Adventures in art-market commodification, James Stewart edition

December 9, 2013

When I wrote my piece last week about art-market reporting, I didn’t name names, I was just trying to lay out some basic rules. And while I’m happy to engage in the occasional snarky tweet about some of the bad reporting out there, I generally won’t make an entire blog post out of such complaining. Because it’s boring, and also because it’s invidious to pick out just one bad article from hundreds or even thousands.

And yet, I’m going to make an exception for James Stewart. Mainly because anything I say about him is going to be water off a duck’s back: he’s one of the greatest financial journalists alive, and and will suffer no harm from this post. But also because the assumptions underlying his latest column are worth exposing: they speak volumes about the way in which the perception of art and the art market has changed — and has deteriorated — in recent years.

The headline on Stewart’s column is “Record Prices Mask a Tepid Market for Fine Art”, and there’s an accompanying chart which comes with the headline “Art Market in the Doldrums”. This, I guess, is what a tepid market is supposed to look like:

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This is a pretty crazy chart, on a number of different levels. Firstly, it shows the S&P 500 as gaining 175% since the end of 2002, which it didn’t. There are various different ways of calculating the number — this S&P 500 return calculator puts it at 148%, for instance, while the S&P 500 Total Return Index rose 156% over the period in question. But I can’t see how you get to 175%. (The nominal S&P 500 index rose almost exactly 100% over this period.) What’s more, measuring stock prices from the end of 2002 is itself a way of putting a pretty heavy thumb on the scales: that’s the very bottom of the dot-com bust.

Against the problematic S&P 500 line, Stewart has charted the even more problematic Mei Moses index, a creature of massive survivorship bias. The Mei Moses index looks at auction pairs: works of art which have been sold at auction twice. This method gives a very good idea of what has happened to the value of any given work of art over time, but it’s a very bad way of determining what has happened to the art market as a whole, since the kind of works which get auctioned multiple times are decidedly not representative of the broader art world. The auction houses tend to want only the hottest art, and then on top of that the index is going to be massively weighted towards the kind of work which gets bought and sold quite frequently — exactly the areas where you might find a speculative bubble.

Still, if you have to try to quantify what’s happening to the value of art, the Mei Moses index is one of the least bad ways of doing so. The real problem here is the way in which Stewart directly compares the Mei Moses index with the S&P 500. If you just saw the red line on its own, you would be quite impressed: it shows prices doubling over the course of a decade, which is (or should be) pretty amazing for art. After all, we’re talking about objects which haven’t changed for, in some cases, centuries: why should they double in value now? Very few other physical objects can be expected to do such a thing; if houses do it, then that’s prima facie evidence to start getting worried about a nasty bubble.

More to the point, the S&P 500 is an investable index of publicly-traded stocks, representing trillions of dollars of wealth. It’s designed as an investment vehicle, and millions of people around the world put their money into it just because they think that’s the best purely financial investment decision they can make. The Mei Moses index, by contrast, is not investable at all, and simply represents the degree to which art-lovers’ art collections might have appreciated in value over time. Art is not an investment in the way that the S&P 500 is, and all direct comparisons of the two have a way of invidiously changing the way we look at and think about art in general. Aesthetic value becomes subsumed into financial value, and the act of buying art becomes a subset of investing, which it never should be.

In any event, it’s pretty hard to see how a market which has doubled in a decade can be considered to be “tepid” and “in a doldrums”. So, how does Stewart do it? First, he says that “many works are selling near or below their low estimates or failing to sell at all”. This is a statement which is always true. After all, the estimates claim to be the auction house’s best guess of what a piece is worth, in today’s market; they’re also a way in which the auction houses try to persuade sellers to give up works for auction, and try to persuade buyers that the art in question is worth lots of money. In other words, there’s a strong upward bias to auction estimates.

Here’s Randy Kennedy, for instance, reporting on the way in which Christie’s is estimating the value of the works in the Detroit Institute of Arts: it’s a rare explicit admission, by the auction house, that its estimates are generally significantly higher than fair market value.*

The auction house determined the fair market value of the works, comparing them to similar ones that have sold recently. But Christie’s emphasized that auction estimates for the Detroit works — which auction houses use “to attract maximum bidding interest” — could be far different; such estimates would most likely be higher.

The inevitable result of setting estimates so high is that quite a lot of works will always sell at the low end of the estimated range, or not at all. What’s more, selling art is hard: we’re talking about unique objects, here, and an attempt to match each of those objects, individually, with the person who wants it the most and is willing to spend the most money to acquire it. An auction is one way of trying to do that, but it’s far from perfect. If the ideal buyer doesn’t hear about the auction, or doesn’t have the money on the day of the auction, then the resulting difference in price can be substantial.

