Welcome to the WC, wherein you’re trapped in my mind for eight to ten minutes weekly.
Last week, we stepped way outside my comfort zone to examine what might happen if DJT neuters the Fed.
There are some opportunities for investors, but most of you think it’s a pretty bad idea.
This week, we’ve got more esoteric fare.
- WTF is horse pinhooking?
- Is the wine industry drunk?
- Meanwhile, in the world of Armenian cognac
- Things I love this week
Have a read-through, and let me know what you think.
Let’s go.
Table of Contents
WTF is horse pinhooking?
Recently, a fascinating person joined Altea, our private community for alternative investors. She’s a lawyer by day and is raising a fund for horse pinhooking by night.
I’d never heard of horse pinhooking before, but now that I have, I admit I’m…hooked. (sorry, I’ll show myself out)
Pinhooking is buying a horse when it’s a foal (less than a year old) and selling it when it becomes a yearling (between one and two years old). In the meantime, the investor does everything possible to increase the value of that horse.
The price differential between foals and yearlings is enormous, which leaves a lot of room for profit in this super niche space.
Why the big difference?
Timing, risk, and development.
Foals are essentially bundles of potential: they’re cute, gangly, and a complete gamble. At that stage, buyers can’t be sure how they’ll grow, what kind of conformation (body structure) they’ll develop, or even if they’ll survive those early, delicate months.
Something like 15% of foals never make it to the auction block due to illness, injury, or death.
This uncertainty creates a risk discount—foals are cheap(er) because the buyer is assuming significant unknowns.
Yearlings, on the other hand, are a whole different story. When a horse hits its first birthday, it starts showing its physical promise. Buyers can see more developed muscle tone, proportions, and how the horse carries itself—all key indicators of its future athletic potential. It’s like going from investing in a startup with just an idea (the foal) to a startup that’s launched an MVP, gained traction, and attracted buzz (the yearling).
And the buzz is real. If the horse has a desirable pedigree, its relatives might win big races during that time, giving its family name added clout. Better yet, with careful handling, the yearling becomes easier to work with, lessening the future training burden on its new owner.
Yearlings are perceived as safer bets with more evident upside, and that premium is reflected in their price.
There are a few levers a seasoned pinhooker can pull to increase the value of a foal during those crucial months:
Nutrition and Growth Optimization
A balanced, high-quality diet ensures the foal grows strong and develops proper muscle tone and bone structure. Supplements tailored for joint health, coat condition, and overall vitality can make a visible difference when buyers assess the yearling.
Handling and Basic Training
Early handling is critical to ensuring the foal is well-mannered and comfortable around people. Teaching the basics—walking on a lead, standing calmly for grooming and veterinary care, and responding to commands—makes the horse easier to manage and more appealing to buyers.
Conditioning and Presentation
A foal doesn’t need intense exercise, but carefully managed turnout and playtime in safe, spacious paddocks help build muscle and improve coordination. When the foal is a yearling, conditioning programs may include light hand-walking or other low-impact activities to enhance its athletic appearance.
Veterinary and Farrier Care
Regular veterinary checkups help address any health concerns early, whether it’s correcting limb deformities or managing infections. Farrier visits ensure the foal’s hooves are properly trimmed and developing soundly, which can prevent long-term lameness issues.
Pedigree Updates and Marketing
Keeping track of any successes within the foal’s bloodlines is crucial. A win by a close relative on the racetrack can dramatically increase interest. Professional photos and videos showcasing the foal’s movement and conformation should highlight these pedigree boosts to attract high-quality buyers.
Auction Preparation
As the foal grows into a yearling, professional sales preparation begins. This includes grooming, bathing, and training the horse to walk confidently and display itself to potential buyers. A polished presentation can make all the difference in a competitive auction setting.
Safe and Enriching Environment
Providing the foal with a safe, low-stress environment helps minimize the risk of injury or illness. Well-maintained paddocks, secure fencing, and consistent routines contribute to the foal’s overall well-being, ensuring it develops into a confident and healthy yearling.
What’s the payoff?
Horse bloodstock investments typically return somewhere between 10% and 25% IRR, but the good ones yield 30% annually or more over a three to five-year fund.
While the upside can be substantial, many funds have down years, with some producing negative returns in tough markets or due to poor performance from their horses.
The deal we’re looking at in Altea forecasts significantly higher returns than what we see above on a shorter timeline than usual.
We’re planning a due diligence trip to an upcoming auction to better understand how this works.
You can express interest here if you want to be kept in the loop about this deal and RSVP for the trip.
Is the wine industry drunk?
The wine industry has a hell of a hangover. France, the world’s premier wine producer, is paying farmers €120 million ($130 million) to destroy excess wine production. This isn’t just a tiny adjustment – we’re talking about 400 million bottles of wine being converted into industrial alcohol for hand sanitizer and perfume.
