Friday, May 11, 2012

Economic (In)Security of the Art Market

News about the booming art market keeps coming. Sales of modern and contemporary art made headlines by referring to multi-hundred-million-dollar auction results as "middling" in New York (Christie's $338.5M and Sotheby's $266.6M). While rising prices suggest the security of art as an investment, speculation on the reason for acquisitions suggests a sense of economic insecurity.
A number of paintings, such as "Orange, Red, Yellow" by Mark Rothko, made records by selling for well over estimates at the recent auctions in New York. The increasing value of artworks has inspired high-end alternatives to traditional investments. For example, art funds, such American Masters Collection and Twentieth Century Masters Collection by The Collectors Fund, reportedly have $100,000 and $500,000 entry levels.
The phenomenon of art as an investment is global. Reportedly, Chinese collectors account for at least a part, if not a majority, of the influx of cash into the art market. As an example, prominent Chinese collectors have endeavored to build private museums to house acquisitions. But where is all of this spending on art heading?
The recent announcement of artnet's indexfor modern and contemporary art underscores the investment aspect of the art market. Quantitative analysis of the value of art enables an objective approach to purchases but contrasts with irrational art appreciation that, at least at one point, was the primary basis for acquisitions. On a more practical level, some speculate that soaringprices of artworks not only ignores but also may hinder a still-recovering economy while ironically compromising the significance of art.
In the end, uncertainty in financial markets may create security in the art market, but art as an investment may ultimately put economic and cultural security at risk.

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