Mark Rothko’s ‘Orange, Red, Yellow’, 1961, on display at Christie’s in New York on May 4, 2012
At the November 2012 night auctions at Sotheby’s and Christie’s I started to sniff a rat. Non-trophy canvasses took a back seat at both modern and contemporary art sales. Many lots sold under low estimates, an indicator that consignees badly wanted out. More than half the lots at Sotheby’s contemporary auction sold below or at low estimates or “passed” unsold.
The rat was loose. The Times reporter covering the night auction at Sotheby’s wrote of its splashy success. Actually, the great success was made by a couple of trophy pieces by Rothko and Warhol. Don’t ever believe art is a liquid asset like Apple and Google.
Was this toppiness in art transferable to the stock market, prime real estate, even gold and oil? Absolutely not! The stock market is still dirt cheap compared with art. Oil is tied to worldwide GDP momentum. Lots of supply. There’s no supply of luxurious apartments in NYC and gold, well gold is gold. With a strong dollar gold moves contrapuntally lower.
The only toppiness I see in financial markets is in Treasury bonds and AAA corporates. Barring a deep recession, holding bonds is a dead man’s hand. The art auctioneer always whispers “pass” hoping nobody is paying attention.
Price escalation in Italian Renaissance painting on the eve of 1929’s Black Friday can be laid at the feet of Wall Street operators. A goodly dozen embraced Andrew Mellon, Jules Bache, Otto Kahn, Benjamin Altman, Solomon Guggenheim, Samuel Kress, Henry Frick, Peter Widener and industrialists like Edsel Ford and Baron von Thyssen. J. P. Morgan belongs here, and later John Paul Getty. Mellon coughed up almost a million for a Raphael Madonna, an all time record for a picture in the twenties.
Similarly, the contemporary and modern art scene today is propelled by a comparable coterie of billionaires throwing their weight around at Sotheby’s and Christie’s night auctions. Names like Steve Cohen, Eli Broad and Steve Wynn come to mind along with Leon Black and François Pinault.
Broad and Pinault are great collectors, fully operative since the seventies. The arrivistes – Russian, Asian and European players are trophy buyers of Warhol’s Mao portraits, Jeff Koons’s immaculately finished sheet steel tulips, Richter’s squeegeed colored canvasses and Mark Rothko’s hazily-colored biomorphic cloud pieces.
Everyone who can, vies for Jackson Pollocks periodically put up for sale along with Francis Bacons and Franz Klines. Lily Safra, after inheriting her banker husband’s fortune bought Giacometti’s Walking Man sculpture for over $100 million, ruining the market for poor schlubs like me.
My encounter with the Mark Rothko canvas, No. 1 (Royal Red and Blue) that went for $75 million at Sotheby’s was at the show Betty Parsons gave Rothko in 1954. Canvasses were priced at $1,200. Betty offered to let me pay one off at $100 a month, but I had just returned from the Korean War, homeless and jobless, just $500 to my name so I passed.
During the fifties and sixties there couldn’t have been more than 50 collectors of contemporary art in Greater New York. You nodded to the same faces in the elevators riding up to galleries all along 57th Street. There were no lists of 50 or more collectors waiting for a piece from Pace or Castelli. Tony d’Offay at his 1990 Richter show made it a first come, first served methodology. Richter’s pieces were priced at $100,000. Foolishly, I turned them down as too prettily squeegeed canvasses.
In the eighties, if your fortune counted up to $250 million, you made the Forbes 400 list.
Gallerists who bought and inventoried work from their stable of artists over decades ended up seriously rich. I’m thinking of Tony d’Offay, Ileana Sonnabend and Pierre Matisse who loved and coddled their artists, many receiving monthly stipends to keep them functional. They owned ‘em for life – the Buffett approach.
There is much to be said for connoisseurship and its second derivative huge future returns. Years ago, when I showed Mike Milken photographs of John Chamberlain’s crushed scrap metal sculptures, I remarked “one generation’s junk becomes the next generation’s art.” Milken quipped “and vice versa.”
Studies I’ve seen on art prices show art pretty much tracked money market rates of return over several centuries. Low single digits, annually, but during the past decade critically acclaimed contemporary work that many of us thought we were throwing away our money on has appreciated 1,000 percent.
