"Gold and Picasso: Going Topless", for the Fall 2011 issue of Marc Faber's Gloom, Boom & Doom Report.

Gold and Picasso: Going Topless.


Sotheby’s (BID), the world’s largest publicly traded auctioneer said second-quarter earnings rose 48 percent for its best quarter ever, though the share price is, at the time of this writing, down over 40% since May 2011. It has been repeatedly pointed out that about every time the shares experience such a decline (and precipitous may be too gentle a description in this instance), a spike in the same direction for the art market in general is all but certain. That would not seem to portend a happy fall season for the upcoming spate of auctions, fairs, private treaty sales, exhibits, etc, etc. More like a happy fall in the loopy prices seen in the market of late, like the purchase for $250,000,000 of a Cezanne painting, the Card Players. Throw in the downgrading of the USA—how they deserve even an AA+ beggars belief, if I performed as badly surely I’d struggle for a B-; the imminent collapse of Europe; and the summer sacking of the UK in riots that witnessed mass pillaging and worse. It was always clear if widespread hardship rendered people unable to buy food, they’d ultimately take it. Rice was among the items depicted in the arms of London looters. Thus, all the ingredients would seem to be in place for the ideal recipe for the death knell of the art market as we know it.


Guess what? Not for the sake of being a gratuitous contrarian, but I am still bullish for the upcoming 2011-12 art market, and foresee records tumbling, not to the downside but rather falling upwards as new highs will be achieved before there is any palpable correction. Talking about fundamentals, the factors fueling the recent frenetic art market activities are only becoming magnified in the face of such worldwide jitters and uncertainly. Shares? If 500-point intraday swings don’t make you queasy, I am sure there are some strategic opportunities on the horizon. Currencies? I don’t think anyone in their right mind would proffer a guess as to the short term gyrations we are about to experience, other than the Swiss Franc seems poised to continue to behave like a balloon freshly filled with helium. Property? Still a mixed bag, with only the best of the best in the top regions performing, and there are less top regions by the day. Commodities? A whipsaw investment not for the unwary as speculation about the sustainability of China’s continued growth, pressure on demand, and spiraling costs. Interest rates seem to reside full time in the doldrums, unless you find zero an exciting number. Cash is going to earn negative returns for the next two years according to Bernanke’s statement last week and bonds can’t go much higher—and there is no sovereign default risk with Picasso. In a macro sense, the USA appears to be morphing into the new Japan, according to Bill Gross (more or less), who runs the world’s biggest bond fund at Pacific Investment Management Co. quoted on Bloomberg.com. Such a grim scenario gives new meaning to the doom and gloom in the GBD Report, which perhaps should consider dropping the boom in favor of a few extra heaping portions of gloom and doom.


But every cloud has a gold lining, if you are an art collector or holder of physical gold, which seems to have been going topless all summer. Where will it stop? I can imagine $2,400 to $2,800 an ounce in the short term, in the same fashion as I can comfortably accept that sooner rather than later the $250m Cezanne record will be eclipsed, pushing further into the clouds the stratospheric value placed on unrepeatable trophy art. Gold equals Picasso, and Picasso = gold. Picasso is the measure of value against which all else in the art market is compared, not to mention Warhol hasn’t been faring too badly either, thank you very much. Let us put to rest the notion that art is an erudite, unknowable, illiquid vehicle seen as a frivolous pursuit of the wealthy to impress upon their friends. Previously I would have said it was a pastime led by the Greenwich, Connecticut hedge fund elite, but markets and investigations have pretty uniformly battered them all of late. Art is a store of value, a systematic, objectively (for the most part) measureable asset class viewed in such a way by more and more collectors, investors and institutions, even. As a whole, art has never been as liquid, global and covetable as it is now, from China to Brazil, New York (still) to Russia, and India and Europe (still). These are good times for art and will continue to be so, for at least the next year or two. Baring some unforeseen, unspeakable tragedy all things art will trend up, but even a cataclysmic event can add to art’s allure. People want art so badly nowadays they are literally prepared to steal it; there's been a spate of art thefts, it's that desirable.


Some rather curious art world manifestations (shenanigans?) that have come to light recently are the notion of a Special Purpose Acquisition Company (SPAC) to list on the London Exchange’s AIM, somehow involving art works and SplitArt, an actual art exchange to buy and sells shares in specific works of art. In their own (not entirely convincing) words: “SplitArt will operate the first regulated market for art, indeed the company is in the application process to obtain its license from the CSSF (financial sector supervisor of Luxembourg) and thus establish an electronic trading platform for art securities (MTF Multilateral Trading Facility) that will offer a wide audience access to a new transparent and potentially liquid market with low transaction costs.” I am not so sure how many people would be lining up to have their Picasso’s fractionalized like a time share in Florida, but one you can’t use for holidays. But stranger things have happened. Also, there are more and more funds with tangible collectibles as the core of their holdings like cars and wine, and more banks willing and eager to jump on board, from lending facilities to advisory services. These are all telltale signs of a maturing market with wider breadth and acceptance than at any prior stage in history. In my estimation, the plethora of new art initiatives, even the far-flung and unorthodox, is ineluctable evidence of the concept that art is more, much more, than a pretty picture. In effect, art is flying off the shelves faster than electronics in a London melee. We are in an age of art's rising economy; call me the voice of Boom amidst the chorus of Gloom & Doom. The right art is a safe harbor in today's rocky waters and a great place to dock cash.