11 thoughts on “Pimping my Picasso piece”

  1. Nice story, Marc.

    Preamble then question: The impact upon markets of outlyer pricing depends on existing rigidity of pricing, which in turn is dependent upon liquidity in the market place and supply side volumes. The impact is also, of course, dependent on the externalities of overall or sectoral economic conditions around the given market and the psychological impact of the outlyer event at a given point in time; i.e. does it start a wave of similar irrational exuberance or does it remain an isolated incident.

    So the Question: what do people think will happen in this instance?

    Does this extreme example suggest we are nearing the end of a period of irrational buying that has led to silly pricing by new money buyers across various spectrums over recent years? OR is this a quantum shift up for name brands by the latest new billionaires worried that if they don’t buy the one they see there will soon be nothing left to buy? (In my view the two possible answers I have suggested are not mutually exclusive.)

    Marc and I have discussed the timing of the (still impending) bear side to this bull Art market we have been living for some time, so I am interested in views.

  2. I think it’s a good question you pose: “Does the $95M Dora Maar Au Chat suggest we are nearing the end of a period of irrational buying by new money buyers OR is this a quantum shift up for name brands?” My answer would be…Yes.

    It all depends on how you define “nearing.” Certainly this price was high, but then again someone (suspected to be Leslie Wexner) was willing to pay only a million less and 4 or 5 people were willing to pay “only” 10 million less. And all the suspected underbidders were experienced collectors. Also, I think when the market eventually softens, the last sector will be dead name-brand artists, because a) the supply is constricting all the time and, more important, b) the people buying those artists are outside the normal vagaries of the broader economy’s cash-flow crunches. And certainly, if these people are using an index of relative value in determining what to pay for works they crave, then it’s an index using metrics no art-market veteran recognizes. That said, to me it’s not a quantum shift at play here, just an extreme example of the high-end versus mid-market disjuncture visible for the last decade or so in the auction market.

    The nearest bellwether on this front will be at what price Andrew Lloyd Webber sells his Picasso in the fall. How high that Angel’s wings will bring it remains to be seen. Barring some financial global catastrophe, I’m predicting another record, or near-record. I think the celebrity provenance is worth $5 million extra, minimum. (Maybe we should hold a competition to see who can best guess that painting’s price?)

  3. I like the phrase “high-end midmarket disjuncture.” It’s worth pointing out that it is happening everywhere, from real estate to transportation to fine dinning. It’s all tied to income levels at the top.

    As those income levels skyrocket, the prices escalate along with them. In almost every asset class you see a corresponding tier of goods that achieve values that make sense only for those people whose incomes have pulled away exponentially from the rest of society. But within that bubble, the values are stable in relative terms.

    Has anyone run an analysis on the upper-tier art market controlling for average CEO salaries (or some other barometer of extreme wealth)? Wouldn’t it make sense to determine inflation or deflation relative to the available excess capital in that income stratum ? Is there some equivalent in this regard to the Economist’s McDonalds cost of living index?

  4. What I would like to see is a breakdown of the levels suggested in this chat. I guess they are the Russian Billionaire end, the rich-museums level, the poorer museums and rich CEO level, and then art lovers. In that order… %-)

  5. I saw a magazine article recently that showed that houses on the cote d’azur are today selling in Euros for the price that 5 years ago they sold in old French Francs. And all to Russians. That is about a 7 times increase in 5 years.

    The same article reckoned the ratio of RB money to us simple folk at 10,000:1.

    Not that this gets us anywhere, nor is it surprising. The one interesting thing in the article I saw is that shopkeepers and real estate brokers and boat brokers all say that the Russians are much fussier about making sure they get value for money than the Arabs ever were. What does that say about current Art pricing?

    At the moment I side with the step function argument. That the impetus of all the new RB money is obviously pushing money up, but it is not obvious that once they have sated their appetites that prices will go back down again. We have “stepped up” to a new price level for good and rare. (Though the Lloyd Webber Picasso mentioned by Marc only qualifies for one of those adjectives.)

    I also agree that we are probably looking at a midterm (near-term?) crash in lower brand name artists who are piggy backing now but WILL fall when appetites diminish. Note that I did not include lower quality high brand name images. Sadly I think they all go up and are not likely to go down. Rarely is new money all that discerning; it is the brand name they care about above all.