French winemakers are paying people to destroy their vines, particularly in the prestigious Bordeaux region. They’re planning to tear out almost 23,500 acres of grapes. This isn’t just pruning; it’s the surgical removal of entire vineyards.
It’s not just France. Spain is uprooting vines, too.
The causes of this wine crisis form a perfect storm:
Changing Consumer Tastes
- Wine consumption in France has plummeted from 120 liters per person annually in the 1960s to just 40 liters today.
- Young drinkers are increasingly turning to alternatives like craft beer, cocktails, and non-alcoholic options.
- Red wine, in particular, has seen sales drop by 32% in France over the last decade.
Market Oversaturation
- Europe is drowning in wine, with France, Italy, and Spain accounting for 47% of global production.
- Production remains high while demand continues to fall.
- Italy and Spain saw production volumes plunge by 23% and 22% in 2023, yet there’s still too much wine.
Climate Change
- Extreme weather events are affecting harvest times and grape quality.
- Global wine production dropped 9.6% in 2023 due to climate-related events.
- Rising temperatures are forcing earlier harvests, affecting wine quality and character.
Economic Pressures
- Inflation and rising costs are pushing consumers to spend less on non-essential beverages.
- Wine consumption has fallen 10% in Spain, 22% in Germany, and 34% in Portugal.
- The COVID-19 pandemic’s impact on restaurants and trade shows continues to reverberate.
The investment side isn’t looking much better. The Cult Wine Investment Performance Index fell by 2.29% in Q3 2024, with Bordeaux taking the biggest hit with a 4.40% decline. Even the traditionally resilient Burgundy region couldn’t escape unscathed, showing a 1.03% decline.
What’s particularly concerning is that this isn’t just a temporary blip. The industry is facing what appears to be a structural decline. The traditional model of wine consumption – the daily bottle with dinner – is falling out of fashion. When French people drink nearly 70% less wine than 60 years ago, you know something fundamental has shifted.
The situation is so dire that in regions like Bordeaux and Languedoc, producers are selling wine at prices below production costs. Jean-Philippe Granier from the Languedoc Wine Producers’ Association put it bluntly: “We’re producing too much, and the sale price is below the production price, so we’re losing money.”
Is there a silver lining? Perhaps. The crisis might force a needed modernization of the industry. Some producers are already adapting by focusing on whites and rosés, which are gaining popularity among younger drinkers. Others are experimenting with lower-alcohol options and sustainable practices to appeal to health-conscious consumers.
But for now, the wine industry seems caught between its storied past and an uncertain future. The question isn’t just whether the glass is half full or half empty – it’s whether anyone wants to drink what’s in it at all.
Meanwhile, in the world of Armenian cognac
If you’ve ever savored a glass of what you thought was authentic Armenian cognac (and be honest, who hasn’t?), you’ve probably been scammed. A recent investigation has revealed that up to 90% of Armenian brandy (the international name for Armenian cognac) sold in Russia—the spirit’s largest export market—is counterfeit. The scale of the operation, the players involved, and the staggering profits being made paint a picture of an industry shadowed by criminal ingenuity and systemic corruption. Here’s how (I think) the operation works, who’s behind it, and how much they’re raking in.
How It’s Done: The Step-by-Step Playbook
Production: The Night Shift Hustle
The counterfeit journey begins at mid-tier legitimate producers who double as counterfeit factories. During the day, these producers churn out authentic brandy. By night, the same facilities shift to producing counterfeit products.
- The Process: Industrial alcohol (costing ~$2-3 per liter) is mixed with flavoring compounds and processed water to mimic the profile of genuine brandy. Quick-aging additives complete the illusion.
- The Cost: Producing a counterfeit bottle costs just $3-$4, a fraction of the $8-$10 cost of authentic Armenian brandy.
- The Cover: Legitimate facilities provide plausible deniability, with fake goods masquerading as authentic in mixed shipments.
Packaging: Dressing the Part
To pass off counterfeits as the real deal, the packaging must look authentic.
- The Tactics: Recycled genuine bottles and meticulously printed labels replicate authentic branding, down to the security features.
- The Cost: Each counterfeit bottle is dressed up for as little as $1, covering bottles, labels, and packaging materials.
Documentation: Papering Over the Fraud
Sophisticated forgery is the linchpin of the operation. Counterfeit products are passed off as legitimate through falsified customs and quality certificates.
- The Strategy: Mixed shipments of authentic and counterfeit goods use falsified transport and export papers.
- The Cost: Document forgery costs run $5,000-$10,000 per shipment—small change compared to the profits.
Distribution: Smuggling with Style
The goods are routed through Armenia to Russia via multiple border points, with bribes greasing the wheels at every stage. Semi-legitimate transport companies handle logistics, blending counterfeit and authentic products in their loads.
