What should you do during a buying panic? Be creative.
(Photo by Rich Graessle)
When the pandemic got underway, people stocked up on nonperishables. Seeing the paper-goods shelves empty, they became all the more anxious to buy. Some of those shelves are still empty.
To somewhat pervert Say’s Law, which says that supply creates its own demand: Demand creates its own demand. There are things you want only because other people want them.
Panic buying, and the possibility of avoiding it by finding substitute goods for three very coveted items, is the subject of the current essay.
It should be noted at the outset that participating in a buying (or selling) hysteria is rational. If there is reason to expect that people will start hoarding toilet paper next week, a sensible person would acquire a six-month supply now. If there are rumors that Bailey Brothers Building & Loan will fail, it’s advisable to be first in line at the window to cash out. If a panic is underway you might, if you are lucky, make money buying high and selling higher.
Crypto
What is the intrinsic value of a computationally concocted currency? In the case of bitcoin, it’s considerable. The product has brand recognition and is extremely useful for smugglers and extortionists. Maybe $100.
Having once caught on with criminals, though, the coin has now attracted a following among somewhat honest investors. They aren’t going to use it for transactions. No, they just want it because other people want it. And so BTC is quoted these days at $10,800.
The Winkelvoss twins say bitcoin could go to $500,000. Maybe it will. Or maybe the buying panic will subside and crypto will fall back to its transactional value.
If you are confident about selling to a greater fool, buy now. But if all you’re looking for is a hedge against the dollar, gold bullion is a safer bet. Gold could go up or down, but it’s not going to lose 99% of its value, whereas that is a distinct possibility with any cryptocurrency. I like the GraniteShares Gold Trust (ticker: BAR; expense ratio: 0.18%).
Nice wine if you can get it
Wine
Romanée-Conti is hard to come by, with a mere 440 cases produced from one recent crop. The price keeps going up. In 2003, bottles of the 1990, a particularly good year, were going for $4,000. The most recent price for that vintage, seen at a Zachys auction a few days ago, was $25,600.
I am reminded of the joke about speculators bidding up cans of sardines to feverish prices. Finally someone opens a can and finds the fish disappointing. He is scolded: “Hey, those weren’t eating sardines. They were trading sardines.”
So what’s with R-C? I went to a Zachys expert, Charles Antin, for an analysis. The wine tastes very, very special, he says, and it ages well. But he concedes that its price reflects scarcity as much as instrinic value. In other words demand is high because demand is high. Moreover, older bottles are getting scarcer. People do drink this stuff away.
For an affordable substitute I went looking for something produced nearby from the same pinot noir grape. It won’t be at all the same, Antin warns me. In this part of France every hillside is different.
Still, here’s a shot: Jadot’s Vosne-Romanée from its Les Suchots vineyard. The Zachys catalog describes it as a “broad and supple wine that's fleshy but nicely defined, concluding with a lively finish.” A steal at $205.
Towels
In March people started to stock up on paper towels, maybe so they could wipe virus off door handles. And then, whoosh. Demand went through the roof. Most of it was for hoarding.
As noted above, it’s totally rational to buy paper towels you don’t need if other people are buying towels they don’t need. It’s also rational for manufacturers to hold off expanding capacity. Paper-making machines are very expensive, and demand is sure to collapse once everyone’s pantry is filled.
Substitute good? Consider that, at the same time machines spitting out rolled towels of the sort found in supermarkets are working overtime, the opposite is true for the machines that make the folded towels found in office buildings and restaurants. At Home Depot
Caution: Adopting a rest stop decor for the kitchen may create some dissension within the household.
