THE ART ADVISOR NEWSLETTER/NY Contemporary Auctions

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By: Carole Lieff - Vol XXVIII/May 20, 2007

$175/per year

Why is it that I feel like I'm cheating on the taxi driver, when I flag one down, but take the other one that reaches me first? This is not normal.

Well, boys and girls, keep those cards and letters coming. This last newsletter was apparently one of the most controversial ever.

I received more irate phone calls than I could count, and I said phone calls, not emails, and you know what that means.

One of the biggest collectors in California called and eviscerated me, telling me how Goldilocks the economy is, and that I was just one of those three Bears, and was I some kind of a village idiot prognosticating a pull-back during this, our very own fiscal art nirvana complete with an $11M Peter Doig, a $16M Basquiat, a $72M Warhol, and a $73M Rothko?

Well, either he was wearing the wrong reading glasses or he thought he was reading Barron's, because I did not predict a pull-back. I merely thought it was interesting to look back at past articles by reputable economic publications (like The Economist, for example, for those of you who missed it last month) to compare and contrast what's happening at this juncture vis-à-vis at a different all-time top (May, 1990.) And by the way, this isn't even a top, anyway. Indexed, art still has another 20% to go to approximate May, 1990.

So if you ask me, I'd say we have a case here of thou protesteth too loudly. Any of you have any money in the Nasdaq in 2001? Remember The New Economy? Just curious.

Then there were the cards and letters from the 35-year-old art-dealer-all-stars importuning that there was never a market crash before, and what in gods name was I talking about because everyone knows the art market only goes one way, and that way is up, thank you very much, and then there was that other group telling me that talk of the demise of the November 1990 art market was premature, or at least completely apocryphal, and you know who that crowd is, the same ones who say there was never any Holocaust.

So much for that. A girl's gotta do what a girl's gotta do. Thank god my ex-husband is a lawyer, and I mean the big kind and heaven only knows why he still likes me after all that…. well----oh, never mind.

So before we get to the big event (the May Contemporary sales,) you're probably wondering what else I have on my mind. Or maybe you're not. Well, too bad. If you don't like it, go back to your emails.

I have just discovered yet another reason to be grateful I moved to California, because I just found out you have to spend $700 for a bottle of liquor just to be able to sit at a table in a club in New York. And this is a minimum. I hear they seat you in Siberia, for gods sake, for your lousy minimum $700.

One of my readers asked me what kind of liquor you have to buy. Hand on Bible. I said honest to god, do you actually think they care what kind of liquor you buy at $700 a bottle? I'll tell you one thing, if I have to redistribute my wealth, it's not going to be on any stupid $700 bottle of Belvedere. I'm redistributing my wealth on a pair of Manolos and an Anne Fontaine blouse. And what about all those calories? You know there are about 3200 calories in that stupid $700 bottle. You're going to need that bottle after you step on the scale.

Though I suppose redistributing your wealth and your weight on some whiskey is better than in 1957, when they taxed the Wildensteins of the world a marginal 91%, and then there were the 25% capital gains, not to mention dividends taxed as ordinary income. And I'll bet those little 35-year-old art-star upstarts think that's a fairy tale, too.

Speaking of expensive drinks, I had some of those and dinner the other night at the Beverly Hills Peninsula with two fabulous men, one a fancy good-looking museum guy and the other a fancy good-looking art dealer.

As I arranged myself on the banquette, and after I thought I had finally convinced the Russian-waitress-with-the-15-carat- yellow-diamond engagement ring (and what kind of moron would let his future-bride keep working as a waitress--- in a 15-carat yellow-diamond engagement ring, no less…. I mean just curious) that I was an art dealer and not a hooker (and no, smarty-pants, they are not the same thing,) my two dates arrived and the Russian-with-the-diamond gave me a conspiratorial look, and a spirited conversation ensued. But the spirits weren't $700.

Well, all I kept thinking about was those $700 bottles in New York, and was I ever relieved, cause lord knows what you'd have to do if somebody, god forbid, bought you enough liquor that you didn't have to sit in $700 Siberia?

