Wednesday, February 15, 2006

Sotheby's as Corporate Raider?

Today's New York Times highlights the upcoming sale of the recently discovered set of William Blake watercolors originally produced for the poem, "The Grave," by Robert Blair.

I'm not going to recount the entire NYT article. Needless to say it is a tale of a marvelous discovery and intrigue laced with copious amounts of plain old greed on the parts of the sellers and their agents.

What is distressing is that Sotheby's, in an effort to realize the highest possible commission on the sale, is auctioning the 19 drawings individually in separate lots. It seems that twice the Tate has uneventfully tried to purchase the drawings in order to keep the group together.

It is of note that the one missing drawing from the original set of 20, is in the collection of the Yale Center for British Art. This simple fact gave Sotheby's what it needed to excuse its decision to break up the remaining set of drawings.
"It's not complete, so in a sense it's already been broken up," said George Wachter, director of old-master paintings for Sotheby's worldwide.
"Since one of them is at Yale, it makes the most sense to do it this way," he said of his decision to auction them one by one. (NYT)

Martin Butlin, a prominent Blake scholar involved in the authentication process, said that selling them individually at auction was "absolutely philistine."
"The seller has no regard for the integrity of works of art, only for money," he said. "As a group they tell a story."(NYT)

It turns out that Libby Howie, described as a "London art dealer" managed to out maneuver the Tate and with a group of "investors" purchased the drawings in 2002 for a reported $7.7 million. After shopping the set of drawings around unsuccessfully (apparently no one could come up with the price being asked) they are being put on the block.

I suppose the question I might ask is "does Sotheby's believe they have any responsibility to try and keep the drawings together?" Alas , it's rhetorical and the answer is no. I suspect they think the only people they have to answer to are their shareholders (NYSE:BID) Management just wants to keep those commissions rolling in regardless of any other opinions on the matter.

Art as investment or...? In the early eighties, speculative investors would buy well run companies at distressed stock prices, chop them up and sell the assets destroying the companies in the process. They were called Corporate Raiders.

Tuesday, February 14, 2006

Looking at the art market at the start of the 21st century

Edward Winkleman commented today on a Guardian article "When Even the Most Monstrous Works of Art Cost Millions, It's Time for a Price Crash" Well is it and what is happening?

In the last decade, the art marketplace has made a quantum leap forward in size. The amount of money, number of galleries and artists worldwide has increased by a significant magnitude in the last 30 years. I am inclined to think this is a permanent state, true it will fluctuate somewhat with the economy but that the general increase will remain.

There are a number of reasons for the increase in size of the art market. The growth is unlike any change in the twentieth century and I believe it is a function of capital formation in the last decade of the twentieth century. For comparison, the last time we saw such a rapid creation of wealth was in the 1890's. A while back I took a look at the Forbes list of fat cats, in the early eighties there were two billionaires, in 2004 there were 860 or about as many as the number of early 80's millionaires. (facts from Forbes but from memory, close enough) Well what about inflation you might say? Not quite enough oomph there, a billion is 1000 times a million and inflation at best would only account for a 10x increase. No, there was an incredible increase in wealth primarily caused by the growth in the areas of technology and of course to a lesser degree an increase in population.

I also believe another reason for the increase in the size of the art market is also a fundamental economic and sociological condition linked to the increasing population. In the modern world, we have applied efficiencies of scale to the production of the basic necessities. While we may complain about how these structural changes are specifically implemented there can be no doubt that one result has been a reduction in the manpower required (jobs) in many sectors of the economy. This displacement of workers has created a situation where new jobs were required in order to maintain "full employment" and maintain social order. In order to do this we created the consumer society. Much has been said about the rampant consumerism of the US culture but the fact is, without consumption of non essential goods, the economy would collapse.

When a society is able to provide the basic necessities to a majority of the population, food, housing, clothing etc, but still needs to create more jobs to keep the expanding population employed (under control) the obvious path is to create a demand for non essential items. This is now occurring on more of a worldwide basis (China, India, Russia) I am aware of the downsides and inequities of this condition but it is what I see occurring at the present moment in history.

A side affect of these changes is that art has become commodified. That is, art has become a necessary part of the economic fabric of sufficiently developed economies. It has created an economic niche which provides employment and creates a commodity which is capable of redistributing wealth. Barring a unforeseen occurrence this condition should persist into the future.

