Art Market Monitor

Global Coverage ~ Unique Analysis

Did Black Money Fuel Europe's Old Master Boom?

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Artforum.com‘s Jennifer Allen brings an interesting story from the Süddeutsche Zeitung written by Stefan Koldehoff that offers an explanation for the sudden and unexpected boom in big ticket sales in Europe this winter. It’s all due to the changes in Swiss banking laws brought about by the UBS case. Without the shield of secrecy, Americans are being forced to change their socked away cash into less liquid but inflation sensitive hard assets:

“Never before has so much black money been spent on the international art market as in the last three months, above all in Europe,” writes Koldehoff. “That explains the anticyclical success of the Yves Saint Laurent auction in February by Christie’s in Paris—and makes the high sales at the TEFAF in Maastricht plausible.”Citing a “New York gallerist,” Koldehoff says that Americans currently see themselves under pressure to spend large sums of money in a short amount of time in Europe. The American financial authorities had threatened to close the American branches of major Swiss banks, should the banks refuse to cooperate with the search for tax evaders. After Switzerland, Austria, Luxembourg, Liechtenstein, Monaco, and the Canary Islands were quick to follow suit. These legal changes can lead to “massive buys,” since American collectors can buy works that have been temporarily taken out of European depots—such as the duty-free warehouses Basel-Drespitz, Zürich-Embraport, Genf-Cointrin, and Chiasso in Switzerland—only to put them back into depots as a kind of long-term deposit, relatively removed from the taxman.

The global anti-inflation trade has yet to yield returns but that’s probably because we’re still in early days of the financial crisis.

The Financial World's View of the Rose Museum

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It’s turning into financial Friday here at Art Market Monitor. This is Floyd Norris in this morning’s New York Times. He’s addressing the idea that many cannot get it into their heads that the money is gone.

All those who lost a lot — and a lot is defined differently for each person — now face similar decisions. Do they admit they are permanently poorer, and adjust both their spending and their sense of how successful they have been? Or do they seek to deny reality and hope that somehow the good old days will return? [ . . . ]

And it could also be seen this week in a legislative proposal being pushed by art museum directors in New York that would bar museums in financial difficulty from selling artwork to raise money to pay other bills. Even without such a law, one museum that sold artwork is to be punished by not being allowed to borrow art from other museums.

There was outrage earlier this year when Brandeis University announced plans to close its art museum and sell the paintings. The university’s endowment was devastated by bad investments.

What do people opposed to the sale of paintings think suddenly poor institutions should do? Close? Seek government bailouts? Should Brandeis close down a few academic departments, or cut back on scholarships, to keep its art?

Brandeis is hardly the only college whose endowment has contracted sharply. I suspect that when the final numbers are in — and colleges are not exactly rushing to disclose the sad details — it will turn out that colleges as a group did far worse than the stock market while the market was doing horribly.

The Money is Gone. Now What? (The New York Times)

Is Sotheby's Stock a Leading Indicator?

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One piece of evidence constantly offered on the sad state of the art market is the precipitous drop in Sotheby’s stock price over the last year and half. From a high near $60 to a low near $6, the share price has seen quite a tumble. The equity markets we’re often told are a forward looking. That means we ought to be able to use a company’s stock quote as a measure of expectations.

But what about the even more forward looking measure of fund managers? A few weeks ago, the news broke that Steven Cohen’s SAC capital had bought a significant position in Sotheby’s and then added to it. SAC now holds 5.9% of the firm. Cohen may spare no price when he acquires art personally, but he’s known as ruthless stock trader with excecptional timing. (Since last Summer, the firm has been said to be mostly in cash–talk about timing.)

Now Barron’s makes this interesting observation:

John Angelo, a hedge-fund manager who sits on Sotheby’s board, has bought 125,000 shares in the auction house since March 6 for about $970,000, or an average of $7.74 per share.

Granted, less than a $1 million is hardly a big play, especially for a director of the company. But when a number of smart market players make a move into Sotheby’s stock, no matter how depressed, it suggests a level of confidence about the art market in future, don’t you think?

Directors Bid for More Sotheby’s Stock (Barron’s)

Falling Pound; Rising Paris?

