Art Market Rules

(A beautiful Van Dyck self-portrait from his late period. $13.5 million as of December 9, 2009... shocking, given that the previous day a throwaway sketch by Raphael went for $47.5 million and a perfectly ordinary Rembrandt self-portrait went for $32.7 . Though I wonder if my infatuation with this painting is partly due to its astonishing and perfect frame. It is scandalous that museums' information labels universally fail to account for the origin of a painting's frame. Nothing else in cultural history is so elementary and evocative of its moment.

A painting's frame speaks of successive generation's conceptions of space- this tension in art between art's utility as a decorative object and art's function [forgive me here for Elijah Craig's influence...] as a metaphysical text. In no other media can you learn as much about the sophistication and empathy of the owners or curators who have lived with the art itself in its intervening years.)

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My dad told me a funny anecdote he once heard. When asked about the price of Rembrandt painting he had recently purchased, Norton Simon said something to the effect of, "Well this painting probably cost about a dollar in 1650 and its worth about 5 million now, so all in all art appreciates at a fairly boring rate of return."

At the end of his book "The $12 Million Stuffed Shark," Don Thompson sets out some tongue in cheek rules for purchasing art:

"With the work of western artists, what kind of painting will appreciate most? There are general rules. A portrait of an attractive woman or a child will do better than that of an older woman or an unattractive man. An Andy Warhol Orange Marilyn brings twenty times the price of an equal-sized Richard Nixon.

"Colors matter. Brett Gorvy, co-head of contemporary art at Christie's International, claims the grading from most salable to least is red, white, blue, yellow, green, black. When it comes to Andy Warhol, green moves up. Green is the color of money.

"Bright colors do better than pale colors. Horizontal canvases do better than vertical ones. Nudity sells for more than modesty, and female nudes for much more than male. A Boucher female nude sells for ten times the price of a male nude. Figurative works do better than landscapes. A still life with flowers is worth more than one with fruit, and roses are worth more than chrysanthemums. Calm water adds value (think of Monet's Water Lilies); rough water brings lower prices (think of maritime pictures). Shipwrecks bring even less.

"Purebred dogs are worth more than mongrels, and racehorses more than cart horses. For painting that include game birds, the more expensive it is to hunt the bird, the more the bird adds to the value of the painting; a grouse is worth three times as much as a mallard. There is an even more specific rule, offered by New York private dealer David Nash: painting with cows never do well. Never.

"A final rule was contributed by Sotheby's auctioneer Tobias Meyer. Meyer was auctioning a 1972 Bruce Nauman neon work, Run from Fear/Fun from Rear, which referred to an erotic act. When the work was brought in, a voice from the back of the room complained, 'Obscenity.' Meyer, not know for his use of humor on the rostrum, responded, 'Obscenity sells.' Often it does not, but for a superstar artist like Jeff Koons or Bruce Nauman, it does. It did."

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(A very early Robert Irwin. Probably the kind of painting he would have destroyed later in his career, if given half the chance. Sold September 24th, 2009 for $16,000. Estimated in May 2009 for $80,000-$120,000. It went unsold at that time.

I'm not sure (heat of the moment and all) what it would have sold for had I been present in the room. But I assure you, if we check back on this painting in a few decades we will find this buyer got the the deal of the century.

I don't mean to insinuate that I particularly like this painting. But centuries from now, when the concept of the post-modern has long ago become but the conceit of only the most pathetic of Ph.d types trolling for a brutally sloppy and disease ridden end to a pathetic gang-bang worth of a dissertation topics- Robert Irwin will be viewed a one of the men who brought the progression of modernism from its origins in multi-plained abstractions of Cezanne and the shimmering equal-luminescences of Monet to its apotheosis in pure perceptual bliss. And this crappy early abstract work will certainly achieve a perfectly respectable rate of return.)

