A second tulip mania
Post #1264 • December 8, 2008, 7:18 PM • 120 Comments
The bubble in contemporary art is about to pop. It has exhibited all the classic features of the South Sea bubble of 1720 or the tulip madness of the 1630s. It has been the bubble of bubbles - balancing precariously on top of other now-burst bubbles in credit, housing and commodities - and inflating more dramatically than all of them. While British house prices took six years to double at the start of this century, contemporary art managed it in just one, 2006-07. (Over the same period, old masters went up by just 7.6 per cent and British 17th to 19th century watercolours actually lost value.) Contemporary art in the emerging economies did even better. The value of its sales in China increased by 983 per cent in one year (2005-06). In Russia they rose 2,365 per cent in five years (2000-05), while its stock market increased by "only" about 300 per cent.
Speculation ensues, perhaps a bit more than one would want, but the authors drop plenty of facts. Sotheby's share price has defenestrated itself, from $57 to $9 in the space of a single year. (They also report its nearing the company's all-time low - $8 during the '80s. It's trading at $10.07 today.) Also, this bubble maps rather nicely to the pattern described in Manias, Panics, and Crashes by Charles Kindleberger: displacement (an initial goad into the flank of speculation), diffusion (in which legions of new speculators and suppliers pile onto the dinghy), and a final pop in which the participants find themselves in possession of properties that pretend to extraordinary worth. Lewis and Brown duly liken recent Hirsts to collateralized debt obligations, a delicious if slightly stretched analogy. More to the point:
The way was led by people like Charles Saatchi and the Miami property magnates, the Rubells. Saatchi laid down a blueprint in the late 1990s that others have tried to copy—he bought the work of young artists, established a museum in which to display it or lent it to public museums, and used the media interest that such shows attracted (by virtue of the outlandish works involved and the association of celebrities) to sell on part of the collection at auction at greatly inflated prices. Some of the proceeds would then be reinvested in the work of other new discoveries. Saatchi's famous 1997 show, "Sensation," demonstrated that this "specullecting" was a great way to make a splash as an arbiter of taste. Others took an earthier view of the collectors' instinct. Amy Capellazzo, the co-head of Christie's contemporary art department [and former Miami art-worlder - F.], observed in 2007: "After you have a fourth home and a G5 jet, what else is there?"
The whole thing merits your attention, as do the comments, in which one Terrence O'Keeffe convincingly compares the present meltdown to the market for 19th Century salon painters, and opines:
Bascially the human mind is a poorly (conceptually, emotionally) organized mess that has the virtue of infinite value for comedy.
After basking in the schadenfreude for a spell, I'd think it worthwhile to ask what opportunities, if any, the new situation offers us, besides a tempting price for Sotheby's shares.