Kathryn Tully spoke to Michael Moses to get his famous matched pair data for last week’s sales:
The average compound annual return on the repeat sales during these auctions was 10.4%. ‘This was a really strong set of sales,” says Moses. “They don’t get much stronger than this. Nor were there any really outsized returns that would skew the results.” […]
It’s also worth noting that repeat sales information was only available for 130 or 12% of the total number of lots offered in these auctions. To put that in perspective, a total of 241 art works or 22% of the lots offered in these sales didn’t sell at all.
Of course, there’s s difference between the overall return and the rate of return as illustrated by the lot that had the highest percentage return but didn’t account for much in the way of money:
The art work that generated the best compound annual return for its owner of 64% was Alexander Calder’s work on paper, Cap d’Antibes, which also sold during Christie’s day sale last week. That was purchased in September 2011 at Sotheby’s for $53,000, above the estimate of $25,000 to $30,000. It sold again at Christie’s last week for $111,000, plus buyer’s premium, again way over the estimate.
Moses says that the fact that the Calder sold for way over its high estimate twice in a row is very unusual. “Our data shows that the higher you pay above the estimate, the more likely you are to make lower returns,” he says. […] According to Moses, sellers of art works during the New York’s contemporary sales last week that had spent over $1 million on those purchases initially achieved a lower return. “The average compound annual return for works with a purchase price of greater than $1 million was 7.1%, while for those with a purchase prices of less than $1 million it was 10.9%. Again, masterpieces under perform,” says Moses.
Fund manager Mark B. Spiegel was doing a little thinking about the art market while strolling the Met yesterday. What’s interesting about Spiegel’s rumination is that he started from the knee jerk assumption that the art market is a bubble. And although there remains no fundamental value undergirding the market, Spiegel sees a fair amount of money driving art forward. Just look at these calculations:
According to Forbes, the combined wealth of the world’s billionaires is over $5 trillion. Even if one were to assume that one must be a billionaire to spend $25 million or more on a painting (thereby eliminating all of those worth in the hundreds of millions) and if one were to further assume that billionaires were– on average– willing to devote no more than 20% of their net worth to fine art, that’s still $1 trillion worth of combined fine-art buying power. (Remember, someone worth a billion dollars who spends a combined $200 million on an intercontinental jet, a 175′ yacht and three incredible houses still has over 80% of his wealth untouched, while someone worth $2 billion still has 90%.) So with $1 trillion of “billionaire art buying power” out there, that’s enough money to purchase 40,000 (!) paintings at $25 million each, while last year only around 20 were auctioned at that price or higher.
Is The Art Market A Bubble That’s About To Burst? Maybe Not. (Seeking Alpha)
Richard Dorment levels some strong charges in The New York Review of Books and warns that a showdown may be coming between the Andy Warhol Foundation and its insurance company over the costs of defending the work of the Warhol Authentication Board. The case, Dorment says, will reveal papers and depositions that cast doubt upon the operations of the formerly secret workings of the authentication board:
They also provide documentary evidence that on several occasions the board authenticated works that it had already declared to be fakes. In one electrifying moment during his deposition, on July 7, 2010, [Vincent] Fremont admitted that on at least one occasion he sold as authentic Warhols paintings that the estate of Andy Warhol had confiscated from the owner on the grounds that they were not the work of Andy Warhol. He also admitted that the authentication board on which he sits decided that the same body of work had been created under what one member called false pretenses. What made the sales legitimate, he said, was that the authentication board later declared the paintings to be genuine after all.
Andy Warhol and His Foundation: The Questions (New York Review of Books)
Georgina Adam reports that SplitArt has filed for bankruptcy taking €5m of capital with it and marking another attempt at financializing art that has not worked out. Though similar-sounding schemes for trading art shares have been established in Asia and France, none have yet to prove successful:
This ambitious but controversial attempt to create the world’s first “stock exchange for art” ended in liquidation in the Luxembourg courts at the end of last year. The project, which at one point employed 18 people, aimed to turn art into a fungible asset by splitting it into “certificates”, which could then be traded on an exchange. Most of the funding came from an Israeli source, and Deloitte Luxembourg, which has an active art and finance service, helped to promote it but without investing in it. The idea was that the owner of a work of art would put it into SplitArt, which would convert it into “certificates” tradable on an online multinational trading facility. But the project ran aground after a split (!) between investors about its direction. One minority investor said: “The majority wanted to build an IT platform and stock exchange to make money, but the minority saw the project as a way of creating a new transparent, liquid, efficient market.”
The Art Market: Bid to Save the Planet (Financial Times)
The New York Times continues to dine out on the Helly Nahmad gambling case by running its second page-one story in a week on art and money laundering. Though, as the section below admits, art has nothing to do with the gambling case:
But the case, in which investigators listened to Mr. Nahmad’s cellphone conversations over a period of months, also raises questions about how he conducted himself as an art dealer. In one conversation he speaks of using the family’s art business as a cover to move around illicit money, advising a woman named Lisa to wire $150,000 to the bank account of his father, David.
“Sometimes a bank needs a justification for a wire, right?” Mr. Nahmad said, according to a government account of the conversation, in March 2012. “We can just say, Oh, you are buying a painting. If they need justification, you know what I mean? You just be like, Oh yeah, I bought a, you know, Picasso drawing or something.”
It is unclear whether that transaction took place, and no charges related to the use of the business to launder money are contained in the indictment. The charges describe two related gambling networks — one led by Mr. Nahmad — that laundered tens of millions of dollars through shell companies in Cyprus; legitimate hedge funds and real estate assets in the United States; a car-repair shop in Brooklyn; and even a Bronx plumbing company that had been taken over by the gambling ring as payment for a bettor’s losses.
CNBC’s grasp of the art market has never been very firm. This week the channel mocked the art and artists while patting itself on the back for its ignorance of simple German, French and even English pronunciation. One the marquee morning show guests trotted out a commonplace argument about art:
Michael Novogratz of Fortress Investment Group said the art market has all the signs of speculation and that he could see a correction similar to the recent drop in gold.
“Art is 100 percent a bubble—I mean it has all the markings for a bubble,” Novogratz said. “Prices have gone parabolic. You go to any of the art shows and you know even the cheap stuff that was $10,000 two years ago is now $80,000. The expense of art has gotten crazy.”
He said the correction, when it comes, will be dramatic. While Novogratz is not shortSotheby’s stock, he said the turn in prices could be more than 50 percent. ”These $90 million paintings, you know, they might be worth eight one day. They won’t go from 90 to 70, it will go from 90 to eight.”
All of that may be true. It might also be a touch more complicated. But what is interesting to see is the way the money laundering meme has entered the finance world. Again, that may be true but but it might also be a touch more complicated:
“You also have the illegal money, the dirty money, the money laundering that is coming out of … vast parts of the world where people … want an easy an easy place to store their money,” he said. “That’s what’s really giving this its turbo-charge to the art market.”