  6. I’d say that the order’s more like Oligarchs (Russian and otherwise) > CEOs > Museums, because while a museum does occasionally score a major piece like the Met’s Duccio, as a market force they don’t have the continual clout of a Lauder, Wynn, Cohen or Broad. And of course, “Art Lovers” as a distinct category is a red herring, since Lauder and Broad would qualify as both CEO and art lover. As posited by former LSE student Sir Mick Jagger, there is such as thing as “a man of wealth and taste.” Oh, wait, that’s the Devil…

    But seriously, although there are quite a few rich men buying with their ears and not their eyes, it’s too easy to tar them all as philistines. Interestingly, some of those much-maligned hedge-fund guys seem to be partially bailing out of the game – most prominently Adam Sender.

    By the way, I hear through the grapevine that the guarantees alluded to in the Times article re Sender selling works at Phillips this fall are not as “significant” as artworld rumors indicate. Which is not surprising, really, since as a financier Sender would be loath to lose the potential upside benefits of a high-achieving sale in exchange for the security of the guarantee. Speculating in art and then taking a guarantee at auction is nonsensical, a little like flying halfway round the world for a romantic assignation before suddenly deciding to “just be friends” once you’re in the hotel-suite hot tub.

  7. Unless you thought the market was topping and you were only happy to sell if you could take advantage of the top. That would be an acceptable strategy for a reluctant seller speculator.

    BTW my list order was tongue in cheek. I don’t assume all museums are rich nor that all super wealthy people buy for status and not the work. But I would still like to see a serious categorisation some time cross-referenced against what falls into each category. My main interest is seeing what is NOT in the overlap areas (i.e. what falls into only one buyer-price category)

    I wonder if Anders P has started looking at this?

  8. Sender would have to be pretty damn sure the market was topping. Or he’d have to have negotiated a deal where he didn’t give up too much upside, i.e. a lower-than-possible guarantee to serve as an insurance against a market crash, without losing the possibility of cashing in if the crash doesn’t happen. Or maybe Phillips gave him a ludicrous deal to get those name-brand works into the auction. I imagine for a hedge-fund whiz, playing three auction houses off each other is pretty easy sport.

    Ian when you write: “But I would still like to see a serious categorisation sometime cross-referenced against what falls into each category. My main interest is seeing what is NOT in the overlap areas (i.e. what falls into only one buyer-price category)” You’re taking about buying patterns, not possibilities, right? Because obviously people can slum it by buying beneath their “normal” level. In fact, that’s the basis for the current contemporary market’s buoyancy – people buying work far cheaper than what they could actually afford. For the price of say, a major Gursky, you could spray-and-pray your way through half of NADA….

  9. Yes I am interested in buying patterns and sell-side pricing patterns (both part buyer-inclination-based and part market-stimulus-based) to create a market map.

    BTW your NADA-spray versus Gursky-buy is an example of one investor tradeoff, but how many buyers have the inclination or wall/storage space to buy volume? That thought leads to another question I would like an answer to: What is the statistical distribution of works per buyer per year, and how does it vary by sector of Art market, budget of buyer and geographic origin of buyer?

  10. Wow, if we could map that! I would love to do the study. But can you? Given private sales and huh-hush deals, how much of the actual selling and buying of these guys do we know about? It would be fascinating. It would also be fascinating to map against, say, JP Morgan in his good years. I am crazy about historical comparisons.

    BTW, I was just thinking today about something even simpler, ridiculously simple: what is our best guesstimate at this point of the combined total volume of the art market? What are the most accepted measures out there? Is there even some kind of accepted metric of combined contemporary buying? My learned gentlemen, send me your best numbers.

  11. Detailed mapping, like detailed numbering is, of course, hard. The best we can do is look at what we CAN measure, and then look for a historical equivalent against which we can benchmark, and then use that as a proxy, with the right qualifiers.

    Proxies are, again of course, dangerous: In the absence of anything more accurate, the proxies sometimes become accepted wisdom without mention of the qualifiers. Look at the non-sensical WEF World Competitiveness report which is nothing more than an aggregate of how some businessmen FEEL about the competitivenes of different countries (marked on an annually circulated set of tick/cross sheets). Most News organisations have conveniently forgotten about the lack of academic rigour behind the report and quote it blithely each year showing how one country’s competitiveness has risen two steps above another. Sad.

    I have seen no total market numbers. Would be interested to see. Don’t Sothebys and Christies follow market size, though? They certainly have their own sub-market figures as proxies which could give us sectoral and overall market growth rates. Would be good to see their stats… Marc do you think we could set ourselves up as an Art Market Analysis Quango and convince every (!) auction house to give us their stats for us to use as for aggregate statements? Unlikely I know.

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