Monday, May 15, 2006

That booming art market

The contemporary art market boom continues unabated, as a wave of liquidity washes over the globe, lifting prices of assets and collectibles along the way. Last week, as a series of contemporary art auctions were set to hit New York, Barron's featured another article by Suzanne McGee chronicling the rising tide of art prices that has helped fuel some artists' rising stars.

How did the action unfold? Artnet reports, "The day sale of contemporary art at Sotheby’s New York on May 11, 2006, totaled $56,348,201, almost double the $23.8 million presale high estimate."

In fact, Sotheby's was not the only auction house that fared well in recent days. Phillips capped off the week with a crowded contemporary sale that collected $29.5 million dollars. High prices were also seen at Christie's, where works by contemporary artists such as Mike Kelly and Damien Hirst achieved noteworthy prices. According to the International Herald Tribune, Christie's Tuesday evening sale of "Post War and Contemporary Art" brought in $143 million dollars.

Refco was able to get a small piece of financial relief, thanks to their "long position" in one hot segment of the art market, contemporary art photography. From

Refco Inc., the bankrupt futures trader, may have done better collecting art than trading futures.

The cream of its corporate art-photography collection sold Friday night for US$5.4 million at Christie's International Plc in New York. A confluence of big-name photographers and a mania for contemporary art provided a smidgen of relief for Refco's creditors, who were owed more than US$16 billion as of October. The results more than doubled the presale low estimate and bodes well for future contemporary art auctions at Christie's and Sotheby's Holdings Inc. in New York.

"It's a taste of things to come next week," said Matthew Carey-Williams of the Gagosian Gallery.

Meanwhile, seasoned collectors and advisers were quietly muttering about lunatic prices paid by naive collectors with more money than sense.

The art craze is not limited to Western works or the appetites of Western buyers. Russian buyers continue to emerge as a formidable buying bloc, and interest in Russian art has spurred organizers to try and build on Moscow's reputation as an art capital. Interest in the art market has also extended to Asia; Christie's will sponsor an upcoming Asian contemporary art sale in Delhi later this month. Excitement over some of the region's contemporary art was evident at recent New York sales. As reported in a recent New York Times article,

"Works by emerging Chinese artists have recently received a lot of attention; in April Sotheby's devoted most of an Asian art sale to them. Last night Phillips included several works by some of these artists to see how they measured up alongside their American and European colleagues. Their performance was staggering."

Some observers expressed continued amazement over the appeal surrounding currently in vogue artists such as Donald Judd, whose box sculpture arrangements were a hit in Christie's contemporary sale last Tuesday. Reviewing a catalogue description of the artist's work, International Herald Tribune reporter Sourem Melikian noted that the value of some works seem to hang precariously on current fashionable interpretations of their meaning and importance.

Interestingly, some segments of the market continue to be ignored. Following Christie's evening sale of Modern and Impressionist art, The Jerusalem Post's Meir Ronnen remarked, "The lovely late Gauguin flower piece, a true masterpiece, was knocked down at $4m., even though Christie's had flashed an estimate of $7m.-$10m." The writer also noted that although sales totals for that evening's auction had approached 1990 highs, the equivelant value may not have been approached due to the decline in the dollar since that time.

While auction totals may not have surpassed their highs in terms of real dollars, individual works from sought-after artists might be doing the trick. Of course, it would be difficult to isolate how much of the return from a sale price is a by product of inflation and how much is a function of increased demand for a particular item. Market observers and academics have often preferred to track artworks by classification groups and judge performance of art indices or constructed "portfolios" over various time periods. For a past look at art's ability to perform as an inflation hedge and investment class, please see "Art as Investment, Inflation Hedge".

Will the booming art market continue to surprise observers and sceptics alike? While currently favored contemporary artworks could suffer from a dropoff similar to one that befell the Impressionist market after 1990, prices for artworks in areas of relative value might be kept aloft in an inflationary tide. As a continually surprised onlooker, I think I'll leave it to hindsight and art experts to figure this one out.