When something becomes commodified it can be traded, bought and sold, based upon a speculation of it's value. If a commodity can be traded in a speculative manner, it can be viewed as an "investment".
All investments, stocks, bonds, real estate etc will fluctuate in price and are subject to market psychology. In particular a severe decline in price like the Millennium Crash in the stock market creates a negative psychology towards the particular asset class. Investors look for other places to invest part of their assets. In the last few years real estate was a favorite but this asset class has become fairly valued, if not overvalued. The return on bonds is relatively small so the investor has looked to other asset classes for investment opportunities.

While art has always been considered an investment I believe it was primarily bought and sold by people with a passion for collecting and an interest in art. In the latter part of the 20th century the art market saw an increase in corporate collecting based upon both a support for the arts and as an investment. At some point the "pure investors" began to take note of the increasing auction prices for art and began to treat art as an investment, as a commodity. In the last five years we have seen the valuation techniques previously only applied to other more traditional investment classes being applied to the art market.

Valuation techniques create the ability to project the possibility of a price change into the future. Forward price projection is a powerful marketing tool but one should realize it is only a speculation which works until it doesn't. Never the less, I suspect the sales pitch that it "will be worth more in the future" is a common tool used to both sell art and raise capital for art based hedge funds.

If I were privy to all the details of the current art auction markets I suspect I would find a few things typical of other investment classes.

I think we would see contemporary certain works bid higher probably excessively higher. Some of these price increases might be outright manipulation but I also think that with certain "blue chip" contemporary works, historical and critical evaluations are fuzzier, popular taste is more pronounced and the works "appear" to be liquid. Investors are willing to pay a premium for artworks which are validated, hence more liquid (easily bought and sold) because even in a price downturn there will still be a market for them. This one fact accounts for part of the pricing issues raised in the Guardian article.

Second I would expect to see a rise in "new issues", the work of young artists. The demand here is created by the desire to invest in lower priced artwork which might eventually achieve "blue chip" status and value. Additionally, the prices on these works are driven by whatever is the latest hot fashion and more subject to price manipulation.

Third, I suspect when the large investors realize when certain historical styles are fairly valued they will look to "the ones that haven't gone up yet" Futurism anyone?

What I have described above is a reasonably describes the current situation but I will also point out that it is not a normal situation. The large influx of capital into the art market is directly a function of the increase in wealth at the end of the 20th century. This is a singular event which will not necessarily occur again anytime soon.

The art market was not prepared to handle this influx of capital. Too much capital casing too few goods, it's a definition of price inflation and accounts for some of the run up in prices. In response, the art market expanded, new galleries opened exhibiting new artists as it tried to supply more goods. This is of paramount importance because it helps explain how the market for young artists work became so overheated in the last few years. As the number of galleries grew, the supply was better able to meet the demand and I would expect that investment decisions would start to be more rational.

Finally, the art market is tied to the economy in two other obvious ways. If there is a recession in the economy (sure thing for 2007), the art market will soften but I doubt it will crash. The second but major factor is inflation, not just US inflation but world wide inflation, which I believe (speculate) is on the rise for the next decade. Inflation will help maintain art prices in absolute dollars/euros but not necessarily in inflation adjusted currencies.

I don't necessarily like it but it is how I see it.

Sunday, February 05, 2006

Snow for Nam


In memory of Nam June Paik.

The TV static after the video signal has ceased is caused
by background radiation left over from the big-bang

Originally posted on

Fra Angelico- Paradise.

Last month I made several trips to the Fra Angelico exhibition at the Met, The exhibition is now over but the link above to the Met has some images and information on the catalog.

One of my favorite paintings was The Last Judgment: Paradise, (1435-40, Tempera on panel, 40-1/2 x 11-1/8 in.) The painting is a difficult size 40.5 x 11 inches or 3.6 to 1 height to width ratio. Tall and skinny might not be so bad for an abstract painting or one with just a single image but "Paradise" has 32 figures in it. I was talking with a couple from Philadelphia about the composition, about how geometrically structured it looked. Yesterday, still curious about this, I took a closer look and made a diagram of the composition.
Left: The panels height is divided by 1/2 and 1/4 and the diagonals.
Mid: The cyan lines are the 1/3-2/6 divisions and the diagonals.
The blue lines are the 1/5 divisions.
Right: The yellow lines are squares with the height equal to the panels width.
The arcs are a method used to geometrically construct the golden section (1.618)

I found the paintings surprisingly modern looking, Pope Pop.