Exit Through Gift Shop

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"Hedge Fund guys are the new Japanese."

Old time realtors who worked through the flat market of the 1970's and the 1980's bust in Canada will remember offers made on over priced listings that included some cash, some financing and lots of jewelry, boats, cars and overvalued art. It's what happens when over leveraged investors realize that a declining asset price without an income stream would be better traded for over priced real estate. 

The chart above shows the share price of Sotheby's Auction business since the later 1980's. Five peaks have been set and the last three since the 2008 blowout have been on a trend of lower highs. In the pit of gloom of 2009, the BDI share price hit the 2003 and 1988 lows.

The chart captions on the 5 peaks refer to the 2011 New York Magazine article by Marc Spiegler; "Five Theories On Why the Art Market Can't Crash and why it will anyway." In brief Marc underlines the bull argument for investment in art:

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1) The Expanded Art World
"...the global market is up to twenty times as large as it was in 1990."

2) The Art World’s Gone Global
"...the next big collectors will emerge from Russia and China, yes, but also India and various Arab emirates."

3) Art Is the New Asset Class
"...it’s a trillion-dollar asset class that in many ways works a hell of a lot like real estate."

4) Diversification As a Safety Valve
"...there’s a constant process of mini-corrections, as some genres rise while others fall.)

5) The Japanese 
"...there’s plenty of other clueless money in the market... the hedge-fund guys are the new Japanese."

At the time of the NY Magazine article (May 2011), BDI was in an early sell-off phase and went on to become a 50% art lesson.

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The chart above shows Sotheby (BID) and its anagram BDI (The Baltic Dry Index) heading south as the Shanghai Composite Index (SSEC) collapses into 2006 and 2001 lows. 

The reversal is underway even as headlines trumpet new highs on selected pieces of art.

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"Christie's racks up $745m in one night (a record) and the bubble keeps inflating: This week's mega-auctions are once again reaching obscenely high prices, with a Barnett Newman selling for $84.2m and a Bacon triptych close to that. Why is there no sign of a crash?" Jason Farago, May 14, 2014 TheGuardian.com

Jason answers his own question with:
1) There is only one art world now,
2) Enough people believe the hype,
3) You've got to put your money somewhere,
4) Art isn't part of the real economy,

I think he means "Hedge Fund guys are the new Japanese."

An observation from February 2014 on the Vancouver Gallery scene by artist Win Seaton:

Many of these properties (Art Galleries along Granville St) have been purchased by offshore owners and as a result the average gallery space on the street is more than $10,000 a month. This increase combined with the decline in art sales makes it is easy to see why the migration (of Galleries) away from the area. Of course a few of the major galleries remain run by the same owners, like Heffel Fine Art Auction House – the key word here being ‘auction’.  Along with ownership changes of these properties, the market has changed to reflect the demands of offshore buyers with deep pockets.

The auction is replacing the gallery as an expedient method to monetize art. As Win points out "Rental fees for Canadian art is a tax deductible business expense and the purchase of Canadian art can be a depreciable asset."

Clips from the movie "Exit Through The Gift Shop"