Munch The Scream lithography (Photo credit: Wikipedia)

(This thoughtful article by Martin Sosnoff on the current enormous prices recently seen at the art auctions came out in Forbes).

I relish evening contemporary art auctions in the Big Apple.  It gives me a feel for the breadth and intensity of bidding on specific pieces of interest.  But, I’m rethinking my position.  Almost all art at auction turned pricey years ago.  Ironically, if I had spent the past 10 years more intensively involved in the art world as an aggressive collector I would have coined money.  Instead here I am battling for investment survival.

Dozens of pieces I bought even five years ago logged median appreciation of 1,000 percent.  I’m not bragging.  The new wave of international buyers carried me along as they bid indiscriminately for iconic contemporary works.  There’s no ending in sight as the past 2 weeks’ auctions proved.  Just a handful of lots I could even afford to bid on.  The going rate on a Mark Rothko now is north of $75 million.

When I heard Munch’s Scream made $120 million I shook my head in disgust.  The 0.1 percent set turned decadent role models in a world enduring 24 percent unemployment among Europe’s weak sisters.  College graduates squirm, unable to make a dent in student loan debit balances while states like California up tuition far beyond a student’s carrying capacity.

Let’s diss these telephone bidders who pay nine figures for iconic works of art: Giacometti’s Walking Man, Picasso canvases and now Munch’s Scream.  Sooner or later, buyer identity surfaces.  The widow of Safra, who built a personal banking empire and the late Sam Walton’s daughter who owned from go a tranche of Wal-Mart now worth over $20 billion.

There are dozens of Russian oligarchs, Chinese industrial honchos, gaming casino headmen like Steve Wynn – probably 100 or so collectors stand ready to bid for Warhols, Picassos, Bacons, Rothkos and Clyfford Stills work.

Even major museums like the Getty or MoMA dare not compete at auction, fearing push back from their boards and the public.  Actually, buying at auction is a tacit admission that you’ve missed your market, failing to perceive and buy early on controversial or ignored work that later emerges as vibrantly expressing the ethos of its age.

My biggest errors came from selling too soon works by Warhol, Basquiat, Wool, Richter and Botero because I tired of them.  Watching canvases appreciate 10 fold in a 5-year period is forever painful, comparable to banging out Apple 5 years ago at $32 a share (I was a buyer.)

Collecting currently is a frustrating, pricey grind.  Somebody always gets there half an hour ahead, sometimes minutes before you.  At the Frieze exposition on Randall’s Island last week I missed out on two pieces – a Robert Longo American flag in muted greys and an updated rendition of George Washington crossing the Delaware with his troops.

I’m waiting for the contemporary art market to top out and drop 50 percent, but it doesn’t comply.  Catalogs from Sotheby’s and Christie’s wax fat, elaborately packaged, scholarly annotated with notes categorizing the work in question’s derivation and historical context.

You don’t have to thumb through dozens of books on art criticism, biography and illustration.  Sotheby’s and Christie’s researchers do it for you.  Many pieces at auction are bought sight unseen, employing transparencies or images sent over the Internet to smart phones and iPads of prospective bidders.
Today, there’s very little for sale that I can compete for, not part of the $10 million and up buyer class.  My collecting dates back to the mid-fifties when there were maybe 100 serious buyers of contemporary art in New York.  Mark Rothko’s canvases sold at Betty Parson’s gallery for $1,200 and you paid for it a hundred bucks, monthly.  Even Basquiat’s work sold for $2,500 in 1982.

Those days are gone forever.  Work by emerging artists starts around $15,000 while hot mid-career operators like Mark Bradford go for $500,000 and up.  If you walk in cold off the street to a major gallery, the chances are they won’t even consider selling you anything off their walls unless you’ve built a close relationship with them or can prove that you’re a serious collector.

The art world has run contrapuntally to financial markets this past decade.  The S&P 500 Index topped out almost 12 year ago and point to point, with dividends, yielded a skimpy return, little more than 1 percent.  Currently, savers stand disenfranchised by the Federal Reserve Board, earning under 2 percent on 10-year Treasuries and little more than 3 percent on AAA corporates of five years duration.  No wonder art today is considered a repository of value promising appreciation.

Investors still hold too much of their liquid assets in cash which earns nothing.  Our jitter-bugging stock market breeds anxiety.  Risk on, risk off traders trigger stocks like Apple into fluctuations of 3 to 4 percent, daily.  Personal capital won’t come back in until the market takes out its old highs set in 2000 and 2007.  I’m waiting, impatiently.

I yearn for the Yankee frugalist days of my mid-twenties.  We would brown bag it to Wildcat Mountain in New Hampshire.  Everyone self-sharpened their ski edges.  Nobody bought a new car more than once every 7 or 8 years.  You’d be unmercifully chastised at communal spaghetti and meatballs dinners.

The price level for art today is neither leading nor lagging indicator.  This shooting star is a coincident indicator.  Hundreds of newly minted billionaires in Russia, the U.S. and China as well as oil sheiks in the Arab world now yearn to erect museums of contemporary art, but lack inventory to cover the walls as yet.  Their open-to-buy starts with Warhols, Richters and Rothkos and then works down into my inventory category of Joan Mitchell, Anish Kapoor, Georg Baselitz and Anselm Kiefer.

Meanwhile, President Obama has turned silent on ending the capital gains treatment for the carried interest of hedge fund operators, many big collectors.  There is no tuition grant program in exchange for 2 years of public service comparable with the Peace Corps of the Kennedy years.  It’s a toss up whether the payroll tax cut exists past yearend.  Not even the safety net is secure for the jobless.

Our country fails too many of its citizens.  No wonder that the valuation multiplier for the market is stuck at 13 times earnings.  Even 13 seems pricey in a world where the super rich wax self indulgent, flaunting outrageous bids in the art market.

Let’s face the music.  Corporate profit margins remain buoyant because labor these past 20 years got a lesser share of GDP.  Sooner or later, countervailing power builds up and forces concessions.

What will Warhol and Lichtenstein be worth 50 years ahead?  ¿Quién sabe? The long term history of art prices covering 3 centuries shows a viciously cyclical pattern where one age’s indulgences turn nearly worthless decades later.  Unsaleable.

Meantime, the stock market is dealing with the conundrum of corporate profit margins moderately above trend relative to normalized earnings.  As I expected, commodity prices are coming in.  Oil easily drops another $10 a barrel considering its oversupply.  The stop ‘n’ go economic setting makes me edgy.  Does Greece float out into the Aegean?

Thumbing through Sotheby’s May 9 evening sale catalog, Basquiat canvases showed low estimates of $4 million, ditto for a Christopher Wool word piece.  Gerhard Richter’s 6-foot canvases looked to range over $10 million.  Roy Lichtenstein’s Sleeping Girl, 36 x 36 inches, could make $40 million along with a Francis Bacon and a Warhol Double Elvis executed in 1963.

I remember many of these pieces sold around $100,000 as late as 1990 when shown in New York galleries along with Joan Mitchell’s canvases now reaching over $6 million.

Hundred fold appreciation decade over decade is unheard of in the financial world unless you employ maximum leverage – so dangerous to your stability and staying power.

Financial markets stand more rational and less pricey than modern and contemporary art offerings at auction but nobody cares. When the circus comes to town you’re supposed to sell peanuts.  Sotheby’s and Christie’s surely remain able facilitators.

Martin T. Sosnoff is chairman and founder of Atalanta Sosnoff Capital, LLC, a private investment management company with $8 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: Goldman Sachs and Apple. Write Martin Sosnoff: mts@atalantasosnoff.com.