Thursday, May 20, 2010

What The Rebound In the Art Market Signals...

Starting around February of this year, February 4th, 2010 to be exact I became aware of the suddenly big stirrings in the Art market. This was precipitated by the sale of Swiss artist Alberto Giacometti's six-foot bronze sculpture called "Walking Man 1" which sold for then a world record price of over $104 million, that is until the $106.5MM Picasso two months later. This sculpture, was on the market, primarily due to the failure of Dresdner Bank and the bank's new owners looking to raise funds. I guess the one thing about this sale that was so remarkable to me was that this piece was only expected to fetch $28MM "at most" in auction, and that there were 10 bidders participating in bidding it up. Source:

This just lends more credibility to the assertion I made in my article "On The Token Economy" On Our Token Economy System about the abundance of M1,2 and 3 money being able to literally create bubbles virtually overnight.

The conventional wisdom at this time and currently is that this is a very Bullish signal indicating that the markets were back and wealth was being created again.

The art market says more about the real mood among the actors of the world economy than opinion polls, and the European Fine Art Fair is its most important reflection. Source:
This much maybe true, however, I am not buying into conventional wisdom that this is evidence that the markets are rebounding. Instead, I see this as a contrarian and worrying signal that the rebound in the Art market is a sign that it is worsening. Specifically, that the sudden uplift in demand for Art is being used as a hedge against over inflated assets, which ironically is overheating the Art market. Collectibles Cars, Art, Wines Architecturally significant structures are now all in vogue, and the money chasing these assets is enormous.

Of course in support of this being a bearish signal it matters a great deal about the art that is being coveted and most sought after, in this article it details the works of Old Master's and it is not just paint on a canvas. The idea that suddenly a great number of European art (largely Dollar denomindated..natch) is now on the market is signaling that possibly the picture in Europe is decidely more dire. The contemporary Art market is also strong as evidenced, by the recent sale of Picasso's painting of Marie-Thérèse Walter, Nude, Green Leaves and Bust for over $106m. However, in support of a widely recognized formula it is not just any contemporary art, as remarked upon here at the Blog "The Art Machine".

"First recoveries: Old Masters, 20th Century Decorative Arts

Why: steady prices, academic prestige, strong vetting

Old Masters are the last to fail, the least effected, and the first to rebound. The fusty, the academic, the tried and true, may bore the speculators and thrill seekers, but they are the best investment and a good early signifier of market growth. As I noted in an earlier piece about Banksy, the art market loves a good prank for sure, and mystery has worked well for street art, just as experimentation works well for contemporary art: but they don’t encourage confidence. Mystery = Uncertainty = Risky Investment.

Second recoveries: Rare Opportunity Buys

Why: Last Chance Appeal

Scarcity is always a driver. If your Picasso was painted in 1932 and there are only five 1932 Picassos and most of them are privately owned and not like to to be sold within your buyer’s lifetime, then your gaudy, nearly sentimental, middling painting becomes a “powerful memento of Picasso’s most famous lover” and goes for a record $106.5 million."
The shift in the type of Art being accumulated is also different.  Here is what was being said about what was hot December 25th 2007, in this article "Boom times for the art market"
While art from all eras is selling well, works by modern masters like Warhol and Mark Rothko and living artists like Richard Prince and Damien Hirst are especially hot. In oil producing countries like the United Arab Emirates, the appetite is for modern American works by such artists as Keith Haring, Jean Michel Basquiat and Warhol, Peck said.

"The most money is chasing these modern and contemporary names, and that's just what's in fashion really," Peck said, adding that buyers with new money from Russia and China have a "limitless appetite for Western art and objects. Prices in some cases have doubled or tripled in the past year."  Source:
Continuing on this theme of the Art Market bearish signal check out search terms on Google and the following links from November 2006 and December 2007, look/sound familiar? Look at the jump in search term "Art Market" on Google. One big spike at the end of 2006 a point where the market was thought to be at a top, and then a big lull to coincide with the additional leg up to the top in 2007, and then another spike coinciding with market dislocations in the equities, Spring 2007 the end of 2008 etc. etc. This lends even more credibility as to my assertion that the Art Market is a good signal for down turns or at least good times in the market, i.e. no searches = good times lots of searches = bad times.

I couldn't resist this comment... I expect this was prior to the Japan bubble deflating...

"Last time the art market was this hot, back in the '80s, demand was mostly being driven by one small group of collectors in Japan."  David Norman is director of Impressionist and Modern Art at Sotheby's."Art Market On Fire", November 7, 2006
Remember Van Gogh's Sunflowers? It sold for a then record price of $40MM in March of 1987, and then on November 11th 1987, "Irises" sold for another record price for Art.

