American Art: Bull Market?

During the past few weeks, comparatively large and comprehensive sales of American art took place in New York auction houses and elsewhere. Notwithstanding current skeptics, results exceeded expectations. Not only were a high percentage of works sold but also a striking amount of buyers bid quite beyond the pre-sale estimates. For example, in the first week of December, 2009, the following pictures were sold in New York at auction:

Thomas Hart Benton                                                       Mary Cassatt
“Little Brown Jug”                                                             Study for “Young Mother Sewing”
Pre-sale estimate: $600,000                                            Pre-sale estimate: $800,000
Purchase price: $2,434,500                                              Purchase price: $2,434,500

$1,834,500 over estimate                                                 $1,634,500 over estimate
Click here to view the lot.                                                 Click here to view the lot.

Childe Hassam                                                                 Robert Henri
“The White Dory, Gloucester”                                           “Mary Agnes”
Pre-sale estimate: $2,500,000                                          Pre-sale estimate: $400,000
Purchase price: $3,666,500                                               Purchase price: $1,538,500

$1,166,500 over estimate                                                  $1,138,500 over estimate
Click here to view the lot.                                                  Click here to view the lot.

Should we view these auctions as the genesis of a trend, a harbinger of things to come in the American art market?

Might we carry our conclusion even a step farther, seeing these sales as a barometer of the whole American economy?

Considering the global recession, how do we account for this inordinate escalation of the art market?  Were these sales an anomaly, some strange economic aberration based on the acquisitive whims of a few star struck collectors? I think not, because the auctions yielded too many sales which brought prices that were far beyond expectations for these to be the results of a few zealous buyers. Moreover, there is no group of arbitrage investors to manipulate the art market because as far as paintings are concerned, there is only one. It is possible that various works by a famous artist could become the focus of collector-investors, but in general there are not enough great works by one master to create arbitrage potentials. Then, we must assume that the American art market is rivaling the stock market and other investments as we witness it functioning at its own level and marching to its own drummer.

Right or wrong, it seems that collectors, museums and investors view American art as a safe haven.  This axiom proves itself even in the face of sagging economic news.  Why?  Because this nation boasts a strikingly large number of wealthy citizens who view American art not only as a valuable and proud cultural possession, but also as a proven commodity by which they can protect their money.  No real aesthetic buttons are pushed in viewing a portfolio containing shares of GE®, Wells Fargo®, and John Deere®.  Regardless of how “beautiful” such a portfolio might seem to an investor, he or she could not display it on the wall with pride of ownership as they might a painting by Gilbert Stuart, George Caleb Binham, Winslow Homer, Mary Cassatt, Thomas Hart Benton, John Sloan, Jackson Pollack, Mark Rothko or Andy Warhol.   These well-informed collectors (some are as savvy as art dealers or museum curators) are willing to invest a significant portion of their wealth for great American art, which has proven more or less impervious to economic downturns.

Indeed, this attitude is a logical alternative to an increasingly volatile stock market that is at the mercy of arbitragers and other big traders.  And it is a fact that regardless of the economy, there is always a collector or curator willing to pay a high price for a great painting because the history of American art has proven that outstanding images are not easily devalued, except in the case of damage.  In fact, very little can be written about great art that will diminish its value (short of a major re-attribution) while a great deal can be published about stocks to result in lower bids.

Of course, we must factor into this overview the qualification of determining a so-called great or excellent work of art.  For our purpose of discussion, we must assume that the painting(s) considered for purchase either at auction or private treaty, are just that: outstanding examples of the artist’s oeuvre.  Anything less may not prove the axiom.  Most of the pictures which were recently sold significantly above their pre-sale estimates at these recent auctions were exceptional, thereby deserving of the admiration of well-heeled clients who opened their pocketbooks widely.  Certainly this should remain the goal of every collector, curator and investor.  Unfortunately, as we make our way daringly up the slippery slope of the economy, some of us lose track of the rule of purchasing only good art.  But alas, it is not always possible to find such work.  It may not be apparent to buyers that fewer and fewer great paintings are available for sale as they are removed to the safety of museum collections where they remain for decades.   It is true that during these difficult recessionary times a few superb pictures have surfaced as private owners (even museums) are forced to liquidate.  Conversely, it is also true that numerous masterpieces are owned by wealthy households whose families have owned them for several generations and are not damaged by short recessions, even long-term depressions.

One must also consider the possibility that runaway inflation will raise its ugly head in the future.  Once again art can be viewed as a hedge against inflation, a function of fine art which we have witnessed over the past decades.  No one would doubt the need to arm himself or herself with wealth that is impervious to inflation.  Americans have observed the escalation of the stock market from months ago when it sank to frighteningly low levels until recently when we see the DOW inching its way higher to well over 10,000.  The stock market has always competed to a greater or lesser extend with the gold market, which has recorded unprecedented highs within the last couple of weeks.  It is apparent, then, that the traditional non-art markets could result in inflation.

Intelligent Americans are aware of these investment comparisons and contrasts so they recognize the need to make wise decisions about spending their hard-earned dollars, which are constantly being taken from them by a greedy government.  It is difficult to argue with Washington, but it is a relatively simple matter to observe the trend of the times.  Those who have discretionary funds today will compare the various markets:  stocks, bonds, gold, commodities, and the least volatile of all, the American art market which has traditionally served as a hedge against inflation.

It is important to point out that aesthetics are not involved in any of the traditional investments.  Only art must be judged both subjectively and objectively so that a reasonable evaluation may be assessed for its potential acquisition.  We’re all aware of who sets prices on American art:  dealers and auction houses.  Accordingly, if the art auctions have revealed a trend as it has in the past few days, we must conclude that where there’s smoke, there’s fire, and we are about to feel the effects of new energy for that market.  Yes, we must conclude that the art that so drastically exceeded the pre-sale estimates proves the axiom and will continue to do so.  Is it time to jump back into the American art market, which has always been slow to move up or down or do we sit on our hands waiting for the next big sale to convince us that now is the time to buy?  We are convinced that waiting only makes one tell stories about the masterpiece that got away.