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Contemporary Art Bubble

  • Art Market is a Bubble
April 8, 2014
Ana Bambic Kostov is an art historian with passion for contemporary art.

Jim Chanos is a financial expert and a long time art collector. He is both the founder of a hedge fund and a member of the board of the Tate Americas Foundation. As a connoisseur of both fields, Chanos stated he detects a speculative bubble shaping in the current art market, while advising the best way to hedge by shorting the Sotheby’s stock.

His view that the art market is acting crazy at the moment is worrying, but it is prone to criticism as incomplete.

Art Market is a Bubble
Chanos’ chart of Sotheby’s peaks since 1987

Art Market is a Bubble

Art has become one of the favorite commodities and investments globally, especially among the wealthy.Some of the prices have reached all time records recently, as the Balloon dog by Jeff Koons sold for $58 and a Francis Bacon painting for the eye-popping $142. It’s acceptable and favorable to spend high on art.

In an interview for CNBC, Jim Chanos claims that the current art market bubble differs from the earlier ones, because of the booming sales of contemporary art, which means – purchasing living artists who will produce more work, also to be sold. He sees this as a potential hazard in terms of falling prices and advises to all the contemporary art collectors to hedge. He stated that the closest action to hedging the art market is the shorting the stock of Sotheby’s, in case collectors do not wish to sell their art.

He presented a chart showing how the price of Sotheby’s stock peaks with each bubble, labeling the current one as the “central banks” bubble.

Chanos may be Wrong

Economist Robert Frank criticized the Chanos report, stating how the contemporary market could not have formed the bubble in the previous decade, as the most expensive lots sold were by Picasso and Bacon, which belong to modern art. He also criticized the chart offered by Chanos, saying it does not match the market it should, in fact, predict.

In the end, Frank notes that Chanos ignored the 2010 trends, as exceptionally favorable in terms of art prices, which boosted the Sotheby’s stock to almost an all time high, before it retracted.

Art Market is a Bubble
Jeff Koons

Art Flunks in the Collectible Market

Still, a research showed that art has performed the worst out of all collectibles last year, coming at a 9th place, behind cars, jewelry, furniture and even stamps!

The top prices shown in the media make only a small piece of the entire art market, so the impression gotten from them may be wrong. In keeping with a new report from Knight Frank and Wealth Insight, fine art had the worst performance on the collectible art market in 2013, with 3% decrease in prices. The result of performance is concluded according to an index from Art Market Research, which included old masters, European 19th century, impressionists, modern and contemporary art.

The report also stated the entire art market is on a decrease comparing to the 2011 high. Overall, looking at a period of a decade, art still makes a sound investment, as the wealthy art increasingly turning towards art as a favorite collectible. With them art comes before wine and watches, which testifies the pleasure in collecting is the top priority with the rich, rather than profits.

Finally, art is purchased to love and appreciate on a different level than solely financial. If an art investor doesn’t like the current (pretty unpredictable) odds, they could always turn to cars, as the top performing category, up 456% in the past decade. However, art will always remain the passion of those who seek a spiritual along with a financial thrill.

Art Market is a Bubble
Pablo Picasso