A $180 Million Picasso: What’s Making the Art Market Sizzle
The art market is hotter than a hoisted Rembrandt.
Last night at Christie’s in New York, Picasso’s “Les Femmes d’Alger (Version O)” sold for almost $180 million – the highest price ever paid at auction for a piece of art. There were said to be five bidders, and the winner remains anonymous.
At the same sale, a Giacometti sculpture, “L’homme au doigt,” went for a total of more than $141 million.
On May 5, at the first major auction of the spring selling season, Sotheby’s pulled in $368 million. It was the second-highest sale of Impressionist and modern art in the history of the auction house, according to The New York Times. The top seller was van Gogh’s “L’allée Des Alyscamps,” which fetched $66.3 million.
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The haul represented a 67 percent increase over Sotheby’s spring sale a year earlier, according to Bloomberg, which noted that many of the buyers were Asian.
The May 5 auction was only the second-highest because Sotheby’s held a sale last November that took in $422 million.
And tonight at a Sotheby’s auction of contemporary art, a painting entitled “The Ring (Engagement)” by the Pop artist Roy Lichtenstein could sell for as much as $50 million, the Times said.
What’s behind all those staggering numbers?
About a year and a half ago, the columnist Felix Salmon (then at Reuters, now at Fusion) ruminated about whether there was a bubble, which he defined as often driven by FOMO (fear of missing out), or a speculative bubble, one fueled by flippers, in the art market. His conclusion: the art market bubble was definitely not speculative.
“The people spending millions of dollars on trophy art aren’t buying to flip…,” he wrote.
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Still, Salmon said he was seeing signs that the market could be turning speculative. But they may have been false signals.
Recently, The Wall Street Journal wrote: “Spurred by the momentum of several successful sale seasons and an influx of newly wealthy global bidders, the major auction houses…say demand for status art is at historic levels and shows no signs of tapering off.”
But why?
In an April 17 article, the global news website Worldcrunch asked Financial Times journalist Georgina Adam, who wrote the 2014 book Big Bucks—The Explosion of the Art Market in the 21st Century, why so much money is rolling around the art market and driving up prices.
“Rich people used to be rich in terms of estate or assets, but not so much in terms of cash, like they are today,” she said.
“This growing billionaire population from developed or developing economies has money to spend and invest,” said the Worldcrunch article by Catherine Cochard. “For many of them, art — in the same way as luxury cars or prêt-à-porter — is an entry pass to a globalized way of life accessible through their wealth.”
That is a development that the keen eyes at the auction houses haven’t missed.
Chart of the Day: A Buying Binge Driven by Tax Cuts
The Wall Street Journal reports that the tax cuts and economic environment are prompting U.S. companies to go on a buying binge: “Mergers and acquisitions announced by U.S. acquirers so far in 2018 are running at the highest dollar volume since the first two months of 2000, according to Dealogic. Thomson Reuters, which publishes slightly different numbers, puts it at the highest since the start of 2007.”
Number of the Day: 5.5 Percent
Health care spending in the U.S. will grow at an average annual rate of 5.5 percent from 2017 through 2026, according to new estimates published in Health Affairs by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS).
The projections mean that health care spending would rise as a share of the economy from 17.9 percent in 2016 to 19.7 percent in 2026.
Trump Clearly Has No Problem with Debt and Deficits
A self-proclaimed “king of debt,” President Trump has produced a budget that promises red ink as far as the eye can see. With last year's $1.5 trillion tax cut reducing revenues, the White House gave up even trying to pretend that its budget would balance anytime soon, and even the rosy economic projections contained in the budget couldn’t produce enough revenues, however fanciful, to cover the shortfall.
The Trump budget spends as much over 10 years as any budget produced by President Barack Obama, according to Jim Tankersley of The New York Times. And it projects total deficits of more than $7 trillion over the next decade — "a number that could double if the administration turns out to be overestimating economic growth and if the $3 trillion in spending cuts the White House has floated do not materialize in Congress,” Tankersley says.
Trump — who once promised to both balance the budget and pay down the national debt — isn’t the only one throwing off the shackles of fiscal restraint. Republicans as a whole appear to be embracing a new set of economic preferences defined by lower taxes and higher spending, in what Bloomberg describes as a “striking turnabout” in attitudes toward deficits and the national debt.
But some conservatives tell Tankersley that the GOP's core beliefs on spending and debt remain intact — and that spending on Social Security and Medicare, the primary drivers of the national debt, are all that matters when it comes to implementing fiscal restraint.
“They know that right now, a fundamental reform of entitlements won’t happen," John H. Cochrane, an economist at Stanford University’s Hoover Institution, tells Tankersley. "So, they have avoided weekly chaos and gotten needed military spending through by opening the spending bill, and they got an important reduction in growth-distorting marginal corporate rates through by accepting a bit more deficits. They know that can’t be the end of the story.”
Democrats, of course, have warned that the next chapter in the tale will involve big cuts to Social Security and Medicare. Even before we get there, though, Tankersley questions whether the GOP approach stands up to scrutiny: "This is a bit like saying, only regular exercise will keep America from having a fatal heart attack, so, you know, it's ok to eat a few more hamburgers now."
Part of the Shutdown-Ending Deal: $31 Billion More in Tax Cuts
Margot Sanger-Katz and Jim Tankersley in The New York Times: “The deal struck by Democrats and Republicans on Monday to end a brief government shutdown contains $31 billion in tax cuts, including a temporary delay in implementing three health care-related taxes.”
“Those delays, which enjoy varying degrees of bipartisan support, are not offset by any spending cuts or tax increases, and thus will add to a federal budget deficit that is already projected to increase rapidly as last year’s mammoth new tax law takes effect.”
IRS Paid $20 Million to Collect $6.7 Million in Tax Debts
Congress passed a law in 2015 requiring the IRS to use private debt collection agencies to pursue “inactive tax receivables,” but the financial results are not encouraging so far, according to a new taxpayer advocate report out Wednesday.
In fiscal year 2017, the IRS received $6.7 million from taxpayers whose debts were assigned to private collection agencies, but the agencies were paid $20 million – “three times the amount collected,” the report helpfully points out.
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