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Is There a Tequila Bubble?

Will the next major asset bubble to burst be the tequila bubble?

Tequila Shot
AP
Tequila Shot

According to a recent article in tequilaaficionado.com, 159 new tequila brands hit the market this year in the United States. There are now a total of 1,128 tequila brands on the market in the U.S.—more than double the number available just five years ago.

Christopher Zarus sets the scene for the tequila carnage to come in his article It’s The End of the Tequila World as we know it…and I feel fine. He describes the coming tequila "sucker hole" like this:

"For those new to the expression, a “sucker hole” is a colloquial term referring to a spate of good weather that “suckers” sailors into leaving port just in time for a storm to resume at full force and wreak havoc on the ship and crew."

"For both Tequila Brand Owners and producers of a certain size, their ship has already sailed, and the storm is now closing in on them. Some in denial, others looking through rose-colored margarita glasses, still believe they can navigate through to that glimmer of light on the horizon. However, the perfect storm of doom looms just past the horizon of hope, and will soon envelope and destroy most, if not all, in its wake."

Apocalyptic sounding stuff, too be sure.

(Note: Zarus is described as the Nouriel Roubiniof tequila—a kind of Dr. Doom for his branch of the distilled spirits industry.)

On the economic front, anyone lucky enough to pull their money out of sub-prime mortgage bonds or Lehman Brothers stock before it was too late should, not surprisingly, be wary of plunging that cash into a Mexican distillery.

Sure, the life of sun, surf, and booze South of the Border may present a seductive siren song. But beware: "For those of you who have your personal fortunes riding on the Tequila Train, both prominence and profit may still seem to be so close that you think you can see the light at the end of the tunnel, or beyond the next bend. But, I’m sorry to say that for most of us in the biz, the light at the end of the tunnel is that of an oncoming locomotive. This will be a catastrophic collision, albeit in slow motion, that will drain your resources and your resolve. "

Of course, the news may not be all bad for tequila lovers in more northerly climes. According to Mike Morales, managing editor of tequilaaficionado.com, there may be some good news for American tequila-philes—even after the threatened bust: "The tequilas that survive are going to be the ones that distinguish themselves from the big guys. There are a handful of craft tequilas that are being certified organic right now. They are produced in the old fashion way: The agave is hand selected, they are baked in stone ovens—and their flavor profiles are exquisite.

So prepare to drink up.

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