Avoiding a 2011 Art Market Armageddon – artmarketblog.com

dali portrait Avoiding a 2011 Art Market Armageddon   artmarketblog.comDon’t get me wrong, I am very glad that the art market has rebounded so quickly, but I am also extremely concerned about the way the art market is progressing.  As I have mentioned many times before, the long term stability and viability of the art market is dependent upon the existence of a certain level of connection and interaction with the cultural sector, as well as certain level of participation from connoisseurs and collectors (as opposed to trophy hunters).  Time and time again we see the art market take a dive when the value of art becomes so disconnected from the cultural and art historical value of the artists and their work that the only justification for the prices being paid is related to social status and egotism.  At some point in the progression of an art market boom the purchase of fine art turns into nothing more than a game of one-upmanship – a game where a group of the super wealthy compete with each other to see who is ultimately going to be the biggest fool.  As much as the super rich like spending money, there is always going to be a point in time when even they think that the prices are too high and have to pull out leaving one lucky punter with the “biggest fool” award.

Although the internet has had a positive effect on the art market, there is also the potential for the internet to further distance the connection between the cultural/art historical value of a work of art and the price being paid for a work.  Think of it this way: the less exposure and interaction one has with the work they are purchasing, the less opportunity there is to analyse, assess and criticise those works.  This leads to a very concerning situation where mediocre works by well known artists are being sold for prices that are way too high – a situation that I am all too familiar with.   An indicator of the increasing level of disconnection between the buyer and the object is the reported increase in online bidding by Christie’s.  According to a recent Christie’s press release:

“In 2010 online bidding via Christie’s LIVETM continued to deliver a large number of winning bids and new registrants. Over a quarter (28%) of Christie’s clients now bid online,  a 5% increase on 2009 and the total value of lots sold online rose 69% to $114.4 million including premium.”

Add to this the recent launch of the first major online only art fair, the VIP art fair, and the new record for a work of art sold at any online art auction set by Saffronart in December 2010 with Arpita Singh’s ‘Wish Dream’ which fetched an extraordinary $2.24 million, and one can begin to see the impact that the internet is having on the art market.  2010 was a big year for the online art market that saw investors and collectors make progress into unchartered territory where they had previously feared to tread.  That final leap of faith that had previously prevented the purchase of big ticket items online has finally been taken, and has really opened the flood gates.  But at what cost?

Even more of a concern is the recent launch by a Chinese organisation of an online exchange for trading shares in works of art.  Although many have talked about starting such a venture, no-one has been able to come up with a successful model – up until now. The market, operated by the government-backed Tianjin Cultural Artwork Exchange, is considered a financial innovation by the Tianjin municipal government.   According to a Chinese government website:

“As we are told, the greatest highlight of TCAE is “trading of artwork shares”, namely public market trading based on the shares of the property right owned after the subject matter is evenly divided into certain shares. The cultural artwork can be traded through the e-platform of the exchange after being divided into shares. Investors can extend investment channels through investment in artwork shares.”

Also getting on the fine art share stock exchange bandwagon is a French company called A&F Markets who launched their exchange in January of this year.  According to a press release:

“As of today, our clients will be able to see the first selection of artworks on the market, the price and volume of the shares available, discover how the marketplace works and what it offers and finally open an Art Exchange account in order to be the first to buy shares,” confirmed Pierre Naquin, founder of A&F Markets.”

Continuing on the subject of art investment, another sign that the art market is regaining its boom time momentum is the emergence of a new art investment fund.  Emirates NBD, the UAE’s largest bank, announced at the beginning of February that they would be starting a new art investment fund as a means of tapping into the $10 billion Middle East art market.  Clients will also be offered art investment advice from London based The Fine Art Find Group who have partnered with Emirates NBD.

Another worrying trend that has emerged during the first round of 2011 major art auctions is a noticeable resurgence in the interest of the work of artists who are boom time trophy hunter favourites such as Francis Bacon, Bridget Riley, Damien Hirst, Chris Ofili and Lucien Freud and others.   Although it appears that buyers are remaining relatively conservative when it comes to purchasing works by these less “secure” artists, it is likely that it will not be too long before those irrational and indiscriminate demons rear their ugly heads.  I also start to get worried when Surrealism takes centre stage because of the way the market approaches surrealist art.  You see, Surrealism has become a sort of novelty movement that people like because it is unusual and intriguing.  Unfortunately, few people understand Surrealist art and even fewer people want to understand it.  Although the Surrealist art movement is a very intellectual movement, the complexity of the philosophies behind it tend to put most people off trying to understand the meaning behind Surrealist works of art.