And speaking of Mike Ovitz, whom I saw today at the auction previews…. oh, sorry, wrong newsletter.

So back to the art dealers and the Peninsula, where, thank god, you don't have to pay $700 just to sit there, but you do have to put up with a waitress who thinks you're a hooker, and of course, every meeting these days with anybody in the art business starts out with how long can this last, and how on earth does one balance the need for maintaining appropriate inventory levels with the equal and competing need not to go bankrupt? (Well, I mean, unless, of course you're having dinner with Bill Acquavella…..and he'll be talking about the latest deal he did cornering the market to the tune of $80m on some artist or other with Sotheby's.)

So, my art dealer friend started in with The Liquidity Conversation.

If I hear one more art dealer throwing around the word liquidity, I will lose my lunch, and that would be a sad day indeed, especially at a nice place like the Peninsula with all of those hookers and hashimi and the citron and the little Japanese berries all around it, and that's just for starters.

"So," I said, and I knew the answer to this before I asked the question, "what exactly is liquidity?" Blank stare. "Well?" Blanker stare. "Do you know?"

"Um, well…no," said the Blank Stare. This guy has five advanced degrees.

"I didn't think so. So then why are you throwing around a word that you don't even know the meaning of?" (I mean look at what I'm dealing with… and you wonder why I write this newsletter.)

So I said, "Liquidity has to do with the money supply."

The Stare is getting Blanker. This is pathetic. Now I'm actually starting to feel guilty.

Then he said, "You know, I can borrow as much money as I want right now but I don't need the money, but when I do need the money, the bank won't give me the money because I need it."

Well, the reason is, because bankers will always lend you an umbrella when the sun is shining. And this, my dear Watson, is what you call a tautology.

Okay, here we go….And all you numbers guys, stop fidgeting because I remember when you didn't know the difference between a Koons and a Klimt.

Liquidity. Money supply. Hyperinflation. Bank loans. Interest rates. All of these things are interconnected. And I don't care if you don't think they relate to art. They do.

My art dealer friend was right about one thing, we are in a period of great liquidity, because the Federal Reserve (the Fourth Branch of Government) has increased the money supply. What does this mean? How do they do this? And why?

When you borrow from a bank, they are allowed to loan (and the amount is determined by the Federal Reserve) a certain multiplier beyond their deposit base. So let's pick a number and say an average multiplier is four times. So if a bank has $1 million in deposits, it can make $4 million in loans. Banks make money by making loans, on the interest rate spread.

The Federal Reserve also controls the money supply by regulating interest rates. Right now, interest rates are very low. In fact, they are at the lowest rate of your adulthood. This makes it easier to borrow money for two reasons: first, it's easier to qualify because the loans cost less (a function of the interest rate;) and second, because there are more available actual dollar bills that the government is whipping up to keep people from defaulting on their accelerating obligations (often due to inflation.) These extra dollar bills are distributed to the public through those easy-to-get (one could say promiscuous) loans we just talked about.

Now can't you see how much fun this is? Or have you completely lost your sense of humor?

Low interest rates weaken the dollar, and that's a longer conversation, but take my word for it. The dollar becomes less valuable. Conversely, it makes our products (take art, for example) cheaper for foreigners by encouraging buying from overseas' economies with stronger currencies, like euros at $1.36 (a 30% discount against the dollar,) or the British pound, now at its second all-time dollar high of $2. The last time the pound was at $2 was, you guessed it, 1990. But then you have to adjust for inflation over 17 years, so this $2 pound is different from 1990's $2 pound. It's worth less in today's dollars. Nonetheless, it's interesting.

Now when the Federal Reserve expands the money supply (like today,) they say, "Mr. Mellon, you can now make loans at eight times, your bank's deposits." So what this does, in effect, is allow the government to print more money to make more loans. Nothing about the deposits underlying the loans has changed (we used to be on the gold standard until Richard Nixon, a Republican I might add, changed all that,) and I hope you can see that this makes money less valuable, because there's more of it around for no apparent reason.

Why, you might ask? Because the government wants to avoid a recession. And by making money (loans) easier to get, they keep people from defaulting on their mortgages, Ferraris, yachts, Bergdorf's bill, you get the picture. Oh, and by the way…. auction houses make loans, too. But they're not regulated.

