Of stocks & markets

Sothebys_vs_NYSE_1yr.gifThere is, again, a fair amount of buzz about the health of the Art market these days. Robert Frank at the Wall Street Journal recently raised the spectre of a decline, based on the 50% fall in Sotheby’s share price over the last 6 months. He points a finger at the rise in guarantees offered by Sothebys to sellers over the last year, something we talked about last August, and the potential for buyers to default on agreed purchases. Then Marion Maneker at Slate issued a well argued riposte, pointing out that the rise in debtors on Sothebys balance sheet is consistent with a rise in the value of sales over the same period; i.e. the higher the level of sales, the higher the level of money owed by buyers to Sothebys until the day they actually pay. She also makes the argument that the guarantees are not as big a worry as they might be because “most of the guaranteed paintings do get sold—and quickly” [after the auction].

I have concerns about both articles. Firstly I am not sure Frank is right in using Sothebys as a proxy for the Art market as a whole. The stock market clearly doesn’t like something about the numbers at Sothebys, perhaps because of perceived greater risk taking by the auction firm (no doubt related to the larger guarantees and larger accounts receivable), but that doesn’t mean the Art market as a whole is suffering; yet. But Maneker is also a touch too sanguine about those same guarantees because I doubt the unsold works will sell quite so quickly, nor at such “reasonable” prices, if the market was in free fall.

To me the key question that will determine whether the Art market suffers a major correction, as in 1990, or a gentle slowing of the current manic rise is the degree to which there is speculation amongst the current buying community. If the prices being paid for contemporary works in New York, HongKong, London and elsewhere reflect genuine collector passion for the works, then that passion is unlikely to fade just because prices for new works fall. On the other hand, if a significant portion of the current buyers are people buying just because it is ‘cool’ to do be seen to do so, and in addition they think they can sell their new prizes in a year or two for a 50% gain, then many of those same buyers will dump stock into the auction rooms as soon as they get nervous about the direction of prices.

So which do you think it is?

3 thoughts on “Of stocks & markets”

  1. In response to Ian’s question as to whether there will be a slump or a gentle correction, it is worth repeating that the slump of 1990 was due to the sudden stop in Japanese art buying. The 1987-90 boom was all about Japan, for reasons connected with tax evasion and speculation – the Japanese are said to have accounted for a quarter of the total art market in 1989. They were often buying with borrowed money. This is not true today, with a much broader geographic range of buyers (notably Russia, Middle East, India and China); with the sheer amount of real money in the system (just look at the oil price) and with a much deeper penetration of art buying in the population. Art has become assimilated with luxury goods, with “brands” and “must-haves” – just what the newly rich and aspirational Russians, Chinese and so on want. The Murakami show in Ca and now Brooklyn encapsules that perfectly.
    And the investment aspect is also important – there are so many funds being launched at the moment, which by their very buying power become self-fulfilling. But I think there are signs that there is some correction in the air, and this could accellerate if too many people rush to auction when they feel that the peak is passing. Just how many spot paintings can the market absorb?

  2. I’m curious if you (Georgina) have any insight into the comment Anna Somers Cocks made recently with regards to an Art Newspaper predition:

    “a fall in the art market follows a bear market, but always with a certain time lag (in the past this has been as long as nine months, but we think the cycle will speed up now). [emphasis mine]”

    Specifcally, why will the cycle speed up now?

    Has this been discussed widely at The Art Newspaper, and if so what makes you/them think that will the case this time around?

    More to the issues raised by Ian, though, one of the measures I keep hearing folks use to gauge the impact of the turbulent stock market on the art market is sales at art fairs. Across the board galleries are reporting “sluggish” sales in Cologne, Chicago, even to some degree New York’s recent fairs, but I wonder if it’s not merely the abundance of new fairs and/or galleries in them more than a slowing of purchasing, per se. I can report that certain collectors are clearly still in full-throttle mode acquiring as quickly as they ever have. And I don’t mean the Russians or Chinese.

    An analysis of total sales across all fairs (not merely anecdotal reports by the galleries who are competing against increasingly more booths across a given city) makes more sense here to my mind. Anyone have any ideas how to assemble that data?

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