When demand for Surrealist works increases dramatically I tend to think that the market is once again seeking trophy works of art that provide that instant visual gratification as opposed to an approach to the purchase of works of art that focuses more on scholarly and connoisseurial factors.  Both Christie’s and Sotheby’s held sales during February that included a strong contingent of Surrealist works with Christie’s going as far as to hold a separate “Art of the Surreal” sale alongside their February 9 Impressionist and Modern Art sale.  Christie’s held their big sale the night before Sotheby’s and got the ball rolling with a new auction record set for a work by Pierre Bonnard and a new auction record for a work by Dali.  Although Christie’s set the Surrealist bar very high, Sotheby’s replied with a new auction record for Dali with ‘Portrait de Paul Eluard’ thus beating the Dali record set by Christie’s the night before.  The price paid for the ‘Portrait de Paul Eluard’ was also a new auction record for any Surrealist work of art which gives Sotheby’s Surrealism bragging rights over Christie’s.

I wish I could say that I have confidence in the direction that the art market is heading, but recent events just can’t be ignored.  As long as buyers continue to buy discriminately, there shouldn’t be a problem.  I somehow, however, doubt this will be the case.

**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications

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  • http://www.discoveroriginalart.com Brian Wiltshire

    A very inisghtful article an my observations would tend to support this fesr. I would be interested in your thoughts on the future of the middle and low end art markets.

  • admin

    Thanks Brian. Will think about posting a middle and low end market analysis

  • http://clairehyman.com claire hyman

    Where and who are the collectors of ‘futures in the art world market’ purchasing?

    Where is the market and who is buying middle and younger artists? Are corporations buying art still? For investment or for visibility?

  • http://www.daricemachel.com Darice Machel McGuire

    Thank you for your insightful article. Your statement “a game where a group of the super wealthy compete with each other to see who is ultimately going to be the biggest fool. As much as the super rich like spending money, there is always going to be a point in time when even they think that the prices are too high and have to pull out leaving one lucky punter with the “biggest fool” award.” really hit my funny bone and I totally agree with it.

    As one of the middle and low end artists, I too would be very interested in learning your thoughts regarding this market.

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  • Abigail

    Factual errors in here all over the place. I’d strongly recommend people look at the real research. The fact that Feininger seems to be doing well, for instance, suggests that no, this has nothing to do with “trophy art.” Who ever bought Feininger before? Since when is he a “trophy” artist? How do you explain the drop in interest in Hirst and Koons of late? There’s so much wrong with this post I can’t even begin to sort it out. Suffice it to say that it’s just wrong.

  • http://juxtamorph.com Andrew Werby

    You’re a gifted writer, Nick, and I was following along and nodding until you started using a preference for surrealist art as an indicator that everything was going to hell in the art market. What is so wrong with that particular historical movement, that it should signal a general degeneration and abdication of standards? Certainly it has scholars and long-standing collectors, just like many other types of art. Is its retinal beauty just too threatening to an art market made up of “scholars and connoisseurs” who don’t take merely sensual things into account?

    Heavens, what might happen if we started judging art on its “instant visual gratification” – would that mean a crash in the value of pieces that don’t provide any visual pleasure whatever? Would that really be so terrible? Or could it mean that buyers are finally coming to their senses – in the best sense of the term?

    Andrew Werby
    juxtamorph.com

  • admin

    Hi Andrew,

    Thanks for the comment. Surrealism is actually one of my favourite movements but when it comes to analysing the art market I have to ignore my own likes and dislikes. There is nothing wrong with the movement, just something wrong with the way some buyers approach the movement. I wish things were different but unfortunately I have to be realistic. What it comes down to is that people are purchasing Surrealist art for the wrong reasons which is a terrible thing.

  • admin

    Abigail,

    Thanks for the comment but perhaps you should actually learn something about the art market before you make such uneducated statements. For starters, I did mention the french art stock exchange. Secondly, I am not suggesting that the art market will definitely succumb to the forces that I mention in the article, just that the way the art market is progressing suggests that such an outcome is likely. Thirdly,i understand you are new at this and don’t have the skill sets to speak clearly on subjects like this so I will let you know that there has been a revival in the interest of work by Koons and Hirst.

