causation. Crypto generally does better when rates are lower or expect to be lower relatively soon. Nor would it make sense to “launder” crypto gains* into something less liquid. This isn’t at all how laundering works.

*Noting of course that laundering crypto gains as a concept is confusing because, at best, it means not paying taxes, since crypto isn’t illegal (which is what laundering is for), but wine and watch sales are subject to tax too.

[Emery_A]

I think @B Weiss didn’t mean money laundering, but rather that when crypto prices are super high, traders take gains and then have crazy disposable income to buy luxury goods.

[Nate_Simon]

@HoosJustinG

drinking mostly Champagne and Burg these days.

Speaking of irrational demand and price inflation…

[Bweiss]

I don’t disagree with you, and my theory may be only a tiny fraction of the market.

I am using “launder” in much looser sense here - folks trying to hide 1000x returns from tax authorities by going directly into alternative assets that don’t have mandatory reporting requirements like a bank or a brokerage. Of course, when they go to sell the next asset they’d have another tax bill, but they’re again going to attempt to sell in a way without reporting it (P2P), or, they’ll pay only the gains on the luxury good and skip out on paying the tax for their much larger crypto gain. You’re right that the original investment is perfectly legal; the second move, not so much.

[Greg_K]

@Bweiss

I don’t disagree with you, and my theory may be only a tiny fraction of the market.

I am using “launder” in much looser sense here - folks trying to hide 1000x returns from tax authorities by going directly into alternative assets that don’t have mandatory reporting requirements like a bank or a brokerage. Of course, when they go to sell the next asset they’d have another tax bill, but they’re again going to attempt to sell in a way without reporting it (P2P), or, they’ll pay only the gains on the luxury good and skip out on paying the tax for their much larger crypto gain. You’re right that the original investment is perfectly legal; the second move, not so much.

This is the opposite of laundering though.

[Bweiss]

Fair enough. I’ll call it disguising crypto profits.

[Mark_Smith_65]

Don’t agree all “cult” (term I hate) Napa cab tastes the same, though. I think that’s kind of a pejorative - and antiquated - view that some drinkers of primarily old world wines like to tell themselves.

I couldn’t agree more. Thank you, Justin.

[Sam_Kwak]

Bitcoin/Ethereum have rallied by more than100% in the last 12 months, all the while the Veblen goods market has been softening, so I don’t think it is the dominant force in that market as a whole.

I tend to think it was more the tech bros and PE/VC types who were driving up the demand, whose liquidity has been squeezed and whose profits dried up due to the sustained high interest rate environment.

[Nate_Simon]

I have neither the time nor the technical abilities to do so, but I would love to see some way to look at overlap between those lamenting in this (and similar) posts, and those posting about how anxious they are for the next Bond, Harlan, Scarecrow, whatever release.

[Greg_K]

@Bweiss

Fair enough. I’ll call it disguising crypto profits.

This doesn’t make sense either, sorry. Fine wine isn’t a vehicle to launder or disguise funds this way. Not enough money or liquidity in it.

[MitchC]

pretty strange- never seemed to notice this. quite a difference between a wine from the floor and from the mountains, quite different if its made by grimes or bevan, quite different if from one clone or multiple clones, quite different if from tokalon macdonald blocks and tokalon mondavi blocks. take these and make more permutations and there are quite a few differences from my taste buds. I make no distinction on personal tastes because taste is so subjective but I do find differences. May I suggest that if you have an interest you do wine tasting that are not partial to the WOTN. Taste and all participants bring a cabernet from a different wine maker and look for the winemakers signature. Maybe even different winemakers using the same site. Try tasting cabernets from different clones in a tasting. Many different approaches to tasting for educational purpose. Old world wines are a different animal.

[HoosJustinG]

@Chris_Crutchfield

I don’t think it’s pejorative to observe that most Napa cab is relatively more homogenous across producers and vintages, compared to other regions. It doesn’t mean they are all the same, just less different from one another than elsewhere.

It can be seen as both a good thing and a bad thing. No need to be offended by it.

I think there are grapes like Chardonnay and Pinot that are [comparatively] transparent and are a better lens for terroir than varietally “stronger” grapes like Cabernet or Merlot. But are you telling me the differences between 2 benchmarks from Pauillac like Latour and Lafitte are larger than 2 benchmarks from Oakville like Heitz Martha’s and Opus One?

That being said, I pretty much agree that the climate is more consistent in California than it is in France or Italy – at least historically. Wildfires in California may actually shift that balance in the other direction, though.

[Bweiss]

I never said they were smart!

[HoosJustinG]

@Bweiss

Fair enough. I’ll call it disguising crypto profits.

You could probably do this trick once or twice. Use your BTC to buy a Patek and then sell the Patek on 47th street for cash. While the incoming large wire transfer (or cash deposit) will certainly trigger an IRS notification, if it’s just a single instance, they probably won’t care and/or be able to disprove that it’s a watch you’ve had for years, etc. etc. Then do it again, and keep the cash in paper money at home. Once you try to scale this, they’re going to start asking you what your cost basis is for these sales and go down the rabbit hole of where the money is coming from.

[Bweiss]

I think you’re likely right, and it’s more a function of interest rates and the rate of return on cash, but then again it’s those same forces that drive many toward cryptocurrencies as alternative investments… a bit like the causes of premox in the other thread…. Multiple forces at play here, with the biggest one being the closure, or in this case the interest rate environment.

[Tom_Won]

People were paying for commodities like wine through p2p btc transfers from private wallet to private wallet for years so if I have bitcoin that I privately sourced that has no blockchain trace back to my identity, then I can effectively use that bitcoin to pay for consumables without taxes or anyone knowing that I spent x amount of $ on some wine. Of course this is different from the assumption that the general luxury market has risen due to the increasing cryptocurrency prices.