- The Big Picture - http://www.ritholtz.com/blog -

Modern Art Market Superheats

Posted By Barry Ritholtz On March 2, 2005 @ 9:10 am In Finance,Markets,Trading | Comments Disabled

As I read this article, red lights and sirens started going off in my head. Why? I cannot possibly imagine that this sort of financial frenzy has any positive connotations for the equity markets:

"You want a Mehretu? A Hirst? A Koons? Fat chance. A much-watched lawsuit is exposing the painful truth of this overheated market: It takes more than money to buy a hot piece of art . . ."

"[A] courtroom battle has become an object of fascination in the art world. That may be because it reflects an increasingly common collector’s predicament—at its heart, it’s about someone’s being denied the opportunity to obtain what he can patently afford. The contemporary-art market hasn’t been this overheated since Soho circa 1989. Nowadays, hedge-fund billionaires who stroll into Chelsea galleries seeking work by Damien Hirst, Jeff Koons, or Cecily Brown quickly discover that money alone won’t help them get it. There is, more than ever, a waiting list, and more to the point, a pecking order within the list, which vaults some collectors above others.

When did collecting art become such a maddening exercise for wealthy collectors, akin to having to go before picky co-op boards only to be rejected over and over again? Even Rembrandt and Dürer had waiting lists. But “lists for younger artists are a much more recent phenomenon,” says Chelsea dealer Barbara Gladstone. “It’s a function of this excitable market.” People on Wall Street are seeking contemporary-art trophies—and waiting lists make works even more enticing to obtain. It sounds familiar, and naturally everyone wonders when this bubble will burst. Right now “feels like the last days of the Roman Empire,” says private-art curator Todd Levin. “Compared to the eighties, it’s a much broader group with much more money”—though some of the people are the same ones who bought art the last time around."

Why is this not a good thing? Three reasons:

1) Wanton disrespect for money as an asset class, as depicted by mad bidding wars for unknown artists, typically only occurs when there is too much of a good thing around; I.E., when the Fed has cranked up money supply (think M2); That condition gets easily rectified by the Fed merely turning the spigot off, which I suspect is 6 months to 1 year away; It takes a little less than a quarter (2 months or so) for weak money supply to be fely by the market  (See Mirror Image [1] and Money Supply Peak [2] discussions for more details);

2) Frenzied speculation in any significant market cannot be quarantined, as it is a condition of the mind, not the body. It has the disconcerting tendency to infect other markets;

3) Can a bifurcated economy the size of the United States continue indefinitely? Can Wal-Mart merely amble along, while — at the same time –high end art dealers blow the roof off the dump? I’m not at all sure what the answer to this one is . . .

As to the timing, I would guess — and its only a guess — that we will be approaching an equity climax sometime over the next 1 to 3 quarters.

In the scheme of things, this ranks somewhere below the Time Magazine naming Amazon’s Jeff Bezos its man of the year (late December 1999); The market peaked in March 2000.

What it will require is the speculation in other markets — art, commodities,real estate — to spill over into equities.

Make no mistake about this; It is a foreboding sign . . .   

UPDATE:  March 3, 2005, 10:13PM   

Just glanced at today’s NYT. Page one story:  A New Prince of Wall Street Buys Up Art [3]

Pretty timely, huh?

She Can’t Be Bought [4]
Christopher Mason
New York Magazine, March 7, 2005 issue

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/03/modern-art-market-superheats/

URLs in this post:

[1] Mirror Image: http://bigpicture.typepad.com/comments/2004/07/mirror_image.html

[2] Money Supply Peak: http://bigpicture.typepad.com/comments/2004/06/chart_of_the_we_2.html

[3] A New Prince of Wall Street Buys Up Art: http://www.nytimes.com/2005/03/03/business/03hedge.html?ex=1267506000&en=5dc980681937994b&ei=5090&partner=rssuserland

[4] She Can’t Be Bought: http://nymetro.com/nymetro/arts/art/11265/index.html

Copyright © 2008 The Big Picture. All rights reserved.