January 26th, 2008 by admin
Booms and busts have littered the decorative and fine arts markets just as financial cycles have their segmented ups and downs. It doesn’t take a rocket scientist to figure out that any asset experiences change in the trajectory of its value. Assets can crash and burn as well as present opportunity. Whether sub-prime securities or Impressionist art, no matter how good the underlying asset is packaged and promoted, buyers are constantly re-evaluating the market price.
Like a mad dash for the exits, when perception meets a reality that revalues that asset differently, a panic can set in. Remember when Impressionist painting was being aggressively purchased by the Japanese in the 1980′s, and the shock of their total retreat from the market? Bought-in art was a way of life for that high priced market. The funny thing about that time period, Sotheby’s, in one of their reports explaining their company losses from that market crash, noted that the decorative arts, while not very exciting, continued to be a stable and consistent performer.
Since the beginning of the 20th Century, decorative and fine art markets have experienced an expanding demand due to population and wealth, along with a somewhat inelastic supply of product and its turnover period. As an asset class, it is totally unique and operates to some extent along classical Adam Smith doctrines. Perhaps the great herd mentality in a valuation is how fashionable and trendy it is perceived. In the decorative arts, “boring brown wood” English furniture has recently been experiencing a market malaise while decorative arts and furniture of the 20th Century have been exploding.
Today we are being bombarded with media discussion of an impending economic recession. There has always been a theory that the art and antiques industry has a lag period after an economic recession actually hits this market. However I find the lag is really a separate influence as to what is actually happening in the way things are being priced to sell. There is always going to be a certain amount of fluidity in which segments of the market get inflated, gyrates, or retreats in value.
This asset class, for the most part, has avoided the esoteric leveraged packaging process Wall Street has so skillfully devised for its clients. Sotheby’s and Christie’s, along with some boutique financial entities, have attempted to just that to these assets. However, that is a game for big players and not the guy stuck with a resetting sub-prime mortgage. The real thought behind valuing these assets is based on each item’s own real merits, and is not recognized in “certificate” form. What you see, touch, and experience is quite tangible and not really so abstract.
The process of examining and appreciating the quality of a piece of furniture or a painting is quite similar to that of analyzing a financial statement. Knowledge and experience usually make for a sound opinion, and good values can be spotted irrespective of market conditions.