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Five Theories On Why the Art Market Can't Crash

“As an asset market, art remains extremely illiquid. People forget that illiquid doesn’t mean ‘low price.’ It means ‘no price.’ ’’

If the market does go south, it’s likely to go fast, because the defining characteristic of the current art world is speed. “I only know three or four collectors today who won’t buy a work they’ve only seen as a J-PEG,” says Los Angeles and Berlin gallerist Javier Peres. “Whereas my grandparents would reserve a Picasso and not decide whether to buy until six months later, when they made it to Geneva to see it. But the flip side is that when things start tumbling, they could tumble really fast.”

At the first sign of a serious downturn, pure speculators would disappear almost immediately, alongside the legions of private dealers and art consultants currently skimming consignments and commissions off the top of the frothing market. “In the late eighties, we had private dealers up the wazoo, and then suddenly that whole layer evaporated,” recalls trader turned art dealer Kenny Schachter of London. “Some that I knew became gemologists, others went into real estate. The big question with a crash is, ‘How fast will the speculators bail?’ Because the trading mentality says, ‘Cut your losses.’ ” Yet most speculators will find they can’t sell their work. Not to the galleries facing cash-flow woes, and not through auction houses wary of unsellable consignments. “As an asset market, art remains non-transparent, overly prone to taste and fashions, and extremely illiquid,” notes Shariat. “People forget that illiquid doesn’t mean ‘low price.’ It means ‘no price.’ ”

Beyond the rapid exit of the froth-skimmers, the impact on other players is less clear. “It will be the same as in the early nineties but much more wholesale, because the art world is larger,” Westreich predicts. Glimcher is likewise unflinching: “Good artists and good galleries will go by the wayside. The unfit get weeded out—but so do some of the fit, unfortunately.”

Those expensive new Chelsea leases and mortgages could quickly become millstones; in the early nineties, many among the first wave of closures were dealers who had recently expanded into larger spaces. Much will depend on the gallery’s coterie of hard-core collectors. “When a trend is over, the first people to put things into storage are museum curators,” explains Berlin dealer Matthias Arndt. “But collectors will continue to buy and show an artist they find personally interesting. So the young galleries who make things so difficult for collectors now may suffer the most later.”

Among the galleries that survive, a slowed market will unleash a time of abrupt change, owing to the art-market taboo against lowering an artist’s prices, because such adjustments make past prices—supposedly based on art-historical standing, not market trends—seem indefensible. The art market has a mechanism for handling such dilemmas: a de facto free-agency period, during which artists can shift galleries with minimal rancor, allowing prices to be adjusted to new market realities.

So in the event of a correction, contraction, or crash, which particular artists will best maintain their value? The answers can only be guessed (and none given here should be considered investment advice). But some educated speculation is possible (and irresistible). “Personally, I’ve made a list of twenty artists whose market I think would survive a crash,” says London private dealer Nicolai Frahm, 31, a frequent bidder on work at high-end contemporary auctions. “I’d say only five to eight of those are a sure thing.” Though Frahm’s not about to make his list public, his logic in making it follows the conventional wisdom: Only artists whose work looks good and also has art-historical significance—for its technical or conceptual innovation—survives a crash. “These hedge-fund guys are not so sophisticated, so of course they’re buying lots of pretty pictures,” points out Valentine. “But look at the eighties stars. Who do we think is important now? Gober. Koons. Maybe Cindy Sherman. Maybe Richard Prince.”

All four are artists Westreich was buying early on. “The bigger the idea, the longer the career, because that’s what makes an artist’s work relevant, rich, and rewarding,” she says. “I never trust the multitudes, because the most radical ideas take the longest for the market to absorb.” Among today’s crop, her bets are on brainiac artists such as Simon Starling, Keith Tyson, and Jan de Cock, who constantly play with the border between art and other fields, such as science and architecture.

That same logic bodes well for the late German painter Martin Kippenberger—not an easy artist and one whose market lay pretty fallow until recently—but unquestionably a seminal figure for European artists, much like Joseph Beuys a generation earlier. Likewise, Thomas Ruff seems a surer bet among photographers than Andreas Gursky, because Ruff has relentlessly pushed at the boundaries of the medium (and because Gursky’s name is so linked to the late-nineties photo hype).