Are Grange Buyers Stupid?

Are Grange Buyers Stupid? (8 May)

Judging by Peter Gago's comments in this news article, he must think the answer is an unequivocal yes. I can't think of any other reasonable explanation for his comments.

According to the news story, "In hard times like this, people turn away from gold and buy wine," Mr Gago said.”

Is that right Mr Gago? That comment is a load of complete, unadulterated rubbish. Here are a few facts that Mr Gago may wish to consider.

The price of gold is closely aligned with inflation and asset price fluctuations. Investors tend to buy gold (and its price rises) when the value of their investments is at risk of being eroded. The gold price also increases when the stock market performs badly, and is likely to drop when the market is doing well. Historically gold has been seen as the ultimate safety net.

If you have a look at the movements in the price of gold between 1969 and 2008 all becomes clear.

Between 1969 and 1980 inflation went berserk in the US rising from 4.7% to 13.3%. The price of gold over the period went from $35 an ounce to $590 an ounce.

Between 1980 and 1985, inflation in the US dropped to 3.9% and the price of gold nearly halved, dropping to $327 an ounce.

Between 1987 and 1999 the price of gold had fallen to $291 an ounce, which was a 40% drop. During that period of time, inflation was low in the US, and the Dow Jones rose by an average of 16% per year.

Between 2001 and 2006 the price of gold more than doubled, rising to $635 per ounce. The instability in the Middle East, the price of oil rising to $59 per barrel, and the dot.com meltdown were all contributors.

The price of gold today is approximately US$850 and ounce. The reason that it has climbed since 2006 is due to be price of oil, worries about increased inflation, and the weakening US stock market. So, Mr Gago, people may be buying your wine, but they are certainly not turning away from gold.

Now unless I am mistaken, the release on the first of May was for the 2003 vintage of Grange. Yet in the article, Mr Gago is quoted as saying, “There was already talk among wine cognoscente that the 2004 vintage would rival the great 1990 vintage that catapulted Grange to international stardom after being named the greatest red in the world by influential US wine critic Robert Parker.” Excuse me, but what has the unreleased 2004 vintage got to do with the release of the 2003?

Exactly nothing!

Come on Mr Gago, if Grange is truly such a great wine, and it is, why do you need this BS to promote it?

Feel free to submit your comments!

From ITB: - Thursday 8 May

Got to agree with you Ric about the comments from Gago, but don't shoot the messenger, it's the corporate knob heads that would have put the words into his mouth.
(Name not for publication :-)

From Mark Dignam: Thursday 8 May

The Jago/Grange article suggests that Jago is stupid, not the buyers.

Putting the wine issue aside, I am an active investor (for many years) in anything that I can make money from. The rest of the time I’m a management consultant and part-time University lecturer.

Your data on gold is correct – it is largely seen as an inflation hedge and a bulwark against turbulent markets.

A decade ago, gold producers were struggling (I had one as a client) and some local producers stopped altogether as the extraction and refining costs were too high relative to the price. Not any more!

I suggest Jago pulls his head in.

Secondly, why pay $550 for 2003, when he is implicitly taking it down? I can get 1996 or 1998 retail for less than that. And that’s before I say anything about the 03 vintage which I don’t think much of anyway.

I hear another failed wine scheme in the offer….

From Graeme G: Friday 9 May

Well, this vintage ain't going to sell itself. I spoke to the owner of a major Sydney independent wine store earlier in the week, and in contrast to past years where the phone goes crazy around release time, it's been very quiet. He had no qualms about offering individual bottles for sale (as opposed to the normal practice of selling one Grange with a six- or dozen- pack of other Penfolds wines.

Anyway, after five days on the market at $480 ea, he's sold precisely 3 bottles...

TORB Comments: - Thanks for that information Graeme. It brings a couple of thought to mind.

Given the bun fight over Grange in past years, and Australian retailers complaining that they didn't get a big enough allocation of Grange, I guess that Fosters isn't concerned as they will still be able to sell the entire production virtually on release. At the most the cost of the grapes, oak, processing etc for a bottle of Grange would be about $20. Lets be generous and double it to account of overheads. After WET and GST, they would make about $190 a bottle on the wholesale price. If we take a wild guess and say that half the volume is exported, it means that the Australian profit on Grange is around $8 million. In its last half yearly report, Fosters half yearly net profit on wine sales in Australia was just over $80 million for the period. So how important is the profit on Grange? Very! At least to their Australian wine results, although overall, its a drop in the ocean of beer profit.

In five years time, no doubt you will be able to walk into your local branch of Woolworths/Safeways/Dan Murphy/BWS etc and find bottles of 2003 Grange for sale at some stupid price.

