Luxury is far simpler than what we once thought it was

Paulo Pinto

Alti Wine Exchange founding member

Dear reader,

I truly believed that luxury meant a symbol of rare, expensive, exclusive – just like the fine and rare wines offered by Alti Wine Exchange.

But the world has changed during these last 12 months, and I now realize that luxury is a symbol of something far simpler – like being able to go outside, breathe fresh air without a mask, meet family and friends, to be able to socialize with others.

What a luxury to be able to see people smiling with no masks, to hug a loved one or kiss a family member without violating rules.

Will we be able to return to our luxury of living well and free with the vaccine? I am still not convinced, even if much of the damage from this virus has already been done.

Debt has reached such high levels and so many businesses have closed that any return to normal is unlikely. Those who have been following our blog know that our interest is discussing money and the economy while drinking wine. So let’s dive into the topic.

Reacting to a call by more than a hundred economists, European Central Bank chief Christine Lagarde rejected canceling debts run up by eurozone members saying “it would be a violation of the European treaty which strictly forbids monetary financing of states”.

The interesting thing is, the ECB balance sheet is 61% of GDP – because it has been monetary financing European countries.

How much more central money will be printed? Will ECB reach 126% of GDP like in Japan?

In the view of the attitude politicians have towards debt, it looks possible. At zero percent interest rates, politicians are seduced into borrowing to infinity.

That is why we keep our eyes firmly on inflation.

What we saw in the Harmonised Indices of Consumer Prices (HICP) of the Euro area in January confirms what we have been saying. All of the big four countries surprised to the upside. The most impressive rise came from Germany, where inflation rose to 1.6% y-o-y from 0.7% – but, overall, Euro area inflation in January rose to 0.9% from minus 0.3%.

We have been wondering about the need to prepare for a future with inflation and currency devaluation.

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We talk about money… over wine. And that is how we came to fine and rare wine.

We have been amazed for the past ten years by this money creation and little effect on inflation, but we know from experience that, when it comes to inflation, we have to prepare in advance, otherwise it will be too late.

In the meantime, the global economy is slowing, but the negative interest policy is helping to inflate assets – and, this January, also the Harmonised Indices of Consumer Prices.

Negative rates suggest that the value of money is less than nothing, and if that is so, the value of fine and rare wine is a shield to what money buys.

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Luxury, one could argue, could be found over much more ordinary aspects of our economic and our social lives…

Until next time,

Paulo

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