I’ve generally subscribed to this belief, particularly when it comes to real estate and commodities.
It appears inevitable that we are moving from a period of low interest rates and inflation that has been enjoyed for a generation. Trump’s economic plan maybe somewhere between genius and reckless but either way it is likely to be a catalyst to accelerate this change. I’ve believed for some time that the debts of developed economies are unsustainable and that the simplest solution for countries like the U.S and U.K. is to simply inflate the debt away. While our dollars or pounds may not be worth as much as we would like our exports do become more competitive against the emerging economic powerhouses which must be a good thing in the longer term.
In such a scenario, it becomes increasingly important to invest in assets that will keep their value in real terms. Whisky investment provides a hedge against inflation for two very simple and important reasons.
Firstly, there are very few investments that continue to improve in quality and therefore value by doing absolutely nothing. A bar of gold today will be exactly the same in 5 years’ time or your real estate investment may require a facelift to maintain its relative value. Whisky improves as it ages in the cask and, as we already know, a 10 year old single malt will always be worth more than its equivalent 5-year-old sibling.
How does this beat inflation? Well, the costs of producing whisky are dictated by the price of barley, energy and wages and in an inflationary period these costs will all increase resulting in a higher production cost. Notwithstanding short-term fluctuations the result of this is that aged whisky also benefits from these inflationary increases.
Secondly, we must never lose sight that the whisky within a cask will at some point end up in a bottle. The value of your whisky is directly linked to the cost of that bottle so as bottle prices increase with inflation, so the value of your whisky cask also increases. Our philosophy has always been to create casks of distinction that will be attractive to the Single Cask market and it is this premium market where, in my opinion, inflationary increases will be greatest.
It is easy to get distracted by short term sentiment, but the fundamentals of the global whiskey sector remain strong with latest analysts predicting a 9.6% compound annual increase in consumption over the next 10 years. Single Malt Scotch, as the world’s premium brown spirit, is perfectly positioned to benefit from this trend.
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