Luke Johnson Calls the Art Market a Confidence Trick in the FT

Where the art market goes in the increasingly dour economic climate is anyone’s guess. But Luke Johnson expressed his opinion in the Financial Times:

my suspicion is that it will fall further and harder than perhaps any other asset class, save perhaps subprime mortgages. The reasons are several. First, modern art has mainly been bought by the nouveaux riches who made their money in the bull market: the hedge fund managers, the investment bankers, the media moguls. Most of these would-be collectors are running for cover, having been battered by the credit crunch, with bonuses and bumper payouts now just a memory. The few rich left – the Russians, oil sheikhs and the like – don’t buy much contemporary art. The years of easy money, which have driven so much asset price inflation, are surely over and now is the reckoning, when the froth evaporates.

Johnson’s analysis would carry more weight if he could produce some data. He may be right about the media moguls and hedge fund managers, his bio has him as the Chairman of Channel 4 and running Risk Capital Partners, a private equity firm.

He goes on to say:

Second, contemporary art has no intrinsic value in the way a building or land or a stake in an enterprise has. You cannot generate an income from it; you cannot borrow against it; you cannot trade it on an exchange. In fact it costs money to keep because you have to insure it. It is mostly a folly, dreamt up by wily promoters to spoof those who have limited taste and too much cash.

But that only provoked this response from Arie de Knecht:

Nor does Mr Johnson show that he has an in-depth knowledge on the workings of the (contemporary) art market. ( . . . ) There is no borrowed money in this market. It is surplus money that goes into contemporary art, either newly acquired or (mostly) old money. But art does have, contrary to Mr Johnson’s opinion, intrinsic value, namely the highest possible: beauty. There are no daily quotations for a painting on one’s wall as for shares or bonds, and investing in art means patience and knowledge.

Artful practitioners of a confidence trick (Financial Times)

Art has intrinsic value – it is not like shares or commodities (Financial Times)