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Comparing the Art market to the Coin market

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There's an excellent article on the Art Market in New York Magazine this past week - on why it "can't" crash and why it will anyway.


I was really struck by some of the parallels between the Art market and the Coin market:


"Walk around Chelsea (the center of the contemporary Art market) these days and you can practically hear money buzzing in the air. Powerhouse galleries have extended their empires with extra showrooms. Younger dealers are graduating into grander spaces. Almost every weekend, some former gallery director is going into business for himself." Does this sound familiar at all?


"In the art world, there's a clear delineation between those who experienced the last crash, in the early nineties, and those who didn't."


"Dealers recite a market mantra: Business is strong, driven by the globalization of the market." eBay, anyone?


Here are the article's five "Crash-proof-market" theories:


1. The Expanded Art World. The Art market is 20 times larger than it was in 1990. The optimists say the market is too big to crash. However, one art advisor says: "Today's art market is by and large misinformed. People are buying in packs and syndicates, running through art fairs and evaluating work, which is a sure way to go wrong. They're using their ears, not their eyes to select works, buying based on market trends rather than art-historical standards."


2. The Art World's Gone Global. Buyers are coming out of the woodwork: Brazil, South Korea, Russia, China, etc. The pessimists say "It's not clear how deep the market is in the emerging markets. There aren't enough buyers there today to take up the slack if Europeans or Americans stop buying.


3. Art is the New Asset Class. Some professors published a study that found that art regularly showed returns on par with the S&P 500. Critics pointed out that the study failed to take into account costs such as insurance, shipping, auction house commisions, etc. Also, the "sloppy" way that journalists and the art world used the study. Says one: "Because I have no idea what the non-auction market is doing, since there's no transparency of prices."


4. Diversification as a Safety Valve. The larger and more diversified art market provides a safety valve, as sectors correct and other sectors rise. Critics say: "A rising tide raises all ships, but a tsunami sinks them all."


5. The Japanese. The irrational behavior of the Japanese, as the driving force of the last boom and, after they stopped buying, the bust. The critics say: "The hedge fund guys are the new Japanese."


Here's one dealer's note of caution: "As an asset market, art remains non-transparent, overly prone to taste and fashions, and extremely illiquid. People forget that illiquid doesn't mean 'low price', it means 'no price'."


I encourage you to read the article and see if you see parallels to the coin market, too.

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A group of online posters-dealers sitting outside the ANR Auction in Baltimore had a similar discussion. A number were shocked at the 20K++ bids for pretty toned coins, and it was noted that pastel chalk drawings from "biggies" (Renoir-Degas-etal.) could be bought for around double the coin's prices. Everybody thought it odd you could buy something so beautiful and colorful for so little vs. coins at Sothebys. (this is for colored sketchs, not paintings or full works) and hung in your livingroom.

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The caveat is to know your niche. One has no business paying big bucks in a market that they have no idea about. They have no inner gauge to keep them in check. This is one reason why e-bay and auctions sometime brings big money. The bidder has no idea of the market or of pricing and just bids away because he wants the item and has the extra funds. This sort of ties in with Jeff Tryka's latest post about auctions driving up prices and keeping coins out of the hands of true collectors.

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