	Snippet
Sydney Time Copyright © Ric Einstein 2008	Are Grange Buyers Stupid? (8 May) Judging by Peter Gago's comments in this news article, he must think the answer is an unequivocal yes. I can't think of any other reasonable explanation for his comments. According to the news story, "In hard times like this, people turn away from gold and buy wine," Mr Gago said.” Is that right Mr Gago? That comment is a load of complete, unadulterated rubbish. Here are a few facts that Mr Gago may wish to consider. The price of gold is closely aligned with inflation and asset price fluctuations. Investors tend to buy gold (and its price rises) when the value of their investments is at risk of being eroded. The gold price also increases when the stock market performs badly, and is likely to drop when the market is doing well. Historically gold has been seen as the ultimate safety net. If you have a look at the movements in the price of gold between 1969 and 2008 all becomes clear. Between 1969 and 1980 inflation went berserk in the US rising from 4.7% to 13.3%. The price of gold over the period went from $35 an ounce to $590 an ounce. Between 1980 and 1985, inflation in the US dropped to 3.9% and the price of gold nearly halved, dropping to $327 an ounce. Between 1987 and 1999 the price of gold had fallen to $291 an ounce, which was a 40% drop. During that period of time, inflation was low in the US, and the Dow Jones rose by an average of 16% per year. Between 2001 and 2006 the price of gold more than doubled, rising to $635 per ounce. The instability in the Middle East, the price of oil rising to $59 per barrel, and the dot.com meltdown were all contributors. The price of gold today is approximately US$850 and ounce. The reason that it has climbed since 2006 is due to be price of oil, worries about increased inflation, and the weakening US stock market. So, Mr Gago, people may be buying your wine, but they are certainly not turning away from gold. Now unless I am mistaken, the release on the first of May was for the 2003 vintage of Grange. Yet in the article, Mr Gago is quoted as saying, “There was already talk among wine cognoscente that the 2004 vintage would rival the great 1990 vintage that catapulted Grange to international stardom after being named the greatest red in the world by influential US wine critic Robert Parker.” Excuse me, but what has the unreleased 2004 vintage got to do with the release of the 2003? Exactly nothing! Come on Mr Gago, if Grange is truly such a great wine, and it is, why do you need this BS to promote it? Feel free to submit your comments! From ITB: - Thursday 8 May Got to agree with you Ric about the comments from Gago, but don't shoot the messenger, it's the corporate knob heads that would have put the words into his mouth. (Name not for publication :-) From Mark Dignam: Thursday 8 May The Jago/Grange article suggests that Jago is stupid, not the buyers. Putting the wine issue aside, I am an active investor (for many years) in anything that I can make money from. The rest of the time I’m a management consultant and part-time University lecturer. Your data on gold is correct – it is largely seen as an inflation hedge and a bulwark against turbulent markets. A decade ago, gold producers were struggling (I had one as a client) and some local producers stopped altogether as the extraction and refining costs were too high relative to the price. Not any more! I suggest Jago pulls his head in. Secondly, why pay $550 for 2003, when he is implicitly taking it down? I can get 1996 or 1998 retail for less than that. And that’s before I say anything about the 03 vintage which I don’t think much of anyway. I hear another failed wine scheme in the offer…. From Graeme G: Friday 9 May Well, this vintage ain't going to sell itself. I spoke to the owner of a major Sydney independent wine store earlier in the week, and in contrast to past years where the phone goes crazy around release time, it's been very quiet. He had no qualms about offering individual bottles for sale (as opposed to the normal practice of selling one Grange with a six- or dozen- pack of other Penfolds wines. Anyway, after five days on the market at $480 ea, he's sold precisely 3 bottles... TORB Comments: - Thanks for that information Graeme. It brings a couple of thought to mind. Given the bun fight over Grange in past years, and Australian retailers complaining that they didn't get a big enough allocation of Grange, I guess that Fosters isn't concerned as they will still be able to sell the entire production virtually on release. At the most the cost of the grapes, oak, processing etc for a bottle of Grange would be about $20. Lets be generous and double it to account of overheads. After WET and GST, they would make about $190 a bottle on the wholesale price. If we take a wild guess and say that half the volume is exported, it means that the Australian profit on Grange is around $8 million. In its last half yearly report, Fosters half yearly net profit on wine sales in Australia was just over $80 million for the period. So how important is the profit on Grange? Very! At least to their Australian wine results, although overall, its a drop in the ocean of beer profit. In five years time, no doubt you will be able to walk into your local branch of Woolworths/Safeways/Dan Murphy/BWS etc and find bottles of 2003 Grange for sale at some stupid price. Copyright © Ric Einstein 2008