Apple Computer as a stock rose 1,000 percent, too, but you can’t joyfully hang it on your walls. The stock market, itself over the past 11 years returned a measly 3 percent. We were numbers on our broker’s ledger sheet, mostly silent investors, silent losers. The biggest investment problem is always not which stocks to own, but where to put your money. Since 2008, The Value Line Index has outperformed foreign markets by 50 percent.
I can’t find any linkage between art prices and the S&P 500 Index these past 10 or even 50 years; not to say they won’t be more closely attached going forward. Huge fortunes made in Silicon Valley, natural resources, retailing, hedge fund management, private equity investing and Internet startups like Google and Facebook seem likely to remain intact if not appreciate during the next decade.
Maybe, these honchos allocate 10 percent of their boodle to art, another 10 percent to gold, 30 percent to emerging markets and the remaining 50 percent to the Big Board, venture capital, real estate and high yield bond plays. Today, the public stands flummoxed and overmatched in equity investing. Don’t expect any surge in cash flow earmarked for equity markets. The investment setting presently is for pros only until the market makes a new high and sucks in the public.
Why should cream puffs score in the stock market? Professionals had a hard time keeping pace with the averages these past 5 years, particularly 2012. My belly button signals stocks and junk bonds are where to be this year. Valuation is fair and corporations can’t hold to an underleveraged construct forever. They will buy back more stock.
Conversely, art market supply is mushrooming to meet oligarchic demand. Name painters and sculptors are expanding workshops and hiring dozens of assistants. They’ve learned from Jeff Koons, Damien Hirst, even Leonardo and Michelangelo.
Sooner or later, artists in demand crank out cookie cutter work. The market wises up. Prices top out and then decline. The Sistine Chapel wasn’t painted overnight and was never put up for sale. Many Warhols and Basquiats were finished in a couple of hours. Swish, swish, schlock, schlock went the brushes and then out the door to ready collectors.
Bernard Berenson, who over a lifetime of connoisseurship, disdained German, American and English academics, just as I avoid market pundits. For Berenson, looking at a picture was always an emotional experience, a new discovery and only then to be placed in the continuum of Italian Renaissance painting from Duccio, Masaccio and Giotto through Botticelli, Titian, Leonardo and Michelangelo.
Over 70 years Berenson built a library of 34,000 books, but tells us not to waste much time reading about pictures instead of looking at them. A good rough test is whether you feel reconnected with life on viewing a piece.
Strangely, BB barely warmed up to Impressionism, neutral on Matisse but liked Dégas. He lived long enough to see the blossoming of abstract expressionism in the early fifties but never paid attention. I can only imagine his revulsion with minimalist art, geometric abstraction, op and the pop art of Warhol and Lichtenstein. Nobody’s perfect!
The blast of energy radiating from Michelangelo’s The Last Judgment is timeless. I try to buy stocks in the same way. Yes, I perform due diligence, but the property has to excite me in terms of entrepreneurial dynamics, its place in the macro environment and special operating competence.
My list still embraces Google, Apple, JPMorgan Chase, Goldman Sachs, Gilead Sciences and Disney. Lately I added Peabody Energy, Vale S.A. and Walter Energy, pricing plays on metallurgical coal and iron ore as China’s GDP recovers. Also, lots of General Motors which everyone ignored or hated. It’s risen 40 percent these past months along with Sirius XM Radio, also tied to the rising monthly selling rate for autos.
According to Berenson we see much more with our mind then with our eye. I keep repeating this to myself as I parse analysts’ spreadsheets and watch the tape zip by, a mindless sitcom.
Martin T. Sosnoff is chairman and founder of Atalanta Sosnoff Capital, LLC, an investment management company with $6 billion in assets under management. Sosnoff has published two books about his experiences on Wall Street, Humble on Wall Street and Silent Investor, Silent Loser. He was a columnist for many years at Forbes Magazine and for three years at The New York Post. Sosnoff owns personally and / or Atalanta Sosnoff Capital owns for clients the following investments cited in this commentary: Apple, Google, Facebook, JPMorgan Chase, Goldman Sachs, Gilead Sciences, Walt Disney, Peabody Energy, Vale S.A., Walter Energy, General Motors and Sirius XM Radio.
Martin Sosnoff