Yanks, Frogs, and Wine Speculators

The funny thing about the anti-French fever that has swept through the U.S. over the last month is that it has produced an unusual buying opportunity in nice French wines. The 2000 Bordeaux is much admired as the best year in two decades.

The magazine ‘Wine Spectator’ (or should we call it ‘Wine Speculator’?) had this to say about Chateau Leoville Las Cases St.-Julien 2000: ‘Absolutely fantastic. This is one of the most exciting young reds I have tasted in a long, long time. Las Cases has always wanted to make first-growth quality in a top-notch vintage, and it certainly did in 2000. Best after 2012. Collectible.’…$175.00 per bottle.

Last week, even those usually inclined to scoff at the pretentious claptrap of gourmets and food aficionados might have been tempted to buy a case or two of 2000 Bordeaux…which they could find heaped in the bargain barrel beside the door at the local spirit merchant, selling for 25% discounts.

As France-bashing spilled from late-night comedy shows across the United States following the French government’s theoretical “support” for Saddam Hussein’s Iraq, France’s wine exports to the U.S. fell noticeably in March. Wine exports to the U.S. in 2002 were almost $28.5 billion. This week, wine producers are holding emergency meetings in Paris.

French Exporters: Maison Latour

Before the most recent incarnation of the Gulf War, about 40% of Maison Latour’s wine was shipped to America from its vineyards in Bourgogne. The nascent U.S. boycott has seen sales drop by up to 15%.

The downturn in March exports of French wines has yet to be documented in official statistics. But unofficial numbers bandied about by individual exporters indicate that the upward trend witnessed during the first two months of the year – when exports rose 16% to $287 million – will not continue.

If you’re stocking or replenishing a wine cellar, here’s the opportunistic thing to do: buy 2000 Bordeaux. In ten years, nobody will remember this bit of Gaullist arrogance and the wine will be in short supply to boot…with all that noble stuff swilled by backyard barbeque boobs who bought it in the bargain bin and stretched it with sugar and seltzer for homemade wine coolers.

This line of thinking led me to search for French exporters that have been flustered by the Francophobe fad. A backbreaking and intensive search revealed this list of companies (actually, I found it in my inbox, originally compiled by NewsMax):

French Exporters: A List of Companies

* Air France. Air Liquide. Airbus. Alcatel. Allegra (allergy medication). Aqualung (including: Spirotechnique, Technisub, U.S. Divers, and SeaQuest). AXA Advisors.

* Bank of the West in California (owned by BNP Paribas). Beneteau (boats). BF Goodrich (owned by Michelin). BIC (razors, pens and lighters). Biotherm (cosmetics). Bollinger (champagne). Please note: Bank of the West, Irving, TX, is locally owned and operated, and is not affiliated with Bank of the West in California.

* Car and Driver magazine. Chanel. Chivas Regal (scotch). Christian Dior. Club Med (vacations). Crown Royal Canadian Whiskey (Seagram).

* Dannon (yogurt and dairy foods). Dom Perignon. Durand Crystal.

* Elle magazine. Essilor Optical Products. Evian (which, read backwards, spells “naïve”).

* Givenchy.

* Hennessy.

* Jacobs Creek (owned by Pernod Ricard since 1989). Jerry Springer (talk show).

* Krups (coffee and cappuccino makers).

* Lancôme. Le Creuset (cookware). L’Oréal (health and beauty products). Louis Vuitton.

* Martel Cognac. Maybelline. Michelin (tires and auto parts). Mikasa (crystal and glass). Moët (champagne). Motel 6. Motown Records. MP3.com.

* Peugeot (automobiles). Pinault – Printemps – Redoute (Guicci, Yves Saint Laurent). ProScan (owned by Thomson Electronics, France). Publicis Group (including Saatchi & Saatchi Advertising and Leo Burnett Worldwide).

* RCA (televisions and electronics, owned by Thomson Electronics). Red Roof Inns (owned by Accor group in France). Renault (automobiles). Road & Track magazine. Roquefort cheese (all Roquefort cheese is made in France). Rowenta (toasters, irons, coffee makers, etc.).

