Art Market Watch
A number of comprehensive recent articles in Artnet Magazine about art market expectations (by Brook S. Mason, Rachel Corbett, Emily Nathan, Mickey Cartin and others) have garnered huge reaction from reporters at Hyperallergic, Gallerist NY, the Winkleman blog, and a number of dealers and collectors, so I thought it might be pertinent to break down the situation of a hypothetical power collector couple.
Let's call them "the Horbells." John and June Horbell have been collecting contemporary art for 25 years, they are in their late 60s with adult children and grandchildren, and their combined net worth is $500 million. They have accumulated dozens of works by a basket of living artists at all price points: Marlene Dumas, Wangechi Mutu, Will Cotton, Michael Joo, Kara Walker, Shahzia Sikander, Maurizio Cattelan, Jack Pierson and Karen Kilimnik are some examples of the hundreds of artists in the Horbell's hypothetical collection.
They lend works to shows all over the world and also exhibit their holdings periodically under their own auspices, often at the contemporary art fairs where their high-profile presence is eagerly reported in the art press.
Now let's look at the numbers. In these deflationary times, one would expect the Horbells to be earning only $5 million on their cash and security holdings, in an atmosphere where comedian Jerry Stiller trumpets a one percent annual interest on checking accounts for a bank commercial as "the highest available nationally." These are also times when U.S. Treasury bills are offered at what is, effectively, a negative interest rate and dividend income is rebounding just now from the 2008 recession, although that might pass, because the stock market itself has been steeply falling in recent months.
But, as we shall see, the imaginary Horbells, in their distinguished collecting career, have other financial options, on both the upside and the downside. At a minimum, they can spend, on a $5 million income, $1.5 million each year on new art purchases, at a range of price points: a median would be 50 $30,000 artworks a year, as an average. But our fantasy collectors have many favorable advantages from their dealer friends denied to your average Joe or Jane.
John and June Horbell can pretty much drive their own deals at art fairs, especially with emerging artists, as they have long bought artworks in bulk at their point of "emergence." These would include 30 percent to 50 percent retail discounts on demand for unknown artists, right of first refusal, again at a discount, for established artists that they already own, and even help in carrying costs, such as storage and insurance, from dealers with whom they regularly do business.
Then, there is the matter of leverage: our Horbells own dozens of works, by, say, Cattelan or Dumas, whose work comes up at auction, and these rising auction prices (abetted by the total secrecy of the auction trade, which allow players to bid up market value anonymously) have, up until now, allowed the Horbells to value their collection at the most recent, and therefore highest prices, of a current sale by a given artist (what I called in an Artnet Magazine text six years ago "painting the tape").
The Horbells can thus use their collection, at maximum value, as collateral for short-term loans to pay their carrying costs and even finance their lifestyles (much of which is "comped" by dealers and art-fair big shots, anyway), and, here's the beauty part, due to the low interest rates which screw the rest of us, the Horbells, like the big banks from the Federal Reserve, can get this money, essentially, for free!
"How can they lose," you ask? Here is where the mechanics of a steep deflationary downturn come into play for the hypotheticals. As I outlined in my recent Artnet Magazine effort, "Will the Art Market Crash?" under deflation people and institutions hoard cash, stop spending and anticipate falling prices, which will make their cash all the more valuable (they greedily think). What leads to a crash is that goods lose value and cannot be turned over at any price: the economy freezes.
Thus the basket of art, long held by our power collector couple, would lose value quickly, and they would no longer be able to borrow money against it. They themselves, hoarding their cash holdings, would lose incentive to buy art, dealers and artists could no longer count on the Horbells' regular purchase patterns and would have to scale back or close up shop, and the art, whose value has been inflated by the secret cartel arrangements which have made the Horbells the hypothetically celebrated international figures that they are, would drop, to what I believe, would be its true market value, 10 cents on the dollar. I await Adam Lindemann's reply. Perhaps he can consult the Horbells.
CHARLIE FINCH is co-author of Most Art Sucks: Five Years of Coagula (Smart Art Press).