Not surprisingly, few people want to imagine such calamities roiling Chelsea. “For the last 100 years, contemporary art has always been overpriced by comparison to older works, but there’s no guarantee that if you buy something for $200,000 it will be worth anything in fifteen years,” says Daniella Luxembourg, the former auction-house leader who in 2004 founded Geneva-based ArtVest, an investment firm specializing in art. “Everyone assumes the market will continue. And then when it stops, they will all be quite astounded. Later, everyone will say, ‘I said it couldn’t last!’ ”
What you hear most these days, of course, are art-world sages saying that it will last, positing that this time around it’s a long boom, not a massive bubble. Generally, such pronouncements are underpinned by a litany of logical-sounding reasons. They go something like this:
Crash-Proof-Market Theory No. 1
The Expanded Art World
All crash-proof-market notions hinge to some degree upon a single fact: The art world is bigger than ever. That’s unquestionable. Depending on which metric you use, the global market is up to twenty times as large as it was in 1990. “Two years ago, all the dealers I know were planning around a contraction,” says one market-making American collector, who requested anonymity. “Now they say, ‘The market’s bigger, it won’t happen.’ And it is true there’s a new class of people buying art. Maybe it’s a major economic shift, like the postwar period, when America stole the art world from Paris. But when people say a crash can’t happen again because of that shift, I think of the New Economy in 1999.”
The analogy is not that far-fetched: Just as start-ups commanded valuations disproportionate to their bottom lines, hot young artists can rapidly reach the same price levels as mid-career artists with proven track records. “Today’s art market is by and large misinformed,” says veteran adviser Thea Westreich. “People are buying in packs and syndicates, running through fairs and evaluating work, which is a sure way to go wrong. They’re using their ears, not their eyes, to select works, buying based on market trends rather than art-historical standards.”
When I run the argument of a broader market’s being inherently more stable by Los Angeles media executive Dean Valentine, a major contemporary-art collector, he goes momentarily speechless. “I see zero economic truth to the notion that rapidly expanding markets are more stable,” he says. “What you have now is more buyers overpaying and creating misaligned values.”
Crash-Oroof-Market Theory No. 2
The Art World’s Gone Global
Traditionally, major contemporary-art collectors have come from Western Europe and the United States. Now they come from all over, like Brazil (metals magnate Bernardo Paz), Mexico (juice heir Eugenio López), and South Korea (retailer C I Kim). In the trade, there’s constant debate about where the next big collectors will emerge—Russia and China, yes, but also India and various Arab emirates.
Sotheby’s contemporary-art head Tobias Meyer said recently inThe New Yorker that such buyers mean the art market’s only begun to rise. History is portentous here: “The secret is that this market is international,” Christie’s chairman John Floyd told Newsweek in 1988. “If the dollar is down, the yen and deutschmark are up.” Less than two years later, young lions like Schnabel and past masters such as Clyfford Still alike were going unsold at auction. And though the art world has definitely continued to globalize since then, this does not necessarily connote true stability. It’s not yet clear how deep the market is in these areas. Will there be enough new collectors of contemporary art who keep buying work once their walls are filled, then go on to fill up warehouses and create private museums? “If the European or American art market softened now, China, Japan, Russia, and the others could never take up the slack,” says Anders Petterson, a former bond trader whose London ArtTactic firm analyzes the art market.
Crash-Proof-Market Theory No. 3
Art Is the New Asset Class
Over the past few years, a flurry of articles identified art as a component in every savvy investor’s portfolio. Figuring prominently in many of these stories has been the research of New York University economists Michael Moses and Jianping Mei. Using the Case-Shiller methodology originally developed for understanding real-estate markets, the professors tracked artworks that sold originally at auction in New York. They found art regularly showed returns somewhat below those of the S&P 500 but significantly above any class of bonds. Over much of the last half-century, the art they tracked was about on par with the S&P 500.
Published by The American Economic Review in 2002, the study caught fire. “It’s been a blast,” says Moses. “Prior to this study, all we had were war stories, but this study put art on the same footing as other financial assets. It’s a trillion-dollar asset class that in many ways works a hell of a lot like real estate.” Moses recently retired from teaching to focus on Beautiful Asset Advisors, a company aimed at monetizing the Mei-Moses research data.