Just thinking back over the past. It was the early eighties that the high-end art market was on fire like it is today. Paintings, sculpture and anything truly unique and unusual were fetching outstanding (even shocking) prices and there was a lot of discussion about how all those guys would lose their shirts.

Actually lots of them did eventually but it was because of corporate failures or investment portfolio losses that sent the art back to the bidding block.

Anyway…..the idea back then was to protect wealth against the ravages of inflation and so art, rare cars, sports teams and gemstones were bringing astonishing bids. The same fears and worries that were driving up gold and silver prices were also seeping into the most elite of investment classes.

People wanted to hold something of value and to buy it before money became worthless.

We don’t have that exact same dynamic now though. This is very strange when you think about it and it suggests there is widespread disagreement on where the economy is really headed.

As the excess of credit has almost come to a conclusion and deflationary forces are taking hold we are (oddly enough) seeing the same response as we saw at the height of the worst inflationary period of the 20th century.

Money flows are telling us that these buyers are really anticipating a massive wave of inflation on the horizon, not a coming deflationary abyss. The problem is that the future really is looking decidedly deflationary in the big picture and nothing illustrates this better than the continued floundering of real estate markets.

There was a popular expresssion a few years back. I think it came from the movie \Field of Dreams”. The expression was “build it, and they will come”. Catchy isn’t it? The idea is instantly appealing even though it is often not true. Just ask some of the mall developers in China (but I digress).

The thing is, we have internalized that message in our society. There is a belief in many circles that the Fed can never run out of bullets for example. As long as they have a printing press we are always within reach of a safe harbour and a soft landing.

And so the modern version of the idea would be along the lines of “print it and they will spend”. For the past several years we have watched velocity dropping in the face of massive monetary intervention.

The system was flooded with liquidity and yet the actual effects on the ground were rather muted except in the cases of gold prices and other commodities. Wages did not rise nor did employment recover sufficiently to move the economy as an outcome.

The Fed is indeed printing but the money goes unloved and unwanted in too many cases. Savings rates actually began to rise after the housing bubble burst and were climbing above 6% not so long ago while consumption was in decline. More recently the rate has fallen back to 4% but another recession is almost certain to send it surging and this is a concern for any imagined consumption driven recovery.

In many cases those who need capital most cannot access it due to damaged credit from the bursting housing bubble and the associated fallout. This segment of the population may represent up to one fifth of all borrowers so addressing this one area might yeild very good results. Perhaps rejigging the credit bureau numbers would help. I am not kidding when I suggest lowering the bar. Consumers have already been punished enough without leaving an artificial barrier in place that will hold them back while they are still strong enough to act.

So we are nearly at the moment in time that we will have our epiphany and true moment of realization. If velocity remains low there will not be a major inflationary storm coming. If the Fed prints but the theoretical money just sits forlorn on bank balance sheets then nothing was really accomplished at all for it is consumers whose collective actions are really determining the future.

Maybe the Fed really is out of bullets and only fiscal intervention can ultimately save the day (except we are all broke!). What if liquidity injections do not raise the economy as expected and instead savers start hoarding cash in preparation for a rainy day?

While I realize that consumption is still rising we do know it has come at the cost of other parts of the economy (like real estate acquisitions) and that higher savings are a drag on the economy when it needs support. Furthermore, there have been efforts on the part of consumers to pay down debt although a great deal of delvering still lies ahead.

Is this why bullet trains are really being seriously considered? I am referring to public works programs which most here will instantly associate with the great depression. This may just be the modern incarnation of a massive road building program.

The economic evidence seems to me to be supporting a trend towards a deflationary outcome despite the artificially induced and commodity driven inflation of the past few years. We may witness another round of this kind of inflation in the near future but we should monitor the progress as so many countries are now slipping into low or negative growth phases.

Another big stimulus splurge might just push us over the edge as prices rise against a backdrop of high unemployment and falling incomes.

