Scott Black was on CNBC this afternoon talking about markets and the economy but the hosts took a minute to ask his opinion of the art market:
Sue Herrera: art, you are a big investor at this time and we’ve seen hard assets come back in a big way. you can look at the gold market as proof of that certainly. what advice would you give people perhaps shifting out of gold or art or other collectibles?
Scott Black: well, i think art is good. first you buy something that you like. and if you’re well to do, you should buy real names that are good quality. in my area, the french, 19th, 20th century, monet or something picasso. the bottom line is, quality will hold up. there’s a new demand coming out of both the former soviet union and also in china. so that combination tends to escalate prices and over time, there have been dips in themarket. after the crash of the japanese market, a nine-month lag and the tech bubble, a slight downturn in the early 2000, 2001. but over time, art has been a pretty good investment.
The dramatic volatility in financial markets caused by the continuing efforts to unravel the debt crisis raises an obvious question. Will the value of art be enhanced or hurt by a potential further fall in equity markets over the coming months? The price of gold briefly breaking through $1800 an ounce adds to the mystery. Will art continue to be viewed as a safe-haven investment protecting holders against inflation but also providing a more secure store of value than compromised debentures?
Several art market watchers have been trying to answer this question. Some take the short term approach of asking dealers whether they think primary market sales will be hurt. Others, like the extension of the Parisian Art Exchange, AMA, have looked at the academic evidence:
[E]conomic studies have delivered divergent results and the correlation between the two markets cannot be definitively proved or disproved. Goetzmann in 1993 and Chanel Olivier state that there is a significant correlation between the art market and the financial market, whilst Mei & Moses in 2002 and Worthington & Higgs in 2004 claim that there is a very weak correlation. A third group – Victor Ginsburgh and Philippe Jeanfils – posit that the link between the two markets only exists on the short term.
Nathalie Moureau and Dominique Sagot-Duvaroux, the economists who analysed these studies, affirm that the correlation between the two markets is weak as “a number of buyers, notably speculators, invest in art when there are no other profitable opportunities left. However, as they do not hold the majority of shares, the link between market fluctuations and the art market is not automatic.”
This can be attributed to an aspect highlighted in several studies: the art market feels the repercussions of events transpiring on the financial markets only after a delay of six months to one year.
The limitations of backward-looking studies is that they do not take the quantum improvement in communications speeds into account. This famous lag between financial markets and the art market, which was once put at 18 months, may be collapsing due to the speeds at which accounts can be settled and principals can raise cash for the purchase of hard assets.
ArtDaily takes this a step further by speculating that Chinese buyers will be increasingly drawn to art and luxury purchases as a store of value because financial instruments are so uncertain. From the Chinese perspective, buying US Treasury debt may seem like a bad idea. Volatile equity markets are too unstable and have limited visibility. All that remains may be art and collectibles:
expect to see even more competition for sought-after wines like Lafite and Petrus, intense demand for rare watches and gold jewelry, and a noticeably greater interest in Chinese contemporary art among Chinese buyers. Blue-chip artists who have proven particularly popular among mainland Chinese buyers, including Zeng Fanzhi and Liu Ye, could see new records this fall, with the increasing scarcity of their top-quality works leading to strong bidding. While we’ll have to wait until the fall auction season to see for certain, the current global economic uncertainty, mixed with domestic Chinese factors like inflation and possible yuan revaluation, should be enough to convince more investors and aspring collectors to do their research and get ready to start bidding in Hong Kong, Beijing or even New York in the year ahead.