This is better than the Tunnel of Mirrors.

I hope you understand that when money becomes less valuable, tangible goods (i.e., art) look more attractive as investment vehicles. And if you tell me I'm losing you, I'll scream. Don't you want to know what your clients know?

Okay, so now we have this cute little financial fugue going on with the lower interest rates making it easier to borrow the money, and with the banks' being able to loan more actual amounts of the dollar bills which are being printed up on an ad hoc basis.

What this creates is an inflationary environment.

Think there might be a little inflation in the art market? How about those $7,000 Chanel jackets? Stocks (13,000)? Oil ($60 a barrel)? Gold ($670 per oz)? How about the fact that there are 400 billionaires in the United States?

Furthermore, a couple years ago import prices were gaining as much as 10%. This year they moderated and were up about 2%. This was still the largest gain since 1996. The weak dollar and high commodity costs (gold, oil, $7,000 Chanel jackets) are forcing foreign companies to raise prices on the goods they send to the U.S. And that opens the door for domestic companies to raise prices as well. And we haven't even talked about the tight labor market (4.5%,) which can also be inflationary, due to lower supply and higher demand.

When I explained this inflation deal to another art dealer (this one got straight 800s on both SATs,) he said there is no inflation because bread and milk are not getting more expensive. Oh give me a break.

So to put a little bow around this, when the Federal Reserve expands the money supply, it's easy to get loans and it causes inflation.

But sometimes the Federal Reserve likes to contract the money supply. Why? To curb inflation. That's what Ronald Reagan did in 1982. He contracted the money supply and raised interest rates from 7% to 12% to put an end to hyperinflation. And what that did was cause a recession. It always does. (Ben Strong, the Fed Chairman during the Depression contracted the money supply in 1930, got it?) But it puts the economy back on earth again. No one in this administration wants a recession. So they throw money at it. I mean, actual dollar bills.

Fact: Between 2000-2007 the Federal Reserve has doubled the U.S. money supply.

And have you ever thought about what will happen if the euro becomes the world's reserve currency asset instead of the dollar? (Like how about if they start pricing oil in euros instead our currently valueless dollars?) Won't that be a kick.

As long as these guys are in, cutting taxes, glutting the world market with cheap dollars (and these cheap dollars discourage savings because you can't get any interest on your money,) there will be no recession. There will be inflation.

But suppose we have a new Democratic Administration. The Democrats are not known for a particular sensitivity to the .0001% of their art-buying constituents. Suppose they raise interest rates, contract the money supply (Mr. Mellon, your banks can now loan only three times their deposits,) and then the coup de grace, raise taxes. That will be quite a ride. And these are what you call EXOGENOUS VARIABLES. Don't think it could happen? You'd better get yourself a library card.

So while Mr. California Top 200 Collector is vilifying me, telling me basically that I'm the village idiot to have you even look at these things while the economy is so robust (at a tepid 1.8% this quarter,) he has elected to overlook this key variable. No one can predict the economy's future, and I just explained why. EXOGENOUS VARIABLES. Like…. well, try these on for size: a Hurricane Katrina, a new administration, Iranian nuclear weapons, an oil embargo, Islamic jihad, a 2001 Microsoft securities suit. Got it?

Can you handle any more of this?

No, I see the eyes glazing over.

But we're not finished with this yet. Next month I'm telling you about the commodities market. I've done a very interesting quantitative analysis, but you'll fall asleep if I tell you now. For god's sake, half of you couldn't even make it through those fun Economist articles I reprinted last month.

THE AUCTIONS (Or, The Story of the North American Peso)

Well, I don't think it's hyperbole to say we are in kind of an historic moment here in the art business. I use the term parsimoniously and at my own risk, as historic moments in the art world seem to come and go like European M & A's these days. I was told it was because Ben Bernanke was dropping money out of helicopters. I wish someone would tell me where he's making the drops. He seems to have something against art dealers, because I don't know one art dealer who knows where the drop is.

