The pair have hardly been without their critics, who assail them for not counting in their data work that fails to sell or “sunk costs” such as insurance and shipping, not to mention the onerous commissions exacted by auction houses. But most of the criticism stems from something beyond their control: the sloppy fashion in which both journalists and the art world deploy any numbers that fall into their hands, in this case using the Mei-Moses index as proof that art in general is a solid investment. “As an economist, that bothers me,” Moses says. “Because I have no idea what the non-auction market is doing, since there’s no transparency of prices.”
Worse, to the extent that the Mei-Moses data tell us much about contemporary art, it’s hardly encouraging news for investors. Once the professors realized how focused the buying public is on contemporary art, they folded in London auction records and had sufficient data to analyze the postwar and contemporary categories. “That market is less like the S&P 500 than like biotech start-ups,” says Moses. “The return can be very high, but so is the volatility.” In other words, caveat emptor.
Crash-Proof-Market Theory No. 4
Diversification As a Safety Valve
A more plausible theory—because it does not postulate an endless boom—points to the more diversified market created by a growing number of galleries and collectors and the viability of previously market-marginal art forms such as video and photography. According to this logic, the new art market no longer resembles a monolithic market sector (like, say, oil) but rather a more diversified category (i.e., energy in general, including everything from oil and coal to solar-power start-ups).
In this paradigm, there’s a constant process of mini-corrections, as some genres rise while others fall. A current example: Leipzig School painters stealing the spotlight from the many Düsseldorf Akademie photographers, such as Andreas Gursky and Elger Esser, whose photos seemed to have been carpet-bombed onto art-fair floors in the late nineties. Now? Not so much. Likewise, the boom in Japanese artists has flagged. “For a while, there were twenty [Takashi] Murakamis and [Yoshitomo] Naras going around each auction season,” recalls Lutz. “Now, suddenly, we’re not seeing as many.”
But can the cooling of certain sectors function as a safety valve, intermittently letting off enough steam to prevent the bubble’s exploding? No chance, says Moses. “A rising tide raises all ships, but a tsunami sinks them all,” he explains. “Look at stocks and bonds, which have enormous diversification. When NASDAQ went down, there were one or two winners, but there were a lot of sick puppies. Is the art market a little more robust because it’s more diverse? Sure. But it’s not possible that there wouldn’t be an overall drop because of that.”
Crash-Proof-Market Theory No. 5
Last (and certainly least logical), there’s the yellow-fever theory, which cites the irrational buying patterns of Japanese investors as the driving force of the last boom and subsequent bust, after their sudden disappearance owing to Japan’s violent real-estate crash. So now that they’re not behaving like that anymore, the logic goes, the market is safe. This overlooks the fact that Japanese buying in the eighties was strongly focused on Impressionism, not the stars of Soho. And in any case, there’s plenty of other clueless money in the market. Within the space of three days, two major art consultants declared to me, totally unprompted, “The hedge-fund guys are the new Japanese.”
“Right now, you hear people carefully parsing all the reasons why this situation is not the same as the last boom,” Glimcher observes. “But the basic currency of the art market is the same: The artists makes art, we stick it in a room, people buy it.”
Predicting when a slowdown will come is well-nigh impossible, but this much is safe to say: Bad things will happen at the moment when the upward push of aggressive pricing intersects with a flagging supply of neophyte buyers. And the brutality of that intersection will affect where along the correction-contraction-crash continuum the market lands.
Whenever insiders discuss nightmare market scenarios, they tend to start with the hypothesis of bad sales back-to-back at Christie’s and Sotheby’s. Once limited to work at least a decade old, auctions commonly now feature works only three or four years out of the studio. That makes them a market fulcrum. “Perception triumphs over reality,” says Westreich, noting that the auctions still represent only a small fraction of total contemporary-market activity. “If things sell for less than expected, we get nervous. People start saying, ‘Holy mackerel! It’s all coming apart.’ ”
In part, that’s because an artist’s failure at auction is totally transparent, whereas weak fair or gallery sales can be easily concealed. “I’m worried about the herd mentality among collectors,” confides international-capital-markets expert Amir Shariat, one of London’s more active young collectors. “I wonder, if something goes wrong with a few big-name artists at auction, could that trigger a crash?”