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: http://marketplace.publicradio.org/display/web/2010/02/04/am-art-market/.  This just lends more credibility to the assertion I made in my article "On The Token Economy" http://seekingalpha.com/article/205908-on-our-token-economy-system about the abundance of M1,2 and 3 money being able to literally create and burst bubbles virtually overnight.

The conventional wisdom at this time was that this was a very Bullish signal 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:  http://www.nytimes.com/2010/03/20/arts/20iht-melik20.html

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 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 may have overheated 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".  http://theartmachine.wordpress.com/2010/05/08/art-market-recovery-tracing-improvements/

"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."

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, the other one being fine jewellery (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: http://www.wealth-bulletin.com/rich-life/rich-monitor/content/4063139733/

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: http://www.wealth-bulletin.com/portfolio/alternatives/content/4058787079/