1987: Van Gogh fetches record price - A painting by Vincent Van Gogh has been sold for $49m (£27m) - a world record for a work of art. The final price was more than twice what the painting, called Irises, had been expected to reach. The anonymous purchaser must also pay a 10% commission fee to the auction house, Sotheby's, bringing the total to $53.9m (£29.5m). The sale was also accomplished in what may have been a record time given the figures involved - the bidding rose from the starting point of $15m (£8.5m) to reach the final sale price in less than two minutes.
Caution, we are again at world record level Art prices, this is the smart money trade.

The 2009 decrease in the return of the Mei Moses® All Art index of approximately 23.5 percent is the largest decline in the all art index since the 1991 decline of 38.7 percent. The 38.7% decline occurred after the bursting of the last art bubble of 1985-1990. The 23.5% was also the second largest decline since the great depression. The declines of 2008 and 2009 occurred after five years of positive annual growth averaging almost 20 percent. The 2009 decline of the all art index was particularly depressing given the substantial increase of most other financial assets"  Source:

Admittedly, I am no art critic or historian, but I can appreciate it and do enjoy taking a day trip to the art museum, and make it a point when traveling to stop at the more significant museums in the countries I've visited. I also noticed with mild astonishment at the quality and abundance of -- in my own non-expert opinion -- high quality art being readily and prominently displayed in many Hedge Fund and Hedge Fund of Fund offices I have had the privilege of visiting. A veiled reminder that its function is both beauty (of course, in the eye of the beholder) as well as an asset (in the eye of a collector/investor).

"At the presentation of "Art, a Resilient Asset Class" this week at London's Haunch of Venison Gallery, a panel of experts including Hoffman discussed the art market's upward trajectory.

The panel, chaired by Scott Reyburn, art writer for Bloomberg, comprised of Hoffman, Oliver Barker, head of contemporary art at auction house Sotheby's, Karen Sanig, head of art law at Mischon de Reya Solicitors, and Anders Pettersen, founder of information provider ArtTactic, and Dennis Lavin CEO of wealth manager Vistra in Jersey.

Sanig added that the art market had proved itself relatively uncorrelated to the financial market, having bounced back within 18 months to new highs and several new records, partly due to the perception of art as a safe, tangible haven for wealth.

New York auction results posted by the big auction houses in this month were a far cry from those posted in May 2009, a sign that a large number of major collectors are "clearly back in acquisitive mode", according to Thierry Erbmann, founder of information provider Artprice.

At the end of the Impressionist and Modern Art sales between 4 - 5 May, Christie’s and Sotheby’s posted a combined revenue up 205% compared with the previous year’s total. Their combined results from the Contemporary Art sales in May were nearly 230% better than the previous year.

The bought-in rates were particularly low ranging from 6% to 22%, and twelve new records were set.
Art is definately one of the two currencies for the cash n' carry trade -- although it might be tough to tuck Walking Man 1 under your arm without being conspicous --, the other one being fine jewelry (not Gold) see Harry Winston, Bulgari and Tiffany. As Barton Biggs, wrote in Hedge Hogging, as quoted from "The General" "Paper Assets are fine and wonderful things in normal times, he said but they are useless when anarchy reigns". Barton goes on to explain that "Disaster hedges must be highly portable, easily hidden and very marketable". Apparently at least one thief read Hedge Hogging and took Mr. Biggs advice to heart, having "made off" -- no pun intended --with paintings valued as approximately €500MM Euros ($600MM USD) from the Paris Museum or Modern Art. The paintings were "Le pigeon aux petits-pois" (The Pigeon with the Peas) by Pablo Picasso, "Pastoral" by Henri Matisse, "Olive Tree near Estaque" by Georges Braque, "Woman with a Fan" by Amedeo Modigliani and "Still Life with Chandeliers" by Fernand Léger. Source:

Maybe Greece isn't Lehman, perhaps it is the Bear Stearns subprime hedge funds in the Summer of "2007" or Bear Stearns itself in Spring "2008", i.e.. the canary in the coal mine, but as often the canary usually is the first casualty in this case they managed to get it to the vet on time. However, one thing for sure if Greece and Thailand (add live TV shots of anarchy in the streets) are foreshadowing what is likely to come it only makes sense that Art would be a most sought after, disaster hedge. WT

Melanie Clore, co-chairman, Sotheby’s Impressionist and Modern art department said: “At a time when there is such enormous demand for museum quality paintings by the Impressionist masters, it is exciting to be able to bring this extremely rare painting to auction." Source:


1 Comment:

Ron Bass said...

Your argument is certainly plausible... Recently I have been taking evening walking around downtown Manhattan, and I have been struck by how well restaurants and bars, and especially the more expensive ones, are doing. (Of course I can't tell whether as many pricey bottles of wine are being purchased as during the bubble.) The clothing that is being worn to these places looks new are trendy. From this I conclude that Manhattanites at least think they are in recovery mode.


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