Rick’s Picks

Tuesday, September 25, 2007

“Phenomenally accurate forecasts” 

Talk about investment hubris getting pumped to the max! Listen to what one market veteran, Amanda Sharp, told a reporter from the Wall Street Journal recently: “If we were to get a crash or correction, there would be a nice cleaning out,” she says.  Would that we all shared Ms. Sharp’s brash confidence as we await the inevitable day when the stock market begins, finally, to discount an incipient plunge into recession and the widespread deflation that has gripped the real estate sector.  Neither prospect has had much of an impact on shares, at least not yet, but we can bet Ms. Sharp and her ilk have been sharpening their knives, waiting to feast on road kill.

The woman was not talking about stocks, by the way, but about art. She is the organizer of a highly successful London event called the Frieze Art Fair and presumably an ardent collector herself.  You may have read that the art market is so superheated these days as to make the current surge in stocks and even ultra high-end real estate look as subdued as a 4-H bake sale. How does $19.1 million sound for a stainless-steel cabinet containing 6,136 handcrafted pills. That’s what Damien Hirst’s one-of-a-kind tchochka fetched at auction recently – the highest price ever paid for a work by a living artist. As for works by famous dead artists, even some of the heavies ranked near the bottom of the Forbes 400 list might not qualify as serious bidders. How about $72 million for Warhol’s “Green Car Crash”?

Warhol Our Pick

While we have little doubt that Warhol’s iconic paintings will more than hold their own at auctions a hundred or even a thousand years from now, how many more greater fools can there be to sustain their current, vertical trajectory? Esquire magazine once worked the numbers on Jackson Pollack’s best-known drip-fest, Blue Poles, estimating in the early 1970s that it would eventually change hands for trillions of dollars if the painting’s steep rate of appreciation in the 1950s and 60s continued.  In fact, the work was last sold to the National Gallery of Australia for $2 million in 1973, and there it hangs, appraised at a mere $150 million-plus.

Ms. Sharp may be right about the emetic effect a shakeout would have on all of the second-rate stuff being snapped up these days by collectors with bigger money and pretensions than taste. However, we think she may be grossly underestimating how very bloated prices are for Picassos and Warhols. Indeed, at $50 million to $70 million a pop, the best works have quite a bit of room to fall, especially if the global financial bubble pops. Will the owners of such works feel as passionate about them if they decline in value by 50 percent or more?  We may get a hint in the coming weeks, since an unusual number of works are headed to auction. Our guess is that if prices merely fail to rise, let alone drop, the smell of fear will become as pungent in the art world as it already is in the bond houses.

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com