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Long before the YSL sale, there’s been talk in the art market of the French efforts to reform their laws and reduce red-tape and its possible effect on returning Paris to the center of the art trade. In 2007, the city of lights had 6% of the $50 billion+ global art market. What worries some is the impending crash of the pound. The banking crisis has already caused a precipitous fall in the UK currency but the worst may still lie in the future. The Times of London picks up on the story and offers these facts and opinions:

Fabien Bouglé, an art investment specialist, said that the fall of the pound would deter European collectors from selling works in Britain. “A year ago, I did not hesitate to advise my clients to sell in London,” he said. “Now the exchange rate is a big question.” [ . . . ]

Guillaume Cerutti, chairman of Sotheby’s in France, is sceptical of claims that Paris can overtake London. “I think the pendulum will swing back towards Paris a little,” he said, but added: “You don’t catch up 30 or 40 years of falling behind overnight.”

Clare McAndrew, an art economist, said that France was hampered by red tape that enables the authorities to pre-empt sales to prevent Gallic works from leaving the country. “London has worked very hard to become open and I think that’s more important than exchange-rate fluctuations,” Dr McAndrew said.

Recession Threat to London’s Place in the Art World (Times of London)

Souren Melikian Changes His Tune

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The International Herald Tribune’s art market reporter began the week a skeptic of the YSL sale boldly pointing out that the collection–in his estimation–did not quite reach the taste level advertized:

“This is a very important auction,” said Souren Melikian, the longtime art editor of The International Herald Tribune, the global edition of The New York Times. “There are a large number of high-quality objects, not necessarily as stunning as billed, but high quality bought over a large number of years. And they come to auction at a time when the market is winding down, when there is less available than 20 years ago.”

Of course, Melikian said, “the auction is enhanced by the attention these two characters have attracted to themselves.”

Indeed, after the first blow-out session, Melikian sensibly retained his principled skepticism and offered this tonic:

It started off in a low-key fashion, with works that were neither spectacular, nor typical of their respective authors’ better known styles. The very first lot was a hilly landscape, seen by Edgar Degas through an open window from a room in Rome or Naples during the long trip he took to Italy between 1856 and 1859, in the Romantic naturalistic style of the time. It bears no relationship either to his very Spartan landscapes of the late 1860s or his Impressionist period, and yet it brought a healthy €457,000.

But by week’s end, a new feeling had come over the scholar. High prices were indicators not of a buying frenzy but of a discerning art historical eye:

To market insiders, lesser works which the media give scant attention flashed an even more heartening message concerning the health of the art market. When an atypical landscape painted by Degas, in a Romantic naturalist style unrelated to the Impressionist period for which he is famous, opens the proceedings at €457,000, nearly matching the high estimate, this tells you that art lovers are buying with as much determination as ever.

Some of the change of heart seems to have come during the impressive sales of works of art–especially the gold German presentation cups–which Melikian believes are  a better gauge of connoisseurship:

Objects are a better gauge of the true collectors’ frame of mind because, unlike paintings, they do not lend themselves to hype as easily as pictures, where world-famous names give auction press offices something that can be celebrated in simple terms.

We’d like to point out that the consistently high prices across so many objects would–combined with the fact that many of these items are fashioned out of precious metals–suggests the buyers were less knowledgeable than needful of an item from the “Sale of the Century.” Though any attempt at reading the mind of buyers is pure speculation.

Finally, Dr. Melikian feels the YSL sale is a watershed event:

The extraordinary three-day auction of the Yves Saint Laurent-Pierre Bergé collection has put the global art market in an entirely new perspective. It has finally demonstrated that the art market is set on a separate trajectory from the rest of the world economy and, even more importantly, it has altered the international power balance on the auction scene. [ . . . ]

Christie’s – owned by a French businessman, François Pinault – and Bergé have together placed the French capital at the very heart of the international art market. A major new hub may have come into being.

Much of this may prove to be true in the course of time. There’s good reason to believe New York’s dominance of the art market will be balanced by a renewed vigor in Europe in years to come. But to suggest the art market is on a separate trajectory from the world economy is rash–and highly uncharacteristic for the more noble-minded scholar.

The market value of art–distinct from the cultural or personal value–is expressed in monetary terms. As such, it can never be divorced from the world economy. The YSL reflects the importance of the collection and the curious financial moment we’re experiencing when many of the world’s wealthy still have great reserves of cash. To truly measure the art market’s health–meaning the relative value placed on art over other more productive assets or other luxury goods–we will have to wait some time until we know the shape of the world economy to come.

Paris Auction Reflects a Major Turning Point for Art Market (International Herald Tribune)

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