Stewart, of course, never even tries to demonstrate that an increasing number of artworks are selling below their estimates, or not selling at all. I haven’t run those numbers myself, but I’d be prepared to wager that the proportion of auction lots falling into those categories is very stable, over time, or possibly even going down. Which means it can hardly be evidence of a “doldrums”.

Stewart’s next attempt is to look at the last two datapoints on the red line in his chart: the Mei Moses index “declined 3.3 percent in 2012,” he says, “and gained 2.2 percent through November”. Which is another way of saying that after surging to an all-time high in 2011, art prices have managed to remain at those all-time highs for the last two years, on massive (indeed, unprecedented) volume. Some doldrums that.

What we’ve seen over the past few years is ever-increasing quantities of art being sold at levels which would have been exceptional at any other point in history. We’re also seeing an explosion in the number of art dealers, the number of art fairs, and in general the size of the global art market. There’s nothing here to suggest a doldrums — unless you’re the kind of person who thinks that even the most extreme valuations for artworks will constitute a “tepid” market unless those prices are not only high but also rising rapidly.

Finally, Stewart wheels out the S&P 500, saying that stocks have increased in value more than art has. Well, yes — so has bitcoin. But even now it’s incredibly rare for anybody at all to buy art with the intention of selling it in a year or two’s time, and making a profit. Collectors are happy that the stock market is surging: they tend to have a lot of money in stocks, and so a rising market means they’re richer, and can spend more money on art. No one ever grumbles that they would have been better off putting their money in stocks instead.

So far, so unimpressive. But Stewart then starts getting into individual datapoints: maybe there’s something here! He notes that a Warhol car crash painting “sold for barely over $7 million”, bewails the fact that a Warhol portrait of Liz Taylor went for a mere $18 million, and all but gloats that a Norman Rockwell painting, “Walking to Church,” sold for “just” $2.8 million.

In fact, the prices paid for these works were $7.3 million, $20.3 million, and $3.2 million respectively; Stewart for some reason has decided to switch to hammer prices halfway through his column. No reporter should ever report hammer prices, because they mean very little. What matters is the total amount the buyer pays. The only reason to report hammer prices is to make the total amount paid seem significantly lower than it actually is.

But in this case, the numbers are enormous either way — all of the paintings Stewart mentions are worth multiple millions of dollars, even a Norman Rockwell which was designed in the first instance for mass reproduction on the cover of the Saturday Evening Post. When a magazine cover illustration — and a particularly silly one at that — sells for $3.2 million, that’s a sign to me that the art market is in fact perfectly healthy. (Rockwell was paid $3,500 apiece for his paintings, back when they were at the height of their popularity.)

Similarly, when Stewart bemoans the fact that Sanford Robinson Gifford’s “Sunday Morning in the Camp of the Seventh Regiment” went unsold against a low estimate of $3 million, he doesn’t consider that maybe that’s just because the sellers — New York’s Union League Club — were simply asking for too much money. After all, as Christie’s itself said, if the painting had sold, it would have set a new auction record for Gifford. I’d also note that the painting has more historical value than aesthetic value (just look at the thing), and that at 16 ½ x 30 inches, it’s a pretty small trophy for any well-heeled collector of Americana. A “masterpiece”, in Stewarts words, it isn’t. If you wanted a Gifford this week, you could have picked up a much more beautiful one at Sotheby’s for a six-figure sum — which implies that the Christie’s painting was simply overpriced, in the hope that someone would pay through the nose for it just because it had once hung in the Oval Office.

And when Stewart turns to a Dallas-based art market consultant to explain the high prices being fetched by contemporary art, we find this:

“Contemporary is so popular with this set of very rich, newly rich collectors,” Mr. Kusin said. “They can hang anything they want in their Manhattan co-ops or in Aspen and nobody can say that’s ugly because contemporary art has not been subjected to sustained critical appraisal. There are no markers of good or bad taste that have yet been laid down. It’s a safe place to park your money.”