Short Term Dollar Strength on Recognition of Worldwide Crappiness

We've reached a short-term inflection point in our general asset reflation scheme. General worldwide crappiness and uncertainty will lead to a short-term dollar strength. Safe-haven searching, a general one sided bets against the dollar, and a slightly brightening U.S. Economic Outlook will assist this move.


An overview of volatility-driving upcoming events:
The next due date for part of Dubai World's debt is on Dec. 12th. There is an upcoming important court decision on the restructuring of the first bankrupt Islamic "Sukut" bond.

The steep downgrade of Greece's debt today, is going to force the European Central Bank to spell out its long-term support of excessive Greek borrowing. The ECB is lending to the Greek banks, which in turn are holding large amounts of Greek Government Bonds. This is complicated by the fact the Greek banks are barely solvent. And the Greek Government is broke. This uncertainty about the European Monetary Union will negatively affect the euro until the issues concerning the weaker states are resolved.

The Japanese have been hurting due to their currency's strength against the Euro and Dollar. Intervention is possible, probably by the enlargement of the Central Banks relatively un-extended balance sheet.

The amount of correlation between general asset prices over the past year has been quite incredible. Gold, oil, and stocks around the world has fallen for the past several days. The dollar has been rising.

We are about to witness short-term correction in the dollar's long-term decline.

I believe the stimulus dollars are beginning to enter the general money supply. There's a hum in the air on main street that whispers of a significant increase in the velocity of money. Money is a momentum- a product of its quantity and the speed at which it moves. Money is coming out of the mattress and being spent. In labor news, the employed are working longer hours. People are taking home more weekly pay, despite hourly wages continuing to fall. This suggests overtime.

Finally in other news, an extremely destabilizing bill just passed the House Financial Services Committee, which if enacted into law will severely restrict credit by shutting down some portions of the interbank lending market, and introducing new destabilizing panic pathways into the overnight market. Also worth mentioning is the accounting rule change going into effect in January, bringing all of bank's off-balance sheet entities back onto the balance sheets.

In short, short-term dollar strength probably clustered around $1.40 against the Euro lasting around than three months. Higher US stocks relative to Gold but lower in general. Lower Europe Stocks. Brazil lower but not as far. Other emerging markets with deficits, harder hit.

Forecast

Real Estate. We are in the midst of an inflationary depression. On one side we have the ravages of debt. On the other, an uneasy coalition between the printing press and the psychology of a people.

The government will continue printing dollars to support the economy. Debt which pushed up asset values will now cause them to deflate as people pay down their debts instead of buying. The over-leveraged will continue to experience pain and their defaults will further damp asset values. The government prints dollars under different names but its key effort is to replace the personal spending that is now devoted to saving.

The rise of gold is unremarkable. Against copper, gold has risen about 40% since the beginning of 2007. Against oil, gold has risen 60%. Against stocks, of course gold is up 120%.

I'm not sure exactly how much gold has risen against "real estate," but with housing prices roughly down about 30% nationally, and gold up around 100%, we can all guess the relevant math.


Of course we are looking at values versus their peak, but that is exactly the point. The point in the past which we pick for measurement is arbitrary; we can only make decisions in the present. We are looking for the point at which we collectively hit our debt maxima, and we are guessing the point at which the government will target for suitable valuation.

Of course, this assumes that the government has any agency in the matter, which it does, but only indirectly.

My biggest mistake in the past 2 years has been trusting in the efficacy of printing dollar bills. It turns out this is an extremely blunt instrument. The government can no more guarantee asset values.

Our collective debt will hold down "real estate." But "real estate" values hold a reflexive power over broad swathes of the economy. The government will thus target a price level based on real estate values.

In this process, the government will anchor the values of all other goods. Tangible, fungible goods will attain a steady state value. Tangible but subjective/discernible goods, another. Subjective paper goods will suffer against common paper but against gold most of all. Gold, the most subjective of goods.

Regardless, under the best of scenarios, we will see "real estate" values depreciate by the scale of each buyer's dreams... assuming these dreams are rooted and leveraged in paper.