* Sierra Software and Computer Games. Smart & Final. Sofitel (hotels, owned by Accor). Sparkletts (water, owned by Danone). Spencer Gifts.

* Tefal (kitchenware). Technicolor.

* UbiSoft (computer games). Uniroyal. Universal Studios (music, movies and amusement parks, owned by Vivendi- Universal). USFilter.

* Veritas Group. Veuve Clicquot Champagne. Vittel. Vivendi.

* Wild Turkey (bourbon). Woman’s Day magazine.

* Yoplait (French company Sodiaal owns a 50% stake).

* Zodiac inflatable boats.

I don’t know about you, but the fact that ‘Road & Track’ magazine AND Wild Turkey are French-owned is wrong. Very, very wrong.

That said, none of these companies offered ways to monetize the American backlash against French stuff. In fact, the Paris CAC 40 index has climbed from 2,400 to 2,903 since the first week of March, thereby proving once again the major moral component of film noir – there is no poetic justice.

Make money, not war.


Chris DeHaemer
for The Daily Reckoning
April 28, 2003

P.S. The boycott is the oldest political game in the book. It’s far more effective at getting the names of the boycotters in the headlines – witness Jesse Jackson and the Rev. Al Sharpton – than effecting any kind of change. Apart from some great wine deals, “Boycott France” isn’t likely to yield any great investment opportunities.


Another week after the victory in Iraq…and still no victory boom. The Dow fell 133 points on Friday, putting it in losing territory for the year.

The latest GDP figures show the economy barely growing. In the first quarter, GDP increased at a 1.6% annual rate. Consumer spending increased at 1.4%…and spending on services rose only 0.5% – the slowest pace in 12 years.

In the popular press, the depressing figures are blamed on “geopolitical anxieties”. But now that those are behind us, said can-do Fed governor Ben “Printing Press” Bernanke, things should get much better. In a speech last Thursday, Bernanke said the economy should grow at a 4% rate in the second half of the year.

Bernanke and his fellow can-do economists think they have the situation under control. If they had been around in the early ’30s, they must think to themselves, the Great Depression wouldn’t have been nearly so great…but merely a little dip in economic activity. And if they had been allowed to yank on the levers of Japan’s economy at any time during the last dozen years, instead of sinking into recession, bear market and deflation, the Japanese would still be buying over-priced golf courses in California.

Which may only go to prove the Mogambo Guru is right when he writes that “the vast majority of smug jackass people who call themselves ‘economists’, are clueless nitwits, and you can tell them I said so.”

The problem Bernanke and the other clueless nitwits face is that there are some things a central bank ‘no can do’. It can print money…but it can’t make the money valuable…and it can’t increase real spending power just by spreading it around.

For the first time in 20 years, average pay levels are falling. According to a NY TIMES report, the top 10% of earners take home $1,439 per week – down 1.4% from a year ago. The guys in the middle and lower-end of the pay scale lost ground too, with the median falling 1.5% year over year.

Real consumer purchasing power won’t go up until more people earn more real money. When that will happen, we don’t know. But Bernanke can print all the green notes he wants without increasing the nation’s real wealth by a single penny.

“The Fed created $6.9 billion in raw credit last week, to a new record high,” reports Mogambo. “Government debt bought outright was up only $1.7 billion, but also to a new record.”

If only it were that easy…

Eric, do you have some information for us?


Eric Fry in New York…

– The stock market emerged with a split decision last week. The Dow slipped about half a percent to 8,306, while the Nasdaq added half a percent to 1,434. But even the Nasdaq’s gain must have felt like a loss to the bulls, as the high- tech index ended the week 2% below its mid-week high.

– It’s clear that investors are attempting to focus on the stock market’s ostensibly bullish “fundamentals”, like the fact that 62% of the Standard & Poor’s 500 companies reporting so far have posted results that topped consensus expectations. 22% were in line with the consensus, and only 16% fell short. Before uncorking the Dom Perignon, however, remember that expectations had dipped so low they could have won a limbo contest with ease.