Anyway, first, on Tuesday, Sotheby's set a world record for a contemporary picture at auction, a 1960 Rothko (White Center) from the collection of David Rockefeller at $72.8M. A Francis Bacon, Study from Innocent X (1962), doubled the record for the artist at auction, selling for $52.6M. Even film auteur (Attack of the Giant Photographs,) mod dancer, and wedding party bad boy, Ivor B put his profligate hand up only to $31M. Now that tells you something. Dealers in the know say a picture like this would have sold for $10M as recently as 2 years ago.

Tom Wesselman, long undervalued (he died two years ago,) set a record, this for a shaped canvas from 1975, Smoker No. 17, at $5.8M. A 1981 Jean-Michel Basquiat (another record sale,) Untitled, doubled its high estimate of $8M, to sell at $16M. Can you believe I overheard someone saying that the greatest career move Basquiat made was dying? Now is that nice?

Total sales for the auction also set a new record at $254.8, just shy of the high estimate of $265M.

Six pictures were bought-in (went unsold,) including all three Jackson Pollocks and a horrible Gerhard Richter. Speculations as to why included too aggressive estimates, history on the market, and horribleness. Still, given the delirium, these were a surprise to many dealers and collectors.

The next night at Christie's, an even more shocking auction sent diverticulitic spasms through the art world. A Warhol, Green Car Crash (1963), sold for $71.7 to a telephone bidder. There were at least seven hysterical bidders for this picture before it hammered down. It was sold to a telephone bidder, probably from China. And I hear he doesn't even have a uterus.

Six bidders went after another Warhol, Lemon Marilyn ((1962), before it closed out at $28M, the second highest price for a Warhol. (The owner paid $200 for it in 1963.) A fantastic Philip Guston, Head and Bottle (1975), a startling comment on his struggle with alcoholism, also broke all records, selling at $5.8M. Some unseated underbidder said that the person who bought it was an AA'er on a slip. These art people.

Donald Judd's sculpture, Stack (1977), with an estimate of $5-7M, broke another record when it sold for $9.8M. De Kooning's 1981 canvas, Untitled I, also defied expectations when it sold to a collector at $19M, the highest price ever for an ‘80s painting.

Overall, Christie's, maintains its hegemony over Sotheby's in the auction world, (though neither have much to complain about,) with aggregate sales of $384.6M, over 20% above its high water mark of $305.5M.

While there was no dearth of incredulity at these night sales, most dealers were more interested in what the day sales would bring. The day sales are more indicative of the market's breadth and depth (with many more dealers able to bid, Ivor B notwithstanding) and of the confidence of dealers, with more pictures at the low end (and I use the term "low end" noose-ly, I mean loose-ly.)

At Sotheby's day sale, Sam Francis, Jean Dubuffet, and Anselm Keifer rebounded nicely from their 15-year hiatus (or is it hiatae?) Robert Indiana (Christie's, estimate $120-180,000) was exhumed from his pederastic interment to make a record $650,000, and parvenu Yoshitomo Nara's painting, (Sotheby's, estimated at $400,000-600,000) sold for almost double the high estimate at $1.1M.

Yes, they'll buy anything.

Let's see, what were the low lights? (What's wrong with me today?? I meant highlights.) Well, we had an exquisite Warhol Toy painting (estimate $50-60,000,) that some idiot (I'm sorry, I meant collector,) coughed up $312,000 for. And we had a 1955 De Kooning that a dealer has been flogging for two years for $850,000, knocked down at $1.2M. And an advisor bought this gem. Guess it didn't look as good at $850,000. Which brings us to bewildered conundrum. Who on earth is advising these people? I mean anyone worth their metal (haha) has to have their very own art advisor. Is that who's driving this? Art Advisors (now I resent that!)? Or is it the auction houses themselves? Well of course, they would be independent third parties. And then there's the little problem of the guarantees. Nope. Nothing wrong here.

I will bore you to tears if I recount every amazing Richter, Gottlieb, Wesselman, and Stella auction (ahem) anomaly. Let's just suffice to say, these sales blew the roof off of the art world. Every dealer is beside him or herself about what to do for inventory. (I mean except Bill Acquavella. I think he knows where the drop is.)

