Art in China Booms... Vase up 22,000 Percent

Any way you slice it, $130 million and up is a lot to spend on a piece of art. That’s why you might expect those deals to primarily happen among the super wealthy in the US, that is, until recently. China has once more outstripped the States in an alarming wealth statistic… it’s now the biggest market for art auctions in the world.

In one noteworthy example, a Chinese vase — which began its bidding at $800 — raced up to $18 million, for a 22,000 percent increase in value. The Atlantic’s associate editor Derek Thompson sees China’s new art auction hysteria as another sign of an impending economic bubble.

From The Atlantic:

“Let’s go back to the halcyon days of our own bubble. In November 2006, David Geffen, the producer of ‘Cats’ and co-founder of DreamWorks Pictures, sold No. 5, 1948 by Jackson Pollack for $140 million, making it the most expensive painting ever sold. Two weeks later, he nearly broke his own record, unloading Woman III by Willem de Kooning for a cool $137 million. These paintings broke a six-month record set by another New Yorker Ronald Lauder, who had bought a Gustav Klimt portrait for $130 million for his Neue Galerie. It was a very good year for auctions, stocks, and CDOs.

“It was also the end of an era. It’s no coincidence that these auctions occurred near the frothy tip of a credit bubble, Mansharamani says. In fact, tracking auction records and auction house stock is one of the best ways to smell out a simmering economic crisis.

Source: The Atlantic.

“‘As one of the world’s leading art auction houses, Sotheby’s has been a beneficiary of booms in the art market,’ he writes. In the last 20 years, Sotheby’s mostly stable stock has experienced four sharp peaks. In the late 1980s, Japan had been ‘the center of gravity’ in the international art market. But its economy imploded, sending Sotheby’s stock reeling. Ten years later, the Internet bubble drove another auction boom among Silicon Valley newbies, and the bubble burst again. Ten years later, we watched the same film play out. This year could be deja vu, all over again … all over again.”

A key driver in both markets — as the frothy real estate is also described — unmentioned in the article is the dearth of relatively predictable investment alternatives in China. Ordinary bank savings accounts offer little or negative real returns, and the Shanghai and Shenzhen exchanges are considered by many to offer almost exclusively speculative opportunities. Art and real estate may be in bubble-like states, but, until the wealthy in China find other viable alternatives, they are likely to continue scrambling for anything they perceive as a reliable store of value.

You can read more details in The Atlantic’s coverage of how Sotheby’s stock price predicts bubbles in the world economy.


Rocky Vega,
The Daily Reckoning