Don’t drink the hand sanitizer. The perfect excuse for a due-diligence on wine. Brexit eve, the better Christmas.

Back in the office after travels in Asia and conferences in Barcelona and Miami. No, we did not catch Corona virus, even though Wuhan noodle soup sounds like a delicious treat. After the recent news about the virus I would have expected financial markets to react calm and collected, study the official evidence and don’t get hyped. I mean that’s what financial markets usually do, right, underweighting tail events is our great strength! Just kidding, it’s probably to perfect time to forget about the thousands that get killed every year by the common flu and focus on the outliers. As you are screwed anyway you might as well indulge a little bit. So pour yourself another drink (NOT hand sanitizer), sit back and relax. By the way, here is Xi Jinping’s version of that – with the only difference that he prefers a healthy dose of monetary stimulus injection.

 

After we thought we have seen it all regarding volatility research, there is this new paper on the volatility transmission to the fine wine market. Apparently the topic is not only interesting from a sophisticated drinker’s perspective, who might wonder if he can still afford the bottle of Petrus in a major economic downturn, but also from an investor’s view looking for diversification.

Since 2003, the worldwide turnover for fine wine at major auction houses has increases from US

346 million in 2015. This added the necessary (financial) liquidity to the markets sparking the emergence of several wine funds and indices. The paper mainly deals with the analysis of dynamic correlations between these investable wine markets and traditional asset classes such as equities, real estate and commodities. While there seems to be a comovement of these assets classes and wine in times of crisis and high volatility, potential diversification benefits are possible between gold and wine, with correlations close to 0 between 2013 and 2017.

While we were always intrigued by the idea of drinking collecting wine, the authors finally give the perfect excuse for your upcoming due-diligence trip to France:

Indeed, to make their investments as efficiently as possible, wealthy households and portfolio managers, therefore, need to know the channels through which the volatility of the financial, real estate, and commodities’ markets is transmitted to the fine wine market. As part of portfolio diversification, these latter investors can introduce wine as a trendy asset.

Friday 31th of January was a very special day for our British friends. No, it’s not about Harry and Meghan and whether Princess Beatrice will still invite them to her wedding. It’s about the UK leaving the European Union – mostly without any clue what will happen in the future. David Schneider probably summed it up quite nicely:

 

So long and happy trading!