  • Guy Sentman

    Personally it delights me to think that the fate of Artists may have the same monetary value as our society has put into athletes/pro sports. They are paid millions year after year because they have been deemed worthy. Artists have been viewed by the majority as frivolous expenditures instead of the source of continuous enjoyment that their works provide us. As a whole this could actually be the advent to art becoming more of a valued contribution in addition to a luxury item. Teams buy players as a one-upmanship all the time. I agree with you about Internet sales causing a disconnect with the realness of the art and I see what you are relaying but I say if the super wealthy is going to spend their money on something (and they will) let it be Art! Yes this could be projected much like the stock-market and perhaps it will because greed will never NOT be a part of our society, but I’m still delighted that Art is perhaps being seen more and gaining recognition. What I’d really like to see in a perfect world is the Art Gallery shows become more attended and reviewed as a wonderful experience, resulting perhaps in better relationships between Artist & Art gallery owners which could make internet sales less popular. Internet sales have become popular because From what I have gathered “The dealers” have found this a way to make a profit by doing very little. I think artists should pay them NO more than 10% commission with this avenue. The artist elects to use this route because “The Gallery owners” have made things difficult for the them to show. Charging fees just to submit, on, and on (different discussion) so broken down; the Artists find it more convenient to show on the Internet. There has got to be a way to turn this “direction” of Art into creating an awareness, an appreciation, a respect for Art and Artists so that the Gallery Scene will become more desirable again. And in return the Gallery owner must treat their athlete well. Perhaps headlines that relay a positive message “Art is better than stock” might do that.

  • http://www.pauloz.co.uk pauloz

    A very interesting article! My main thoughts are that long term, anything superficially overpriced… gets found out in the end. Every market needs an occasional ‘wheat from the chaff’ realignment….

  • zepoulpe

    english is not my first language so excuse my mistakes.
    I do believe too that the art market is doomed to fail, for some of the reasons you mentioned but for a few other reasons that are quite obvious too.
    1/ art, it does not matter how much you want to make it a financial product, can not follow the rules of the financial market. You have now all these facts sheets similar to stocks studies offering you the right advise for your investment. An artist’s work is not a fixed product, there is only one real parameter that can define it’s value: it’s quality. Not all Matisse, Schiele, or even Warhol are of equal quality. 20 % more , 3 % less, all this means nothing if you don’t have taken the quality for the works into consideration. And many people, new buyers especially are relying on these for their purchases.

    2/ the art market prices are fixed by just a few auctions sales, that create the new prices for artworks for the season to follow. Big dealers and some collectors hold large inventory of one artist and just have to artificially push the price of two or three pieces at auctions to inflate the entire oeuvre of this artist, the fews big players in the field do that all the time and have made huge profits out of it.
    art people know it, but as long as everyone might profit out of it everyone is looking the other way, until things will go wrong, because they will go wrong, and they will all be the first ones to explain why it went wrong!

    3/ the news buyers mostly from the BRIC countries are buying for 90% of them, for the wrong reasons. Status recognition, alternative way to get some “dirty” cash officialized, the sudden opportunity to be treated like someone important in the “big cities”. when you are the king of real estate in a third world country, you are lacking opportunities to meet Hollywood actors or famous business people in person. Auctions houses, the new brothels of the XXIc, have understood that. Parties, with their vip passes and other gimmicks are integrant part of this new circus. It’s like a night club, even if its empty inside you have to make it difficult to get the people in, otherwise they might just realized that there is no reason to be that excited to come here!
    It’s not a coincidence that Christie’s owner also owns luxury brands, it’s all about creating a product for the rich and want to be famous.
    All this to say, that people who buy for status or egoistic reasons are not the most reliable people to keep a market stable. Reverse the mechanic, it would only take a few unsold lots in two three majors auctions, and suddenly the prices of any artist will all go down.

    4/ the higher the prices go the less you have people to support your market, and the harder it will be to sustain the market of an artist at this new price.

    5/ with time even opportunistic buyers, start to educate themselves about art and start to realize that everything that shines is not always gold and tend to realize that they might have been sold “lead” for “gold”. Unfortunately the market being more driven by access to inventory to sell than by quality, the most expensive artists are not always the best ones, but just the more marketable. Once you realized you have been fooled you might loose interest in your recently discovered passion!

    6/ Any market that is controlled by so few players in such an obvious manner, where prices are artificially inflated all the time for no real and valid criteria is doomed to fail.

    7/ they could be also a time where the “regular guys”, those that represent the majority of the world would start to get offended by the obscenity of this artificial market. he would only take a few articles on the subject, relayed on internet, to darkened the glamourous aspect of this market.
    As most of the world is going down the drain economically paying now regularly over 50 MillionUSD for some art works is not only dumb, but it’s vulgar and an insult to the people who strives to survive.

    In reality it would be good and healthy for all, real collectors would be able to buy at normal prices, dealers would have to look and present real good art to convince buyers, and all the artifice that goes with it would have to be reduced to a minimum.

    The real question is not if it is going to fail, but when?

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