The ship of fools of contemporary art and the perfect bubble

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Making money is art.

Andy Warhol, “The Philosophy of Andy Warhol”, 1975

Damien Hirst is a brand, because the art form of the 21st century is marketing. To develop so strong a brand on so conspicuously threadbare a rationale is hugely creative—revolutionary even.  

Germaine Greer note to Robert Hughes: Bob, dear, Damien Hirst is just one of the many artists you just don’t get, Guardian, September 22, 2008.

Damien Hirst should be running Lehman Brothers.

Alberto Mugrabi, Is Anybody Buying Art These Days? NYT, 27 February 2009

The two greatest stores of wealth internationally today is contemporary art….. and I don’t mean that as a joke, I mean that as a serious asset class. And two, the other store of wealth today is apartments in Manhattan, apartments in Vancouver, in London.

Laurence D. Fink, head of BlackRock Inc., the world’s biggest asset manager, New York Apartments, Art Top Gold as Stores of Wealth, Says Fink, Bloomberg, 21 April 2015

Apparently the only people that don’t see the bubbles are the people creating them.

Omid Malekan, What Hardcore Pornography Can Teach Us About Asset Bubbles, 14 July 2014

This bubble is likely to continue as long as the 0.01% continue to take home a larger share of societal income. As long as the supply of billionaires continues to increase, demand for trophy artworks will increase as well, while the supply of trophy artworkswhich is a function of media attentionwill remain more or less constant….And with no end in sight to increasing inequality, this bubble still has a long way to go.

James Kwak, Games Billionaires Play, Medium, 22 December 2014

 

Contemporary art is one of today’s most volatile, unproductive investments.

Art prices have no relationship whatsoever with economic growth, skilled labours of love and an awakening of human creativity. They are driven by market forces, that is, by greed.

As in the markets for commodities, bonds, real estates, and equities, prices in the art market rise when the Gini coefficient, which measures the socio-economic inequality of a country, rises.

To put it bluntly, the art market is at its best when ordinary people’s lives are at their worst (Goetzmann, William N. and Renneboog, Luc and Spaenjers, Christophe, Art and Money, Yale ICF Working Paper No. 09-26, 28 April 2010). Art has become a “currency”.

This is why we cannot get rid of speculative bubbles:

If the demand of the rich were, over the longer-term, directed mostly toward non-productive assets, that is, to the Riviera and Manhattan real estate, old paintings or similar luxury items with fixed supply, we would go back to a pre-capitalist system, justly criticized by Adam Smith, for having led the people (mostly because of insecurity of property) to bury huge sums into unproductive assets like gold. The prospect for further increases in output will thence be limited. Rich countries could end up with both greater wealth and income inequality, and stagnant real output of goods and services.

Branko Milanovic

Rich people need to find assets and the collectible art market has become one of the favourite places in which to apportion one’s assets. Pretty much in the same way as bankers collateralized debt obligation with mortgages, they are now using art as the underlying asset: Fine art is now firmly planted alongside equities, bonds, commodities and real estate, as an asset class (With Art, Investing in Genius, NYT, 28 November 2014).

Just as addictive as gambling, it is a game played by the ultra-rich and a form of wealth preservation which inflates the prices for everyone else.

This is how it works, as applied by tax evaders and assorted crooks from everywhere, not just China:

Another method is to buy artwork from outside China — often at an inflated price from an associate. The associate, who’s in cahoots, takes a cut and then deposits the remaining payment in an offshore bank account of the buyer’s choosing. If the authorities come knocking, it’s easy for the buyer to produce a receipt and the art – even if it was fabricated for the laundering scheme…The schemes work because it’s notoriously tough to price fine art and antiques. That makes it difficult for anyone reviewing purchases, including the Chinese government, to accuse a buyer of over-paying.

Chinese snap up fine art for use in laundering schemes, CNN, 20 February 2014

As shown in the chart above, Sotheby’s prices peaks coincide with periods when financial bubbles inflate (Art is a bubble: Here’s how to short it, CNBC, 3 April 2014).

Because prices are driven by a huge amount of excess cash, the value of the works by Hirst, Emin, Lucas, Koons, Cattelan, Takashi Murakami, Marina Abramovic, Andres Serrano, Ai Weiwei, etc., mostly depends on the boom and bust of the current rentier economy.

