BUOYED by such rocket-fueled price increases, competitive art collectors and dealers now scour both exotic locales and local art schools for new names in hopes of discovering new talent and making it big in the art market. But despite the aggressive market making and mapping of future possibilities, a few older market watchers look on with fear and trepidation, often with mouths open to ask the inevitable: Are you sure you know what you’re getting into, boy?
The creation of artificial markets will surely lead to bubble markets if no sustainable model can be found. Like the rest of historical progress, the art market has cycles, often booming when there’s a lot of discretionary spending and a go-go atmosphere that sees nothing but unhindered success. But in an era when art collectors are competing with one another for ever-escalating standards of clout, the prices of artworks have no choice but to accelerate.
For a young man just out of his college years, this translates into a gold mine waiting to be harvested. “There’s a great explosion happening around the world,” says Julio L. Bitton, a fresh graduate with double degrees in humanities and Web development. Bitton is an aspiring participant in two start-up conferences. One is Startupbootcamp, a global network of industry-focused start-up accelerators with programs in at least nine world capitals.
According to Startupbootcamp officials, their start-ups receive an average of €467,976 in investment. But Bitton is nervous.
He says that he really doesn’t know the first thing in running a business, what more throwing your dice in a game with innumerable great “others” who are just as bloodthirsty in discovering the next big thing. He won’t name the second start-up conference since he says nothing good came out from it.
Bitton is just one of the thousand wannabe players who see exceptional potential in the contemporary art market. These people often recite a loopy mantra: Business is strong, driven by globalization. Art has become a luxury product, coveted by the surging crowd of new wealth in search of an identity and purpose. We can make oodles of money here.
Little do these fledgling businessmen realize that even the most successful ventures will eventually face insurmountable pitfalls, and the likelihood of failing is multiplied many more times than merely the number of competing ideas and groups. New art market players don’t realize that every cloud has a dark, foreboding lining—not just silver. Very soon, every market has to come to grips with a correction, especially if it has been misinformed.
If you want to enter the art market as a valuable player, you need to realize that older generations have already experienced a crash.
For some this happened in the early 1990s when art valuations came tumbling down. Can the next correction be coming soon? Though everyone would like to assume that the art market will continue, arming yourself with wisdom is better.
The assumption that the art world is bigger than ever and this bigness fuels its continued stability and growth is a landmine. Today’s art market is by and large misinformed, and this misinformation is seen when new names begin to command higher valuations than veteran artists. This misinformation is also obvious when people buy in packs and syndicates, and make purchasing decisions based on market trends and fashion rather than on art-historical standards.
Another big assumption: Globalization will save us. Traditionally, major art collectors have come from Western Europe and the US, but now they hail from all over. The argument goes that if the market falters in the West, some other place or periphery will take up the cudgels to maintain it. With big art spending occurring in the Middle East and East Asia, this assumption seems logical. However despite globalization, the emergence of new centers and peripheries does not necessarily spell stability. For one reason, the west has also stayed clear of developing further these markets. Secondly, it is unclear how deep or sophisticated the market is in these areas. If the European and American art market grew to a stop, new centers like China, Japan, Russia and the others might have a hard taking up the slack.
Likewise, the new conventional wisdom that art has become the new asset class also shouldn’t rev up hopes that the art market is immortal. Despite research saying that art has consistently outperformed the growth of the S&P 500, this type of art largely belonged to the class of the French impressionists and the giants of modernism. Contemporary art is still too new to make a compelling theory out of it.
So when will the crash come? There are a few signs to look out for. First is the consumer index. If the direction of expendable income goes south, expect a correction. Second is the prevailing fashion. Since human beings are a fickle-minded specie, a major bump in the road that causes widespread indignation may cause a bandwagon of players out of the market. In addition, new asset classes and more compelling investment strategies may appear in the broader market to lure more astute investors in new life-changing ventures that may be sweeter than anything art has ever promised to give.
Image credits: Newtown Graffiti