Art Market Report, 2004

This is the Galerie St. Etienne’s third “state-of-the-market” report since September 11, 2001. It is hard to believe that nearly three years have passed since the terrorist attacks on New York and Washington, D.C. The shadow of 9/11 hangs over us not so much because the wounds inflicted that day remain raw (though they of course do for some), as because of the lingering volatility and uncertainty, the uncanny mix of the familiar with the unfamiliar. Periods of paralyzing fear—in the last months of 2001 and the first half of 2003, just prior to and during the Iraq war—alternate with narcotizing excesses of consumption. Shopping—for home upgrades, meals at hip restaurants and, yes, art—is our drug of choice. Yet the fear remains. It is fitting that politicians and the news media long ago shortened the phrase “war on terrorism” to “war on terror.” Americans do not deal with the relentless, almost daily acts of terrorism found in countries like Israel, but rather with the far more nebulous presence of terror itself. Fear, as much as anything else, is responsible for the polarization that has beset American politics in these last three years. Fear prompts some people to believe desperately in the President’s righteousness, and others to feel bitterly betrayed by our government. The 2004 presidential election will pit these two types of terror against one another; it will be in part a referendum on fear.


The cycles of fear and consumption that have gripped America in the last three years have been alternately bad and good for the art market. When people feel vulnerable and financially insecure, art is regarded as a luxury that can be easily jettisoned. It has not helped that the center of America’s art market, New York, is both literally and figuratively the site of “ground zero” in the war on terrorism. When the atmosphere turns fearful, people stop coming to New York, and all local businesses, including purveyors of art, suffer accordingly. At the moment--a year after major combat operations in Iraq supposedly ended, several months after the capture of Saddam Hussein, and with the economy showing some signs of a genuine recovery--Americans feel relatively secure. But given the mounting American casualties and terrorist attacks in Iraq and elsewhere, we should all be aware of how quickly that apparent security can vanish.


While the New York art market has endured several periods of profound stagnation since September 2001, prices never collapsed. And some areas, especially blue-chip modern masters and cutting-edge contemporary art, have flourished. Art, like real estate, can be viewed simultaneously as an investment and as a source of personal comfort and enjoyment. Both the real estate and art markets have benefited from the impulse to turn inward, to “nest,” that followed the terrorist attacks. Historically low interest rates, too, have fueled each market. Regardless of whether one leverages one’s purchases (as some collectors do), during the last three or four years art has generally seemed a smarter place to invest than a bank or the stock market. Consequently, a great deal of attention and cash have been expended on so-called trophy material. Some people have naturally taken advantage of escalating prices to divest their holdings, but for others, rising prices actually provide a disincentive to sell. Collectors (especially those who own extraordinary works) fear that if they sell they will never again be able to acquire similar pieces at affordable prices. So a dwindling supply of choice items combines with red-hot demand to spur further price increases.


But the recent art boom has been lopsided. The focus on high-end material, often aided and abetted by auction-house p.r., conceals a vast and frequently foundering middle market. At the New York auctions this spring, the $104 million Picasso eclipsed a flurry of far more anemic results. For some years now, the Galerie St. Etienne’s annual state-of-the market report has chronicled this bifurcation of the art market: the increasingly massive differential between the values placed on supposed masterpieces and everything else, and the sometimes arbitrary factors that separate the two classes of art. However, although the two-tiered market has produced some disturbing and unjustifiable inequities in value, our lopsided market is also in part an organic outgrowth of pervasive, well-established demographic trends.


With far more wealth concentrated at the top of the economic pyramid, and successful baby-boomers at the peak of their earning power, there is simply more money now being directed at a relatively limited supply of prestige artworks. A willingness to pay an exceptional premium for status products that are only marginally better in quality—for example, the vodka in the frosted-glass rather than the clear bottle—has today become integral to American consumption patterns. What we are witnessing, in effect, is a comparable “branding” of art. A premium is being exacted for signature works by “name-brand” artists, be they established masters such as Picasso or hot newcomers like John Currin. We all know, however, that nothing is as fickle as taste, and the dustbin of art history is full of now unknown artists who were once hot. Even when dealing with a master such as Picasso, whose importance in art history is unlikely to change, one must wonder whether the artist’s “signature” works—those that are bold, bright and scream “Picasso” from across the room—are necessarily his best. Yes, some works become icons for valid reasons, but great art is not always pretty or easily recognized.


