In Search of Market Signals in the $450 Million Da Vinci
Price contains information, but how much does an outlier art sale say about stocks or the economy?
Bloomberg, November 20, 2017
Economist Friedrich Hayek wrote that “price contains information.” So what information is contained in the almost a half billion-dollar price for a painting?
The Last da Vinci, as the “Salvator Mundi“ has been called, sold at auction last week for $450 million, a record and blowing past the previous high of $179 million paid for Picasso’s “Les Femmes d’Algers” in 2015.
But before we debate just what this does mean, let’s quickly dispatch with what is does not: This isn’t a sign of a bubble economy or a top in equities. Why? As we discussed last time out, a single outlier transaction is merely an anecdote, and not a market. Anecdotes tell us what a tiny subset of investors is doing with their money; it doesn’t measure the emotional state of the crowd. Bubbles reflect a collective madness, when the masses go crazy with greed. As noted previously:
They are…one-off transactions in a ludicrously small market dominated by a ludicrously wealthy clientele. Given the choice between quantifiable data or anecdotal tidbits, you should always choose the data. So no, these sales are not proof of anything other than the simple truth that some people have very large bank accounts that they are unable to exhaust through normal profligacy or by paying insane prices for a handful of unique objects of art.
Still, I spent the weekend mulling over what this transaction could mean. I came up with a few ideas and theories (some of which may be quickly disproven as more information about the mysterious buyer comes to light).
- Scarcity: Consider, if you will, what comes up for auction on the art market. Modern artists (Picasso, Rothko, Warhol, Basquiat, etc.) are staples of the auction world. Impressionists (Monet, Manet, Degas, Renoir, Pissarro, Sisley, et. al.) come up fairlyregularly. Da Vinci doesn’t come up all that often for auction — the rest of his works are in museums (Tuscany, Louvre in Paris, Florence, Milan, Hermitage in St. Petersburg, National Gallery of Art in Washington). The lack of supply explains a lot. Fewer than 20 of da Vinci’s works have survived and they aren’t making anymore of them. Combine that with the demand by Renaissance collectors or museums or rank and file billionaires seeking bragging rights.
- Salesmanship: Did this price reflect brilliant hype? Some have made that case rather strongly. Jerry Saltz, art critic for New York magazine, was scathing in his appraisal of the painting before it went up for auction. But he leveled even more vitriol at this particular auction as a price-discovery mechanism, which he characterized as “an irresponsible knowing flimflam that defrauds a mass audience into thinking it is ‘appreciating’ an old master when it’s all smoky spectacle and mirrors.”
Art adviser Todd Levin took a more benign view of Christie’s salesmanship. “I have to take my hat off to them,” he told Artnet news. “They have done the most brilliant marketing job with this Leonardo.”
Given the very short list of potential buyers for a work like this, it could be less a case of inefficient markets and more a case of slick retailing. Of the final price tag, $50 million went to Christie’s — perhaps the most deserved commission, ever.
- Wealth Disparity: Forget the 1 percent or even the 0.1 percent; you need to be a member of the 0.001 percent to be able to throw around that type of money. Many observers have noted that these vast sums of cash can only come about when there is enormous wealth inequality. The website Artsy observed last month that a new billionaire is minted in Asia every other day, and “they have a serious appetite for art.” Earlier this year, the site reported on a study that suggested growing inequality was “endangering the art market,” by driving out collectors of more modest means who support lesser known or emerging artists.
“The Salvator Mundi auction feels like a staged mockery confirming this infinite gap between the rich and poor,” Deutsche Welle, Germany’s public international broadcaster, editorialized, adding that a painting of Jesus that breaks all price records serves as symbol of a world and wealth gone awry.
- Psychology: Finally, there are issues of ego and individual investor psychology at play. One could have purchased 10 paintings for $45 million each instead. But as Artnet wrote, “a single $450 million da Vinci simply makes more of a statement to one’s peers than ten $45 million” paintings by anyone else. That makes this purchase a record ego stroke as well.
Perhaps this one sale tees up the art world for the next record auction. It might even make Congress think twice about passing tax cuts that favor the top 1 percent. But what it doesn’t tell us is much of anything about the health of the economy or whether stocks are fairly priced.