- The Cost: Transport and protection costs run $8,000-$14,000 per truckload of 1,000 cases.
- The Network: Warehouses in Russia and neighboring countries ensure smooth regional distribution.
Who’s Behind It: The Shadow Players
Producers
Mid-tier licensed Armenian brandy producers are the masterminds behind the production. Facing financial pressures, these producers operate parallel counterfeit lines to maximize profits.
- Annual Earnings: $2-$5 million from counterfeit operations.
Criminal Facilitators
Customs officials, quality control officers, and transport companies enable the fraud by ensuring the counterfeit goods clear regulatory and logistical hurdles.
- Bribes Earned: $100,000-$500,000 annually per official or company.
Distributors
Semi-legitimate importers and wholesale networks move the counterfeit products into the Russian market, often blending them with authentic goods.
- Annual Profit: $1-$3 million per network.
Protection Rackets
Regional organized crime groups ensure the operation runs smoothly, providing security, bribing officials, and protecting supply chains.
- Annual Earnings: $2-$4 million per group.
The Financials: Big Bucks, Low Risks
This operation is not just massive—it’s wildly profitable. Here’s how the math breaks down:
Per Case (24 Bottles) Profit Margins
- Production Costs: $120-$156 per case
- Distribution Costs: $60-$85 per case
- Wholesale Price: $360-$480 per case
- Profit Per Case:
- Producer: $108-$192
- Distributor: $72-$120
- Retailer: $54-$96
Annual Market Value
- Legitimate Armenian Brandy Exports: $180 million
- Counterfeit Market Value: Estimated at $800 million
- Total Illegal Profits: ~$500 million shared among producers, facilitators, distributors, and crime groups.
Why It Works: A Perfect Storm of Opportunity
- Systemic Corruption: Corrupt officials across customs, quality control, and regulatory agencies ensure that counterfeit products flow through undetected.
- Market Dynamics: Russia’s demand for cheap Armenian brandy creates the perfect conditions for counterfeiters. Price sensitivity among consumers means fake goods to dominate shelves.
- Weak Enforcement: Loopholes in international trade regulations and limited oversight in Russia make it difficult to crack down on fraud at scale.
This isn’t just a financial crime—it’s an existential threat to Armenia’s brandy industry. By flooding the market with counterfeit products, criminals have damaged the reputation of Armenian brandy, a legacy product that accounts for nearly 9% of the country’s exports. If the scandal continues unchecked, it could cripple an entire sector of the Armenian economy.
It’s a billion-dollar operation built on deception, systemic corruption, and the blending of legal and top-notch criming. For the players involved, it’s a high-reward, low-risk game. For the rest of us, it’s a reminder that what glitters on the shelf isn’t always gold—or in this case, cognac.
Cheers to that. Or maybe not.
Things I love this week
Let’s finish with something that will brighten your day: a heap of fascinating things you probably can’t afford.
Star Wars Prototype Rocket-Firing Boba Fett L-Slot / Hand-Painted Alternate Paint Scheme AFA 80 NM (Kenner, 1979)
Boba Fett prototypes were famously taken off the market when the projectile proved lethal. These routinely go for six figures.
There’s actually a superior version ending today at Hake’s.
Star Wars Boba Fett 21 Back A AFA 85+
Can’t afford the homicidal prototype? The best-known version of the standard non-launching Boba Fett is also up this week at Heritage for 90% less.
Michael Jackson Stage Worn Crystal-Studded Glove from the Victory Tour
Worn during Michael’s record-breaking Victory Tour in 1984, this crystal-studded glove will make any right hand feel like a winner.
Prince’s Personally-Owned and -Played Blue Schecter ‘Cloud’ Electric Guitar
Over at RR Auction, you’ll find Prince’s extraordinary Cloud guitar played in his green room before going on stage.
“In 2005, Prince selected two (2) Schecter Cloud Guitars for himself—one in blue (noted here) and one in white. We would take them with us on tours or other engagements. The guitars would always be set up in Prince’s Green Room for him to warm up with before heading on stage—never taken on stage.”
The Beatles | George Harrison Futurama Hamburg and Cavern club Guitar
If you really want to push out the boat, you’ll need to dig up seven figures for the fine people at Julien’s Auctions.
“This Futurama was George Harrison’s most-played guitar in the early days of the Beatles, seeing extensive stage and studio use from 1959-1961. Beatles historian Andy Babiuk has researched this instrument extensively, concluding that this Futurama guitar, “was played by Harrison on over 324 Beatle performances and was also the guitar that he used on The Beatles first official recordings for Polydor. Of all the guitars George Harrison used with The Beatles, this Futurama is one of the two guitars he used the most.”
That’s all for this week; I hope you enjoyed it.
Cheers,
Wyatt
Disclosures
