Monday, January 20, 2014

A contemporary art bubble?

Along with all-time new highs in the stock market, it’s not unusual to see affluent investors flaunt their newfound wealth by splurging on expensive collectibles.  It comes as no surprise then that 2013 was a blowout year for fine art sales.

To take just one highly quoted example, Francis Bacon's "Three Studies of Lucian Freud" garnered a record $142 million bid at auction.  But 2013 was also a banner year for vintage cars, books, wines and numismatics.

“It’s a pure demonstration of the wealth of the top percentage throughout the world,” asset advisor Michael Moses told Barron’s in reference to the record-setting year for art and collectible sales.  “We’re seeing astronomical figures because of astronomical wealth.”  As the ranks of the world’s billionaires has increased over the last five years – 800 new ones on top of the pre-existing 1,200 – the financial market boom has stimulated the acquisition impulse among this elite group.


Bubbly prices for rare art and collectibles suggests that there is an almost “irrational exuberance” among the jet set.  Since the stock market recovery of the last five years has seen participation highest among the rich, could this not be interpreted as a sign that a correction looms ahead for stocks – and collectibles – at some point in 2014?  I view the near-mania conditions apparent at fine art auctions as a psychological indication that the wealthy are beginning to overreach, which in turn often sets the stage for a reversal of fortunes. 

This by no means is an objective indicator but the situation should at least be considered a yellow flag as we proceed further into the year.