Accounting for taste:
http://findarticles.com/p/articles/mi_m0268/is_8_46/ai_n31487376/pg_4/?tag=content;col1
The general assertion that the art market is negatively correlated with stock exchange indices is only partially true when looking at certain time frames. The Fed Funds Rate is shown to have an interesting impact on the arts market, as the rate is lowered cheap capital pours into the system, and as it rises, capital becomes more expensive. This however is not the true indication of the art market, as correlation does not equal causation. The average American’s income has been subject to the health of the overall economy. Yet, even during the recession auctions at Sotheby’s and Christie’s sold for well over their estimates. In February 2008, auctions at Sotheby’s sold for more than their estimates 60% of the time. And, throughout the recession many galleries were not as affected as originally thought. The problem is that galleries are not in a pure competitive market. Instead they operate more along the lines of a Soviet bread line.
The galleries hate volatility. When prices fall and rise without pattern, their means of both valuing and assuring their customers regarding the value of work comes into question. To control this, galleries often put together a wait list. The very essence of a waitlist indicates that prices rise faster than the galleries can keep up with. One would assume that galleries would use an auction system to capture all total profits, giving the work to the highest bidder. Yet it is not in their best interest to have the primary sale bring in less than the estimate, or for pieces to go to a collector who will sell in a short period of time. Instead, by using an auction the galleries can control who receives the artwork and when. By selling at high points in artists’ careers, galleries can control volatility in the market. Further it drives home the idea that the galleries are selling this art for the pure beauty of the art and not the money.
One of the quotes that the article reminded me of is “Bulls make money, bears make money, pigs get slaughtered”. While it seems that the overall economic is tanking and the average American cannot afford to provide food and healthcare costs, it is important to remember that a very small number of people actually have the means to collect these expensive works of art. Hedge funds who bet big on credit default swaps made off like bandits in the recession, and the great names in both finance and industry are seemingly unaffected by the actual recession. While many millionaires lost much of their fortune, many made theirs as well.
The idea that the art market is maturing seems like an illusion to me. The market itself is heavily affected by galleries, wait lists, and auction prices of other pieces. The recession certainly had an effect on the art community, and I would assume especially in the lower value auctions, not aimed at the ultra elite, prices would be down, for the pure reason that collectors may have less disposable income.
