Darkening Outlook of Homebuilders' Activity, Set Against the Brilliant Sky of Mendoza Valley & Accompanied by the Unreal 2015 Carmelo Patti Cab.

Today, we will, once again, combine the "incongruent": our outlook on homebuilders activity and a raving review of a beautiful Cab from Mendoza by a true Generalissimo of Argentinian winemaking: Carmelo Patti! After 2 or 3 glasses, these two seemingly unrelated topics will organically merge in your mind, creating one fascinating story (well, perhaps to accomplish this, one does need to finish the entire bottle).

If the word “Mendoza” tends to conjure up for you images of glittering, modern wineries producing ultra-polished showpieces, you’re not alone. But a bottle of Carmelo Patti both defies our expectations of what Mendoza can be and affirms its greatness. This is undoubtedly one of the most magical wines from one of the greatest producers in all of South America.

Carmelo recommends decanting his Cabernet Sauvignon for an hour or more, and we’re inclined to agree. A little air allows the densely-packed aromas to really unfurl and impress. The nose leads with deep, brambly fruit, slightly dried blackberries and raspberries alongside juicy purple plum flesh... Cedar spice, tomato leaf, and black pepper follow. On the palate it’s unabashedly ripe, the purple and red fruits filling out into mouth coating texture before the brisk, elevation-derived acidity comes to whisk them away.

Soft, yet present, tannins persist, inviting drinking right now but setting things up for a further decade of aging if you wish. What impresses here above everything else is the wine’s old-school, artisanal touch, miles away from the highly technical Mendoza wines we’re so used to. Any lover of Bordeaux, the Rh?ne Valley, even Brunello will find plenty to love here.

And while we took the first sip of this beautiful Cab, I'd like to discuss a housing market topic that I find somewhat concerning: NAHB Survey & a Darkening of Homebuilders' Outlook.

First, I would reminding our readers that the Housing Market Index report, which is based on a monthly survey of National Association of Home Builders members (typically smaller, regional builders) is a very important input into out housing model.

In this survey, builders are simply asked to rate both, current market conditions for new-home sales, as well as expected conditions for the next six months. They are also invited to opine on the future "traffic patterns" of prospective new-home buyers.

This survey is one of the more objective measures of the homebuilders' sentiment, and is closely correlated with the future new home supply. And since these new home additions to the overall supply picture have been playing an increasingly important role within it, we are watching the progression of this survey very closely.

Scores for each component of the homebuilder confidence survey are used to calculate an index, with a number greater than 50 indicating that more homebuilders view conditions as favorable than not. Thus, it is with understandable concern that we report the most recent July reading of this survey of only 42, a one point decline month over month, and the lowest reading for the index since December of last year.

While builders had to contend with persistently high interest rates (which discourage prospective buyers and sellers), 31% of builders reported cutting prices in July to boost sales, up from 29% in June. To be fair, despite the increase in number of sales whereby a discount was offered, the average price reduction remained at 6%, the same as it has been for the past 13 months.

Clearly, a price reduction is only one way to offer incentives, with various "inclusions" and "upgrades" (as well as a host of other sales incentives) accounting for over 61% of all sales. The NAHB had also reported that homebuilders’ gauge of current sales conditions also declined by one point to 47, with the West dropping four points to a reading of 37, the South decreasing by two points to 44, the Midwest losing four points for a reading of 43 and the Northeast falling six points to a reading of 56. Note that the gauge that measures traffic of prospective buyers also fell to 27.

And now, we are back to the truly stunning Mendoza Valley.

Carmelo is one of Mendoza's great old-school winemaking personalities and runs every corner of this quirky operation himself. Originally brought to Argentina on a small boat from Sicily when he was one year old, Carmelo was a catalyst for the rebirth of fine wine production in Mendoza in the eighties and is, to this day, one of the most respected enologists in the country.

From the moment he could work, Carmelo was involved in viticulture; his father was a farmer who maintained a vineyard for home winemaking, and Carmelo spent his days at his father’s side. At the age of 19, he left to work for nearby wineries and spent the next 17 years watching from the inside as Mendoza grew from oddity to international vinous powerhouse. The wineries became unabashedly modern and technology-focused, the region shifted its focus almost entirely to Malbec, and wines spent mere months aging before they were released.

There was plenty of wine to go around, but little of it lived up to the potential Carmelo knew Mendoza had. Carmelo dreamed of establishing his own winery, one focused on old vines, stridently traditional production methods, and, above all, extensive aging before release. In 1986, at the age of 36, Carmelo struck out on his own.?

From the get-go, Carmelo Patti made wine the old way.? All of the fruit comes from the Luján de Cuyo subzone of Mendoza, where the region’s famously high elevations meet rocky, sandy soils that imbue the grapes with incredible structure. Although he makes stunning Malbec, Cabernet Sauvignon was the first variety Carmelo chose to work with, and it remains his favorite.

Carmelo works only with red varieties, which get destemmed and fermented in massive concrete tanks. The wines then spend a year in a mix of concrete and very old barrels. Crucially, Carmelo chooses not to release any wine until he feels it’s ready to drink; most wines age in bottle for around five years, but in especially great vintages like today’s 2015, he’ll hang onto the wines for close to a decade.?

Carmelo's winemaking style is equally unique as his character, and he insists on holding all wine until he deems it "ready" for release which generally means 4-5 years after harvest at the soonest for reds. All wines are made naturally, with no chemical additives and only native yeast.

Carmelo Patti’s wines have something of a cult following with devoted fans in Argentina and abroad.? “I don’t want to [make wine] for commercial reasons,” says Patti, who only has one employee. Carmelo simply does what he does best, and wine-loving consumers beat a path to his door.

He defines his wines as “a classic style, a naked wine, without anything that can cover it up,” and he insists on holding all wine until he deems it ready for release which can be four to five years after harvest at the soonest for reds.? Nothing you have tasted from Argentina quite prepares you for the complex, wild flavors of this traditional, old-school Malbec.?

I hope you like this bottle every bit as much as did, and thanks for taking the time!

Sincerely Yours,

Kirill A. Krylov, CFA, PHD