Wednesday Night #1497

Written by  //  November 10, 2010  //  Reports, Wednesday Nights  //  Comments Off on Wednesday Night #1497

In vino veritas

            Money has no intrinsic value.  Coins and bills represent no more than two entries ,a debit and credit in a ledger, a promise to pay.  However their value fluctuates, constantly  diminishing over time due to what is referred to as inflation.  Most governments borrow to pay for public works knowing that the money and interest paid over the years will be worth less and less over the period of repayment.  The stock market is cyclical in nature and is dependent on the real value of money as well as the skill of the investor in accurately interpreting messages hidden in balance sheets.  Indeed, balance sheets can and do vary from year to year and are subject to varying conditions in the marketplace and on local and world events.  Gold is the preferred investment of the timid as it is limited in quantity, may be useful but never transformed  or consumed and is always readily available for purchase and/or sale.

The commodity, that has proven to meet the criteria of limited quantity, retention of value, is tangible and of which the availability diminishes over time, is vintage wine.  A vintage wine is one made from grapes, grown and harvested in a single specified year and unlike gold, which meets the other criteria, is consumed with the passage of time, making it the quintessential commodity for investment.  Indeed, over the years, tangible, secure, ensuring an absolute return, it has outperformed all other investment instruments. Historically, although its value has dropped minimally during periods of very sharp decline in the stock market, vintage wine has never lost value over any five year period.

Widespread debt and unemployment  have followed in the wake of the recent world economic crisis.  Europeans, including Germany and the U.K., have recognized and accepted the fallout and have taken politically difficult belt-tightening measures to work their way out of the problem including raising taxes and reducing expenses, the only realistic solution.       Americans, however, do not appear to realize the reality of the situation, are looking to QE2, a scheme for the U.S. central bank to buy up long term U.S. treasury bonds, considered a relatively painless solution, is predicted to be totally ineffective in increasing employment and/or stimulating the economy.  QE2 is said to be doomed to failure but appears to be the only politically acceptable solution.

Is free trade a finite term like unique or ubiquitous or can it be used in the comparative or superlative?  There are times when, in searching for answers, it is difficult to respond to the question without suspecting personal or political motivation for one’s reaction, especially so in the case for or against the sale of  Saskatchewan’s Potash Corporation, to foreign interests.  One is, perhaps, too biased in one’s reasoning, to believe that the sale, favoured by the governments of Saskatchewan and Canada, might be motivated more  politically than philosophically.  Indeed, the large foreign holdings in the Alberta Oil Sands would appear to favour that reasoning.  In fact, foreign ownership in industries with a high technical, or managerial content risk the potential replacement of Canadians filling higher paying positions with foreign candidates.   However, a closer analysis would indicate that in the case of potash, the supply is incredibly large and the extraction simple with no transformation required.  Investment and control by Canadians could be virtually assured, in contrast with Pulp and Paper which requires foreign investment and the expertise that we lack.

The stock market has had a remarkable recent record, uncharacteristically rising in September and  October.  Although this may have resulted in us being slightly overextended, leading to a possible slight drop until the end of November; a rally is then expected, lasting to the end of the year.



With those caveats, we are delighted to have a new guest with some fresh advice on investment strategy. Rodney Birrell, is a founding director of The Wine Investment Fund (the “Fund”) which is the oldest and largest absolute return fine wine fund in existence. [This is Rodney speaking] “The Fund was established in 2003 and since then, on an annualized basis, has returned 13.8% net of all fees and expenses. An investment in wine is a compelling one – not only does such an investment have lower volatility when compared to an investment in stocks or commodities such as oil and gold, according to the Sharpe Ratio, for every unit of risk, an investment in fine wine provides greater returns than does an investment in stocks, oil or gold. Not only that, it was been established that an investment in fine wine is marginally to neutrally correlated to an investment in stocks and bonds.
The Fund invests almost exclusively in cru classe Bordeaux. The grand Burgundies make up the remainder of the asset portfolio. All wines are kept in bonded warehouse in the UK and are insured at replacement value. What separates the Fund from copycat funds is our investment philosophy which is entitled the Price Step Theory. In a nutshell, we believe fine wine does not increase in a linear fashion month after month but in steps. It is our expertise to determine when these steps will occur and purchase the wine just before the sharp and quick rise or step up in value. To date we have been extremely successful in doing so.”

Rodney’s topic should lead us into a stimulating discussion of investment strategies, so we are calling on our economic gurus and oenophiles – not always one and the same – to join us for what should prove to be a diverting evening.

However, beyond investing in wine, there are a number of other important items and in light of the announcement by Peter MacKay that Canada’s role in Afghanistan is changing, but not over, it is of particular interest that on Thursday, November 11 at 12:30 pm at the Atwater Library Lunchtime Series,  our OWN “Dr. Des” Desmond Morton, McGill University emeritus professor of history, gives a talk on Canada’s current war: “Reflections on Canada’s Mission in Afghanistan”.

On a different note, the Sham Election in Myanmar is now over with some unexpected results, but no hope for major reform in the immediate future. Watch the websites for more.

For the avid followers of the woes of BP: Company Errors, Complacency Preceded Oil Spill: Panel  — A co-chair of the White House Oil Spill Commission took square aim at mistakes by BP and its partners that led to the Gulf oil spill, saying on Tuesday that they illustrate the need for a better safety culture in the oil drilling sector.

Please let us know if you can be with us. We look forward to welcoming you to the new home of Wednesday Night complete with packing boxes, etc.

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