This is a big squeeze especially as it now seems all but certain there will be both program cuts and tax hikes in the future suggesting that few avenues of relief now remain open from which economic expansion might be seeded except outright currency devaluation. The specter of a sharp decline in living standards cannot be overstated though.

And so I too question the wisdom of anyone spending outrageous amounts of money on a single painting. That is another of todays follies and the practice seems to be sourced in a belief that history will repeat itself as it did in the 70’s and 80’s. The Boomers are operating on the facts as they know them best but I believe they have misjudged the future. What is coming is their parents bad recession and that one was much worse.

So I doubt this current strategy of investing in high value assets will produce real dividends. It will not likely work to their advantage. Much more likely is that we will see history gaining ground on a repetition of the 1930’s. That was also a time that was preceded by a huge excess of credit and investor splurging that is not so unlike what we see today. It will be much deeper this time though and longer lasting as a mirror reflection of the length of time it took to ride up to these lofty heights.

Todays big spenders will be tomorrows big fools.

Beauty– and art– are in the eye of the beholder. The same work means different things to different people– and is worth more to one person than to another– somewhat like stocks, except more interesting.

Georgia O’Keefe is my fave. Click on Selected Paintings to see her work.

http://www.georgiaokeeffe.net/

Off topic, as usual.

The LIBOR Armageddon might just turn out to be a lot of talk about nothing. Since people here have noted that the Fed knew about this a long time ago, this in itself might negate any legal action. That’s not just my opinion. The other problem is trying to figure out damages.

No I wouldn’t count on this one event to derail the banks.

Back to art. Does anyone have a female painter that they appreciate? The only one that comes to mind is Mary Cassatt. Where were the female artists and when did they start to be accepted?

So the Euro is down another chunk today. Looks to me like it will bottom near the FOMC meeting July 31st. That’s my bet anyway. The timing seems about perfect for a bit of fireworks if there are any announcements that are meaningful. I marked my calendar. I just don’t see the dollar making any significant upwards move other than a fresh top but we shall see.

Loved all the impressionisst hanging up in Paris’s D’orsay museum. Besides impressionist I like works by Vermeer and Modigliani. American works by Hopper and Wyeth. The POP Art I have mixed feeling.

As for Warhol…I do appreciate how he turned the tables on the art world by having in his “Factory” a bunch of doped up hippies with zero artistic ability mass produce his works and sell them for a fortune. “Modern art” has twisted and perverted the whole meaning of art to the point that some piss in a jar can sell for tens of thousands of dollars as “art.” Of course, I’d never buy a Warhol or any piece of modern trash art.

As for Rothko, I can understand how you can find his “art” soothing. I find walls painted sky blue soothing, but I’d never dare call the painter an artist. To call Rothko’s paintings “art,” is just a perversion of the word in my book, however much you enjoy them. When a work can be easily reproduced by a non-artist, or even a child, then it has not risen to the level that I’d call it “art.”

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Yeah, I’m not buying any artists either unless they’ve proved their talent with figurative stuff. And if a kid could have done it, I agree, it’s not art. RA

Rick – I have to disagree. Although $120 mil is an absurd amount to pay for any painting (IMHO), I have always loved “The Scream”. Admittedly, I am certainly no art aficionado, but the painting evokes a visceral feeling of impending doom & despair.

Here is another example of people paying inflated prices for objet d’art. In this case the art will be the illustrations of the California Bullet Train. Since those artists illustrations are likely all we will have to show for the billions to be spent on this folly/ grand theft.

From the Orange County Register:
“At a ceremony in Los Angeles, Gov. Jerry Brown signed legislation Wednesday morning to allocate $7.9 billion to the California High-Speed Rail, committing the state to the project despite poor prospects for future funding.”

So, perhaps Mr. Black did not actually pay too much.
It is all relative.

Plus I believe Munch did several “Screams”, so the $120mill version ain’t the ONLY one. Now that’s funny.