of Buyers and Sellers…

mugrabis-nytAmongst all the excitement about new movements (see Ossian’s piece below) I find it hard to get my head out of the markets.  To wit, there is a nice Konigsberg feature in the NYT Online this weekend about the Mugrabis and their buying styles.  The title is slightly misleading (Is Anybody Buying Art These Days?) as it is entirely about the Mugrabis and mostly about their buying history, but it is an interesting read about one of the more focused market-makers of the last 20 years.  Features of their approach include the somewhat indiscriminate purchasing of their favorite artists (supporting the notion that name matters more than quality, at least in a rising market), and their “addiction” to collecting. “We are addicts. That is what addicts do,” Alberto Mugrabi is quoted as saying. Many collectors would recognise that sentiment.

The addiction of art collectors got me thinking about the broader context of contemporary art-market values.  At various points in the article, there are references to buying when cash was in short supply and to extending a collection even when the collectors were nervous about the market.  Even quite recently, works were sold to free up cash for a possible market-downturn buying.  That could be sensible triage, or an indication of how stretched the Mugrabis might be. Which raises a question about how stretched or indebted collectors are overall.

The current global economic woes are debt based. They have to do with the difficulty of companies or individuals who rely upon borrowing to conduct their business or run their lives.  Operating on debt is not necessarily a bad thing. It can simply reflect the cyclicality of cash flows (people or companies needing to spend before they can sell or earn, and therefore needing to borrow to fund that spend).  However, when lending dries up because of losses in another part of the debt market (high-risk mortgages in the current case), then companies or individuals who rely upon debt to conduct their operations run out of fuel.  The only way to then raise cash is to sell existing stock, if they have any to sell.  But when there is less cash to go around, sellers start to outnumber buyers, and prices plunge.

So here is the question: How stretched are the top collectors of the last five years?  In any part of their lives? If they are all cash comfortable, with minimal borrowings to pay back, then they can hold on to their art and ride out the storm.  But if they are short of cash, then inventories will need to be liquidated.  If too many collectors do this at the same time (at least relative to the number of opportunistic bottom fishers who we know are out there), prices will start to really fall.

At the moment prices have not plummeted.  More works are being bought-in at auction and estimates are moderating, but there is no free-fall. Indeed the Yves Saint Laurent – Pierre Bergé collection did better than expected at last week’s Christie’s sale in Paris (though the value of celebrity will have had something to do with that).   But I can’t help thinking that the worst is still ahead of us.

It would be interesting to know the level of debt among major collectors.  We will probably only find out over the next 18 months, when it becomes clear what they do with their collections.

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