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Art And The Crash


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An interesting article from another angle of opulence.

Edited as it's too long but here's the link

http://www.slate.com/id/2190114/pagenum/all/#page_start

Here's the edited section from the article.

How can you tell that it's nearly auction season in the art market?

"As a new wave of wealthy collectors poured into the market to fill their mansion walls," Frank wrote, "auctions have become competitions of conspicuous consumption, filled with celebrities, hedge-fund managers and mystery billionaire bidders from Russia and China."

It's a great image: the last days of Rome with greedy developers spending our mortgage dollars on frivolous Jeff Koons sculptures, decadent hedgies spending hot money on cool Rothkos and de Koonings, and shady former-Communist billionaires trying to buy respectability with Renoirs. But conspicuous consumption is hardly news in the art market.

Carol Vogel summed up the mood in the New York Times: "Beneath all the bling—the glossy catalogs brimming with lavish illustrations, the extravagant parties to lure rich collectors, the impressive exhibitions of the art and the optimistically high estimates—lurks an ominous question. After three years of speculation about a bust, will this be the moment when the art market finally crumbles?"

The art world is haunted by the asset-mauling price swoon of 1990, a double-whammy delayed reaction to the 1987 stock market crash and the 1990 recession. According to the MeiMoses index of art prices, the art market didn't reach parity against its 1989 highs until 2003. That's a bear market lesson that no one should forget, and with the market well into the 10th year of expansion, it's not unreasonable to expect a crash.

Unfortunately, having a foregone conclusion that there will be a crash leaves you seeing signs of it everywhere. Frank built his Journal story around the idea that the credit crunch had caused art buyers to fall behind on their auction bills. He noticed in Sotheby's annual report that accounts receivable had doubled at the auction house in 2007, totaling $835 million. Not a bad tell.

The estimates remain high—sellers like to see their works well-valued—but the number of lots has been cut back by 10 percent at Sotheby's and 24 percent at Christie's.

...remember that art is an asset that holds back inflation. Though it cannot be considered a commodity—it's pretty much the definition of nonfungible—it does behave like gold, another important pseudocommodity. And like gold, which has pulled back from a spectacular run but not crashed, art has room on the downside to consolidate gains. After all, money is always looking for a safe haven, and you can't hang gold ingots on the grand staircase of your house. So art might continue to perform until another sexier asset comes along. In other words, this boom may end not with the bang that everyone expects, but a whimper.

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