The deals everyone is eagerly looking for won’t appear until the bargain hunters go away.

This commentary by Marion Maneker is available to AMMpro subscribers. (The first month of AMMpro is free and subscribers are welcome to sign up for the first month and cancel before they are billed.)

Last Friday, as the financial effects of the global coronavirus quarantine were only beginning to be felt, Bloomberg ran a story suggesting art owners were seeking deals to raise cash. Further reporting suggests the mood in the art market is quite different. With the world’s economy still early in the financial cycle that will follow the global quarantines and their attendant dislocation of everyday economic activity, it makes sense that those with access to substantial cash reserves would view the coming months as a potential opportunity. What seems to have happened on Bloomberg was that buyers hoping to come across distressed art assets were projecting those ambitions to reporters.

Our quick listening tour of dealers, auction house personnel and art finance firms suggests there remain more buyers than sellers in the art market. That doesn’t necessarily mean the market for art will show strong sales. When buyers are eager for bargains and sellers are suspicious of letting work go too cheaply, the result can be a market standoff. It will take an outside economic event to make one side blink. The coronavirus quarantine may be that exogenous shock but claims that art holders are panicking already may be more wishful thinking than fact. (Those claims also seem to run counter to the way collectors behave when they need to raise cash. But we’ll get to that below.)

According to Bloomberg on March 20th, bond king and museum donor Jeffrey Gundlach claimed he was fielding “panic offers” on art by Monet, Renoir and Hopper. Corresponding with Bloomberg’s art market reporter by email, Gundlach suggested he was being offered a substantial amount of art including works ranging from “Impressionists Gustave Caillebotte and Camille Pissarro to contemporary artists Anselm Kiefer, Anish Kapoor and Richard Prince.”

“’None were good enough quality for me to have any interest in buying,’ Gundlach told Bloomberg, “adding he’s open to acquiring ‘top tier work by artists I find compelling if prices fell enough.’” That last bit was the tell. Gundlach is simply using Bloomberg to advertise the idea that he wants to buy art and hoping he might get a lucky call. This may be more of an indication that there is so little high-quality work available to Gundlach than a sign of financial distress.

The lack of work on the market is a function of the long run up in art prices and the persistence of low interest rates which has buoyed asset values of all kinds. Few collectors want to sell because they have nowhere to invest the money outside of the art market and feel art prices are too high to trade up to better works. One of the rapid responses to the economic dislocation of the pandemic has been a massive fiscal stimulus package by Congress and a reduction of interest rates by the Fed. Both of these actions will only bolster the financial positions of most art owners who have sufficient cash flow to benefit from easy credit.

That’s not the only reason Gundlach is, by his own admission, not seeing much in the way of really good works at too-good-to-pass-up prices. According to one private dealer, collectors with the best art who find themselves in a tight spot start raising cash with their weakest works. “Collectors seeking liquidity always start from the bottom of the deck,” the dealer says. “They try to sell their least important works first—and don’t mind if they take a loss.” So far Gundlach’s buy side is seeing the same behavior that the sell-side dealer describes.

“It is very unusual for major works to come into the market at a discount this early in a crisis,” the dealer says. Things could definitely change if the confinement lasts a long time or the fiscal stimulus fails to blunt the worst of the post-coronavirus dislocation of America’s service economy, “but it is too soon to tell. There is still plenty of toilet paper on the shelves at Stop N’ Shop in East Hampton.”

“It’s too early,” says Joseph Charalambous Executive Director at TPC Art Finance, a non-recourse lender to dealers and collectors. “It needs 4 to 6 months more.” That’s because the full financial effects of the coronavirus shock are going to take at least that long to manifest themselves in the financial lives of collectors. In the meantime, Charalambous is seeing more enquiries than normal from collectors but those are all to raise money for potential opportunities.

That appetite is, in and of itself, a market tell. Few seem to remember that the Damien Hirst Beautiful Inside My Head Forever sale that grossed nearly $200m took place on the same day that Lehman Brothers declared bankruptcy in September 2008 marking the beginning of the downturn that became the global financial crisis. It’s long been a matter of dispute how many of those buyers actually ended up paying for their works but the point is that buyers make their decisions on the financial climate that leads up to a moment, not a strong understanding of what the future will hold.

Two months later what had happened on that September day had finally sunk in and although the November sales in New York were what collector Eli Broad described at the time as a “half-priced sale.” Few bidders were confident enough to buy on those terms. Not Broad, he spent $8m to own works by Jeff Koons, Robert Rauschenberg, Donald Judd and Ed Ruscha. Given what has happened to art prices since then, those had to be very good buys.

Most collectors are fearful when others are fearful and aggressive when their rivals are aggressive. A few months after Broad picked up his bargains, there was a far greater deal to be had on the private market. Gagosian was offering privately a Roy Lichtenstein enamel, Girl in Mirror (1964) for a distressed seller in 2009. The seller was willing to take almost anything and Gagosian was able to get the seller to take as little as $1m for a work Gagosian thought could fetch $3m.

As it turned out, collectors with plenty of cash were shell-shocked by the credit crisis. Few wanted to part with cash for art even if they were being offered an extraordinary deal. To coax a collector into making a play for the Lichtenstein Gagosian’s Deborah McLeod had to suggest the buyer make a “cruel and offensive offer.” That’s not because McLeod was being callous but because she recognized the market psychology of collectors. In times of crisis, they will act only if they feel they are getting a rare deal from a desperate seller.

Eventually the buyer did pony up $2m (Gagosian kept $1m as commission.) A year later, another example of the work, it’s an edition of eight, from an estate sold at auction for nearly $5m. That’s a quick $3m gain for the somewhat reluctant buyer. Prices for the work have varied since then but just last year the same example that sold in 2010 traded again in London for more than $6m locking in a paper gain for the Gagosian client of $4m.

Had the buyer known how much money he would make would he have needed the “cruel-and-offensive” prompt? Probably. Art collecting is animated by the same animal spirits as other markets. A great deal is available only because so few others are willing to take the risk. That should remind us that today’s still-flush market psychology won’t necessarily last into a real downturn.

Which brings us back to the wishful thinking presented in the Bloomberg article. The real bargains will come when the bargain hunters disappear. As cash drains out of the system, more and more owners will be willing to trade assets for cash—though they will have to accept lower prices. That’s a paradox but hardly one unique to the art market. The paradox is particularly true when the owners of these assets tend to have more financial resources and access to credit than most which may extend the stand off between buyers and sellers for longer than many hope.

“Everyone is looking for a bargain,” Charalambous said, “but no one is offering one.”