This is just weird. Contemporary art is much more likely to be called ugly than anything which has withstood the test of time. The markers of good and bad taste in the contemporary-art market are being laid down all the time, at every party at every art fair in the world. And of course whatever else it might be, contemporary art is most definitely not “a safe place to park your money”. Not long ago, I accompanied a group of artists to an auction at Stair Galleries, in Hudson, NY. This is where art gets sold that the likes of Sotheby’s and Christie’s won’t touch — not even in their day sales. It was a depressing experience: lot after lot of once-celebrated artists, works which were originally sold for five- or even six-figure sums, getting hammered down for a couple of hundred bucks, maybe a couple of thousand. This is the fate of most art, and all collectors know it: to be forgotten, lost to history. There’s nothing safe about buying art, especially not when it’s brand new.

The most infuriating part of Stewart’s article, however, comes towards the end, where we find this:

The upshot is that the art market may not be nearly as inaccessible for people of more limited means as the headline prices suggest. Even at auction, most lots sell for under $100,000, and there are many that sell for less than $10,000.

This, rather than any sophomoric comparisons of a Warhol yellow to “the color of your urine”, was the passage which actually made me angry. Firstly, of course, it’s pretty disgusting for a popular, mass-market newspaper to suggest that “people of more limited means” might be able to pick up a few art-market bargains when they get sold for “under $100,000″. Who exactly does Stewart think he’s writing for?

All the way up to this point, Stewart had the ability to redeem his column. He could have ended it simply, by saying that the existence of lots of art which doesn’t sell for multi-million-dollar sums is wonderful news for the rest of us, who can buy great art at just about any price point. He could have said that if you’re not worried about whether or not the art you buy is going to go up in value, then the world is your oyster. He could even have mentioned places like Etsy, or arttwo50, or even the newly-relaunched 20×200, as places which are democratizing art and making it accessible to people who only want to pay two- or three-digit sums.

But he didn’t. Instead, Stewart chose to paint the art world as an elitist and inaccessible place, where art costing less than $100,000 counts as cheap. In Stewart’s art world, it seems, if you find something for less than $10,000 then you’ve got yourself a veritable bargain. And so he chose to end his column with a recommendation from that Texas consultant about where you can find “stable stores of value”, along with a warning from Michael Moses, of Mei Moses fame, that “buyers shouldn’t expect to recoup their money”.

In other words, Stewart has swallowed, unquestioningly, hook, line, and sinker, the downright poisonous idea that art is and should be an investment, rather than something bought out of love for something intrinsic in the art itself. That idea has persuaded millions of middle-class Americans that art is not for them — that if they want to be buying art, they should be spending tens of thousands of dollars and worrying about which parts of the market are most likely to hold their value. It has also persuaded thousands of art collectors, especially in the area of contemporary art, that they should buy only from auction houses or highly-respected galleries, because that’s perceived to be the financially safer route. Better to spend $100,000 at a blue-chip gallery than to spend $1,000 on a no-name artist: in the former case you’re making an investment, goes the thinking, while in the latter case you’re just throwing your money away.

This mindset has turned the art world into a Hobbesian winner-takes-all competition where a small number of highly-successful artists and galleries luxuriate in multi-million-dollar incomes, while thousands of equally admirable artists and dealers struggle mightily, and generally fail to make any money at all. And it’s so deeply woven into Stewart’s article that he doesn’t even notice that it’s there, let alone question it.

So here’s my investment advice, for anybody coming to me wanting to know what art to buy. It’s very simple: buy art you love, and which will grow on you as you live with it for many years to come. Buy from people whom you trust and admire, be they dealers or artists themselves. Assume that all the art you buy will have zero financial value the minute it goes up on your wall, and will stay at zero in perpetuity: if you still want to buy it, under those conditions, then do so with pride and gusto. And never, ever, let anybody shame you into thinking that you’re not rich enough, or not cultured enough, to buy art.

If anybody should have an inferiority complex, in this business, it’s the people who judge art by its price tag, and who think that anything inexpensive is therefore worth ignoring or scorning. If they need to pay thousands or millions of dollars just to reassure themselves that the art they’re buying is good, then leave them to their art-market analyses and their ever-present FOMO. They’re opening up the easiest and cheapest arbitrage in the world: the rest of us can get much more pleasure from our art than they do, even as we spend less than the cost of a high-end Miami hotel room.

Art doesn’t need to be expensive to be good. Let let the billionaires amass their vulgar trophies, outsourcing their taste to the market. The best collectors look for art which enriches their lives — art which will likely improve over time. Not art which will appreciate in price.

*Update: Christies emails with the wording of their letter, in which they do not say that auction estimates “would most likely be higher” than fair market value. That wording comes from Kennedy. The official Christies letter says only that “the individual values provided are not auction estimates”; it doesn’t explicitly say that they’re lower than the auction estimates would be.


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