So one must ask oneself: does the aesthetic value of a work of art invariably determine its market value, or is it the market that today influences our assessment of a work’s aesthetic merit? Almost thirty years have elapsed since Tom Wolfe wrote The Painted Word, a send-up of the then seemingly all powerful art press. No critic today has the power of a Clement Greenberg or a Harold Rosenberg. Multiculturalism and contextualisation, while necessary correctives to the formalist biases of the Greenberg era, have caused academics to shy away from qualitative judgements. In our museums, the curator’s voice is often muffled by the need to mount crowd-pleasing blockbusters or to mollify corporate sponsors and wealthy trustees (most of whom have their own collecting agendas). For the moment at least, it does seem that the connoiseurship of the marketplace rules.


Despite the burst stock-market bubble of the late 1990s, Americans retain a simplistic faith in markets. Markets, it is said, are perfect, because they self-regulate. Markets do generally self-regulate, but only over the long term; on any given day, prices can be wildly off base. This is especially true of auction prices, the art market’s most public face. Whereas stock fluctuations can be tracked on a daily basis, major auctions take place only twice a year, in the spring and the fall. They are thus easily influenced by circumstances (positive or negative) peculiar to the specific sale date. Collectors are reassured by the hypothetical presence of an underbidder at auction, but sometimes there is no underbidder. When works sell at or below the low estimate, as they often do, the buyer has probably been bidding against the undisclosed reserve. Even when a lot soars above the high estimate, it usually comes down to a mere two bidders. Remove one of these, and the price would tumble back. The competitive excitement of an auction sale can stimulate irrational overbidding, but, for reasons no more rational, it can also happen that perfectly good works fail to inspire adequate competitive interest. Many works sold at auction in these past years have brought far less than they could and should have if sold privately, and those rare works sold for “trophy” prices may well not prove readily resalable at comparable levels. In most auctions, at least 10% to 20% of the lots fail to sell at all.


While the semi-annual auctions give a momentary read on the market, dealers, who are in the market year-round, are usually in a better position to price works fairly for both buyers and sellers. Time and in-depth experience are needed not only to value art accurately, but to promote it successfully. Dealers are often able to develop more focused expertise than auctioneers, who of necessity must cover relatively broad territories. The now-or-never aspect of auction sales works against subtle or difficult works, which require repeated viewing and contemplation to be fully appreciated. A department head at one of the major auction houses recently commented that he must generate $100 million in sales every six months in order to keep his job. With that kind of bottom-line pressure, auctioneers tend to concentrate most of their energies on multi-million-dollar lots. There is little incentive to pay much attention to works valued at less than several hundred-thousand dollars. At the same time, desperate to woo consignments from the dwindling pool of sellers, auctioneers inevitably overestimate some properties or bow to the demands of overly ambitious sellers. Sometimes the gamble pays off, and sometimes it doesn’t. Under these circumstances, it is easy to understand why the middle market is foundering.


It is impossible to predict how present market trends will ultimately play out. The occasionally wild price swings seen at auction make it difficult for all players—sellers, buyers, dealers and auctioneers—to coherently evaluate art, and this uncertainty could eventually erode confidence in the art market as a whole. When prices escalate as rapidly as some have in the past year, there is always the danger that a bubble has been created. To the extent that today’s boom is based on leveraged purchases, rising interest rates and a need to recoup investments quickly could spell trouble. On the other hand, if the economy does rebound, savvy collectors may recognize that there are bargains to be had in the presently under-valued middle market. Some of the market fluctuations we are witnessing today are the result of short-term trends: low interest rates, the aftermath of the dot-com bust and 9/11. Others seem to be based on more deeply entrenched changes in collector demographics and tastes. Nevertheless, insofar as today’s dominant collectors are ruled by momentary fashion, their impact on market values may prove equally fleeting. The Galerie St. Etienne’s market reports always lead to the same conclusion, because there really is only one conclusion when it comes to collecting: it takes time, knowledge and passion to collect successfully. If you follow those rules, you really can’t go wrong, because no matter what happens to the value of what you buy, you will have a great time.