– Unfortunately, the stock market’s innumerable bearish fundamentals will not be silenced. Rich valuations and slow earnings growth – like a visiting mother-in-law – have a way of making themselves heard. And the SARS epidemic certainly does not enhance the stock market’s risk profile.

– Move over MWD! There’s a newer and nastier acronym in town: SARS. As the virulent strain of pneumonia rages through the Orient, the world’s macroeconomic bean-counters are furiously rubbing out GDP growth with their pencil- erasers.

– The World Bank estimates that SARS and the aftermath of the Iraq war will knock almost one-sixth off of Asia’s economic growth this year, cutting its GDP estimate for East Asia to 5% from 5.8%. The World Trade Organization voiced similar fears, predicting growth of two to three percent in global trade this year – a pace that would be less than half the 6.7 percent average rate of goods trade growth seen in the 1990s.

– Over on the other side of the Pacific, the U.S. economy is starting to feel the adverse effects of SARS. Air travel and tourism are particularly conspicuous victims of the dreaded disease. “San Francisco noted that international travel had weakened, due in part to the SARS outbreak in Asia. Dallas observed a decline in air travel due to the onset of the war and the SARS outbreak,” the Federal Reserve’s Beige Book reports. Air travel to Asia collapsed nearly 40% for the week ending April 20th.

– While the U.S. economy is not the most immediate victim of SARS, it may be the most vulnerable – our economy’s immune system is still compromised by the effects of post- bubble-itus. Corporations and consumers and municipalities all grew accustomed to “living large” during the bubble years. But now that the easy-money days are over, ratcheting back our collective national lifestyle is a very painful adjustment. Corporations have reacted fairly swiftly to the new austerity – they are borrowing less, spending less, firing salaried workers and granting smaller pay hikes to their already overpaid executives.

– Consumers, likewise, are pulling in their horns. They buy cars only when the auto companies are handing them out for free. But they’re buying very little else, and are saving more than they used to.

– Unfortunately, the state and federal governments haven’t really gotten the hang of living in the post-bubble era. They continue to spend, even while their income is plummeting. “State and local governments are spending a record amount of the nation’s wealth at the same time they’re warning that a sour economy is forcing cuts in key programs,” USA Today reports. A USA Today analysis found that state and local spending consumed 15.2% of U.S. personal income last year. That’s the highest level since record keeping began in 1929. The National Conference of State Legislatures reported Thursday that states face $21.5 billion in shortfalls for the budget year that ends June 30 in most states. The projected gap between spending and revenue next year is at least $53.5 billion.”

– $53 billion is a lot of money. Then again, we spent about $80 billion to blow up Baghdad. So how bad could a $53 deficit billion really be?


Bill Bonner, back in Paris…

*** GM said it would cut auto production by 10%. Ford said it would reduce its output by 17%. Despite giveaway deals, more than 4 million autos remain unsold.

*** But what’s this? New homes sales are soaring – up 7% last month…plus 11% year over year. And investors are pouring money back into equity funds, too…$6.7 billion of it in the week of April 16.

*** Poor Frank Quattrone. The Feds have decided to make an example of him. Quattrone, you may recall, was one of the big shills for tech stocks in the last ’90s…along with Henry Blodget, Jack Grubman and Mary Meeker. Both Blodget and Grubman have been collared and dragged before various tribunals. Now, it’s Quattrone’s turn.

At first, investigators decided they didn’t have enough evidence to prosecute him, but then changed their minds to go after him on an ‘obstructing justice’ charge, after he allegedly destroyed documents rather than turn them over.

That leaves only Mary Meeker. Michael Lewis, on Bloomberg, describes how Frank Quattrone hired Meeker at Morgan Stanley, before he left for another company: “They wanted an analyst who was 1) desperate to be one of the boys, 2) free of useful investment ideas, and 3) willing to define her job as the pleasing of corporations that issued securities rather than investors who bought them.”

Unlike the other tech touts, Ms. Meeker is still on the job.

The Daily Reckoning