Posted in Random on December 5, 2012 |
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A while ago, I posted about the impact of “scarcity” and “status” in the market for art, as a model for an asset whose value depended on something other than a stream of future earnings.
An interesting excerpt from a recent Barrons piece on how one could manufacture “scarcity” and “status” and thus asset values in such a market:
But here, now, the important caveat: The art market is opaque. Behind the scenes of this unregulated market are moments when modern artists, perceived to have temporarily fallen out of favor and become undervalued, are quietly bought up wholesale and then heavily promoted by big-time dealers and their best clients holding the stock. These artists will defy a market’s correction and continue to soar for other reasons.
Take Spain’s Joan Miró, an important artist who was neglected for years and has recently been elbowed to the front of the line. “Miró is one of the few modern artists whose prices were not fetching extremely handsome sums for the past 10 or 15 years,” says Galbraith. “A number [of dealers] seized this opportunity, found many Mirós in the market, and decided this was going to be the next big thing.” About two years ago, Galbraith noticed major dealers suddenly appearing on industry panels and raving about Miró. Et voilà. Today, Miró is the ninth-best-selling artist in the world, so far this year moving $153 million worth of canvases.
The real sign of a bubble about to burst, advises Edelman, is when previous “sponsors” of an artist — read major dealers or collectors — start offloading works. Since they’re adept at hiding their tracks, it’s not always easy to spot. But consider the German artist Gerhard Richter. Over the past several years, the market makers made sure everyone knew Richter was an undervalued contemporary artist whose prices could only rise. The markets dutifully responded. This year Richter was again among the top-selling artists in the world, so far selling $297 million worth of paintings.
Earlier in the year, Richter was outselling even Picasso and Warhol. We thought something was wrong with this picture, and perhaps the market finally agreed with us. In October, at the top of the market, Eric Clapton sold his Richter in London for $34 million. The controversial art-collecting hedge-fund heavy, Steven Cohen, immediately tried to follow suit by putting his Richter, Prag 1883, up for sale. Christie’s heavily promoted the Cohen-owned canvas in September, predicting it would sell “in the region of $15 million.” Prag 1883 was finally listed with a more modest $9 million to $12 million estimate, but there was no sale of the work during the November auction, even at that reduced price.
It is unlikely that major collectors and dealers holding stock will allow for a free fall in Richter’s prices, as it would devalue the entire portfolio of paintings they still hold. But could the overheated market for Richter be self-correcting? Is the market for Warhol similarly vulnerable?
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