As the art market catches up with financial markets, boom is turning to bust and contemporary is starting to look like history, says Ivan Lindsay

Damien Hirst said, “I just wanted to find out where the boundaries were. I’ve found out there aren’t any. I wanted to be stopped but no one will stop me.” No one, that is, until now when, in the cold light of dawn, after a decade-long party, the art-buying public is moving away from speculating and towards buying the classics. Ever commercial, Hirst has reportedly given up spots and butterflies and returned to painting, although whether he can paint, or how much painting will actually be done by him, is unknown. The spot paintings were executed by an army of forty assistants in a factory. Hirst said, “The best person who ever painted spots for me was Rachel. She’s brilliant. Absolutely fucking brilliant.” Hopefully, Rachel can paint too.
On 27th February the Dow closed at 7062, 20 points below 7082, the halfway level between its high of 14,164 in October 2007 and the 41 it reached at its lowest point in July 1932. Thus, in a mere year and a half the Dow has given back over half its gains since the Great Depression. Dow Theory suggests that the recession started in the USA in September 2007 and the art market, which traditionally follows a year behind the real economy, duly followed in October 2008.

With the demise of Lehman Brothers, art buyers suffered from a collective collapse of confidence and a sudden realisation of just how bad this recession might get. Sotheby’s and Christie’s immediately felt the change of mood on their bottom line. Bill Ruprecht, chief executive of Sotheby’s, commentated, “The global crisis which erupted in the autumn of 2008 had a major impact on our business in the fourth quarter,” whilst revealing that, despite the company’s aggregate auction sales having been at record levels during the first three quarters of 2008, there had been a major decline in volumes and profitability after October. The company revealed a 51.9 per cent drop in sales during the fourth quarter, from US$345.8m to US$166.2m, and significant losses from giving guarantees and write downs on the value of their inventory. Sotheby’s stock fell 4.9 per cent or 35 cents to US$6.77 from a high of US$60 in late 2007. Christie’s also said in February 2009 that their sales had fallen 11 per cent to $5.3bn.

Rumours circulating that both auction rooms are themselves on the block have been strenuously denied by Ed Dolman, chief executive of Christie’s, who said, “It’s not true… Francois Pinault has no intention of selling Christie’s,” a position echoed by Ruprecht for Sotheby’s. Although his intentions are unknown, Steve Cohen of SAC Capital is building a position in Sotheby’s stock and in March raised his stake from 4.7 to 5.9 per cent.

The good news amidst all this is that the prices of several categories of art are holding up and proving once again that classic art remains an excellent diversification. It is the art sellers who over expanded during the boom that are now having to retrench rapidly in order to survive. Those areas of art that rose fastest during the boom are those correcting the most severely, examples being the contemporary art of the emerging markets of China, India and Russia.

Sotheby’s and Christie’s are nothing if not survivors and have initiated a drastic restructuring. They have stopped issuing guarantees to sellers (Sotheby’s having admitted losses of US$ 83m from this practice in Q4 ’08), started insisting on payment before collection, downsized sales and are firing 20 to 30 per cent of their workforce.

In the good times contemporary dealers built up substantial inventory of the hottest artists, which made them a fortune, but they are now sitting on large quantities of unsellable stock. The Art Newspaper revealed that White Cube in London has over £100m of Damien Hirst’s work and the New York Times reported that the Mugrabis of New York have a staggering 800 works by Andy Warhol – “easily the largest collection in the world after ours,” says Tom Sokolowski, the director of the Andy Warhol Museum in Pittsburgh. The patriarch, Jose Mugrabi, also stockpiled Jean Michel Basquiat, Tom Wesselman and George Condo. He tasked his sons, Alberto and David, 38 and 37, respectively, to find someone else they should buy and they came up with, well, Damien Hirst, so they now own 150 pieces by him also.

As for the granddaddy of contemporary dealers, Larry Gagosian, he keeps his inventory close to his chest. With galleries in New York, Los Angeles, London and Rome he represents some of the hottest names of the last decade, including Richard Prince, Jeff Koons and, of course, Damien Hirst. Ed Ruscha, a major artist on Gagosian’s books says that Gagosian is, “a well-fortified ship, but he is up against the perfect storm… everyone is on red alert there.”  Outwardly Gagosian remains supremely confident but a recent memo sent around his staff suggests all is not well: “If you would like to continue working for Gagosian I suggest you start to sell some art. Everything is going to be evaluated in this new climate based on performance. I basically put in 18 hours a day, which any number of people could verify. If you are not willing to make that kind of commitment please let me know… The luxury of carrying under-performing employees is now a thing of the past.”

Meanwhile, long-term collectors of good quality artworks are breathing a sigh of relief that the crazy years are over and that art can be bought at a slower pace without the pressure that the painting will be sold to someone else if they hesitate for a second. Collectors are starting to buy with their eyes again as opposed to their ears, and dealers are once more allowing collectors to take pieces home on approval.

Several major collectors have re-emerged recently. Many had been put off by the boom-time mentality described by Thomas Hoving, former director of the Metropolitan Museum of Art as, “Art is sexy! Art is money-sexy! Art is money–sexy–social climbing–fantastic!” At the auctions in February a Japanese buyer who hasn’t been seen for years emerged to buy Degas’ bronze Petite Danseuse de Quatorze Ans for £13.3m, which had been bought by John Madejski, the owner of Reading Football Club, for just over £5m in February 2004.

Categories such as Impressionists, Old Masters, early twentieth-century art, antiquities and sculpture are all holding their value, as they did during WWI, the Great Depression and WWII. Recently a Manet fetched £11.2m, a 1624 Bagpipe Player in Profile by Hendrick Terbruggen made US$10.2m and Malevich’s Supremacist Composition sold for US$60m. The recent success of the sales of Yves Saint Laurent and Gianni Versace’s collections, which both doubled their estimates, although positive for the art market, was more a triumph of marketing over substance.  Christie’s elevated Saint Laurent’s apartment to a “cathedral consecrated to art” and there was talk of some of their experts being close to tears when trying to articulate to the press how beautiful it all was.  The Saint Laurent collection had a few good pieces amongst a sea of upmarket bric-a-brac and the sale of the contents of Gianni Versace’s Lake Como villa was an essay in camp and kitsch.

Initial reports coming in from the Maastricht Fine Art Fair have been better than expected. Works by Peter Paul Rubens, Gabriel Metsu, Jean-Michel Basquiat, Emil Nolde and Wassily Kandinsky all sold. Johnny van Haeften, the leading dealer in Dutch and Flemish painting, sold 20 per cent more paintings than last year and said that “despite worries about the state of the economy, most areas presented at the fair including silver, furniture, antiquities and jewellery did well.”

Buying art should be undertaken with a long-term view of at least ten years. When collectors get a chance at a special picture within their field of interest they should buy it whether the economy is in boom or recession. Great art does not decrease in value so there is no point waiting. Occasionally it levels off for a while, like at the present time, before again beginning its upward ascent. If an artwork feels like a bargain then there is nearly always something wrong with it.

The rules for buying art are simple in theory but hard to execute. As Warren Buffett advises on stocks, buy great paintings at fair prices and avoid, at all costs, the temptation to buy lesser paintings at low prices. The best paintings always feel expensive and many people find it difficult to pay the premium. Those that do end up with the best collections, with pictures that quietly appreciate. To establish the difference between good and great paintings collectors either have to study for years or seek out the advice of someone who knows. Art should be bought to enjoy and create a life-enhancing environment and as a store of value as opposed to a speculation. Spears readers can expect a smaller, leaner and quieter art market, but the rules for buying art remain unchanged.

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