Well, the answer is, dealers have to think outside the box and prognosticate with inside information. And stop looking at me like that. I mean this isn't regulated for gods sake.

Like for example?

Well, how about Japanese photographer, Araki, from the people who brought you Sugimoto at $1.65M on Wednesday? Big time undervalued. People have been misinformed that Araki's editions are unlimited, but that is wrong. Each image is limited to a total of 30. This is smaller than Sugimoto's editions, which are at least 40, and more with APs. Araki does not do APs.

What about the likes of Robert Crumb? Go see the show at David Zwirner. I got into a big fight with a dealer at a $200 breakfast at The Carlyle (and I really don't think you should be arguing with a person who's paying $200 for a breakfast---and I thought London was bad) who told me that Crumb was a filthy, vulgar misogynist and I was a tasteless, mercenary philistine, (and for the record, Crumb is supported by museum curators across the civilized world, from Robert Johnson of the Fine Arts Museum of San Francisco to museums with currently traveling Crumb exhibits in Belgium, Britain, Denmark and France, among others) and he got up and actually left the table. He said all I cared about was money.

Hello?

Last time I looked I was running a business. Do you imagine Larry Gagosian thinks about making money? How about Jay Jopling? Damien Hirst? Jeff Koons? How about poor Andy Warhol? Of course not. Now what on earth kind of bee has gotten into my bonnet today? Of course Ivor says I'm mad as a snake.

Moving right along, go look at Eric Parker, who's doing these very cool Picasso psychedelic heads. Or Jacqueline Tarry, with these photographs of black oppression with silk over them. Sherrie Levine is doing very good work. And I saw this very weird but interesting film by Marnie Weber. Well what do you expect being married to Donner Party weirdo-extraordinaire Jim Shaw?

Anyway, after the Sotheby's sale, I was getting pretty sick of art. And I needed some comic relief. And who better to provide it? Well none other than film auteur (January's blockbuster, "Attack of the Giant Photographs",) wedding party bad boy, Francis Bacon underbidder, and mod dancer, Ivor B and his sublime partner in art crime (Ivor, we can't keep him our little secret forever,) that most elegant of men from New York to London, James H. To Il Buco we withdrew.

There, after seventeen-and-a-half bottles of wine (that weren't $700) a rather, ahem, lively conversation ensued. I was mercilessly chastised for not offering a more critical dissection of art, and was told that to expiate this most heinous of sins, (my most glaring purgatorial offence,) I was going to be tethered for the evening to Chris Eykyn's discovery and Avenue C nowhere bar, Lava Gina. You think I'm kidding.

Now the reason that Ivor likes to go to Lava Gina is because he likes to say it. I mean over and over. Especially to the concierge at The Carlyle in front of fifteen of the most uptight hotel guests on the planet. Of course, poor Dwight, the concierge, was beside himself, I mean what does he do with a regular $1700 a night guest who insists on repeating the name of the bar (Lava Gina) like a Tasmanian mantra.

I will say this, Lava Gina serves the most marvelous Lava-tinis. But I mean I'm repeating this, because I really wouldn't know, because they smelled so vile I stuck with my Diet Coke. However the Lava-tinis and the fabulous Salsa band inspired Ivor to his best pentecostal Tasmanian dancing, and of course, due my penitential state, I was conscripted as his dervish partner, and all in all a good time was had by all. I mean depending on what you mean by a good time.

What do these people do for kicks in London, for gods sake?

I'm too scared to ask.

Anyway, it was the first time I stayed out past 1 o'clock since I was a rock ‘n roll singer (and you know how long ago that was, and if you don't I'm certainly not telling) and it was a great break to be around normal people who have nothing to do with, ahem, art.

Well done, Ivor.

Next month starts our groundbreaking Letters to the Editor column. So if you iconoclasts have any vitriol, spew away.

Send to clieff1@aol.com. I just can't wait.

Ibid., North American Peso credit, Paul Morris

Inflationary Kisses,

Carole
www.carolelieff.com
805-565-2000
The Art Advisor @ 2007 All rights reserved

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