As a result, the fall of Lehman Brothers halved the value of a Koons or a Hirst and a sharp correction took place in the early 1990s (Japanese real estate bubble bursting leading to the Impressionists’ bubble) as well. The same would happen again, should a similar event occur in the future (Hirstonomics: How Damien Hirst became a cash cow again, Independent, 11 October 2013; Is Deutsche Bank The Next Lehman? ZeroHedge, 13 giugno 2015).

Thanks to zero interest rates and off-shore tax havens, the super rich are vacuuming most of the wealth of the planet (Richest 1% to own more than rest of world, Oxfam says, BBC, 19 January 2015; The World’s 85 Richest People Are as Wealthy as the Poorest 3 Billion, 21 January 2014) and this is especially true in the United States (Some 95% of 2009-2012 Income Gains Went to Wealthiest 1%, WSJ, 10 September 2013).

This means that a relatively small number of people (100-200 at most) sustain the high end of the art market (worth €48 billion, globally, in 2014) – which in turn comprises very few artists – through their massive disposable income, as a “safer” alternative to the stock markets and a cheaper alternative to real estates, with their high maintenance fees and their “unmovability”. Art is handy when you are looking into ways to stash your fortunes offshore.

It indeed looks like a big game where anointed, iconoclastic artists produce works as though they were printing money. The similarities with the 17th Century Dutch tulip mania (When the Tulip Bubble Burst, Bloomberg, 24 April 2000), the Japanese bubble, when a single ward of Tokyo was worth as much as all of Canada, and the dotcom bubble are far from misleading (Roman Kräussl, Is there a Bubble in the Art Market?).

It will not end well.

The looming crash in the Chinese stockmarket will be caused by panicked investors. Property investors will most likely do the same.

Meanwhile, the Chinese government has cracked down on money laundering and corruption in general, and it is tackling the large flux of outbound Chinese cash flooding the Pacific Rim’s property markets and fueling bubbles in Sydney, Melbourne, Auckland, Vancouver, San Francisco. This is against the Chinese law, as it is forbidden to take more than US $50,000 out of the country, per year. It is to be expected that Beijing will enforce the rules with increasing severity (Beijing goes hunting for overseas real estate bought with dirty money, Quartz, 5 November 2013; China’s anti-corruption crackdown reaches U.S., CNN, 26 March 2015).

The art market will not remain unaffected.

If enjoying art (which includes the brilliant art being overlooked due to financial shenanigans), like affording a roof over one’s head, should be a fundamental right, and diverting massive capital flows into unproductive investments damages society as a whole, causing divisions, strife, unemployment, exploitation, criminal behaviour and parasitism, then these speculative practices must be stopped and will be stopped, because they are out of control and the masses will not be able to tolerate them forever (From a sociopathic civilisation to a socio-therapeutic civilization, WazArs, 15 October 2014).

Furthermore, they are economically unsustainable. A property and stock price crash is in the offing and this time the market correction is likely to be catastrophic (Disaster Is Inevitable When The Two Decade-Old Stock Bubble Bursts, Forbes, 5 April 2015).

We shoul pay heed to art critic Ben Lewis’s prophetic “call to repentance”:

The art world is dirty, corrupt and immoral, and, if there was a name for such a crime, these people would be charged with perverting the course of art history. Of course, the art world’s always been like this. The difference is that in the old days the market was so small that these manipulations were a way of protecting talented and impoverished artists from the cruelties of capitalism, but now, in a billion dollar market, they are tools to turn a narrow clique of artists and dealers into multi-millionaires. […]. There will be a crash not a ‘correction.’ That’s also why the ‘credit crunch’ will have only a limited amount to do with it. There will be a financial wobble, sure, but that will be a catalyst for an intellectual meltdown. It won’t happen in one fell swoop – there’ll be no Monochrome Monday – but over the next six months, the value of the art market will move in stops and starts inexorably downwards. That will take the ‘con’ out of contemporary, and leave us, rather fortuitously, with the correct adjective to describe most of the art that’s been shown and sold over the last decade – temporary.

Who put the ‘Con’ in Contemporary Art?, Evening Standard, 16 November 2007

Lewis

https://plus.google.com/+StefanoFaitFuturAbles/about

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