Would you buy a painting based on a recommendation of your stock broker? How about financial advice from an art critic? With mutual funds that invest in art and critics that predict the fall of the art market, we get a little of both.
In what can be best described as chicken little reporting, the OC Art Blog's questioning of the big run-up in art auction prices is being corroborated by others in the blogosphere. Tyler Green, who's always looking for (and finding) art world dirt to post, postulates that the recent decline in the hedge funds and the sub-prime mortgage market will pull down art prices. Both blogs link back to Charlie Finch who paints much the same scenario.
They would argue that an art collecting subset of hedge-fund investors fuel rising art prices. The reverse--hedge-fund investors are a subset of those who buy art--would better describe the market. I would expect that the big run-up in "hot young MFA artists" is brought about by new collectors looking for work in the five- to twenty-thousand dollar range. I would expect that their income comes from a variety of sources: investment banking, entertainment industries, technology companies, and on and on. I would expect that the run-up in action prices is coming from a variety of multi-millionaires: Russian oligarchs, Middle East oil men, Chinese businessmen, hedge-fund investors, and others. Since art isn't as quickly bought and sold as stock (or real estate for that matter), any movement in prices will be spread over a longer period in time.
One counter argument could say that the art market might behave more like the recent real estate market. From the time of the dot com crash and years of lackluster stockmarket prices forced the rich to look for other places to invest their cash. This influx of cash--before the subprime mortgages--created the spike in real estate prices seen in the early 00's.
At Art Basel this year, the art wasn't flying off the walls. The talk I overheard was that buyers were being more picky, only forking over their cash for exceptional work. If this slowdown in the flow of cash causes a few galleries to close and others to downsize, I can't imagine how anyone could see that as a bad thing.
I haven't seen a dramatic rise in quantity of exceptional new art work that corresponds 1:1 with the dramatic rise in sales. Most of the money has poured into flat stuff that ships easily to art fairs, e.g. paintings and photography. I can't blame galleries for presenting work that's easy to hang, but if more and more money flows into a limited amount of good work, then galleries are forced to sell more crap to soak up the extra cash.
I predict that over the long term, the growth of money invested in art will increase roughly the same or better than the growth of the GDP in the developed world. Since the amount of artwork by Andy Warhol is not expected to increase, I expect their prices to rise in the presence of this growing pool of Euros.
I also predict that as art prices correct themselves, art bloggers will say, "I told you so!"