Man With Lots of Dollars

You’ve probably heard the news about the 1905 Picasso painting “Boy With a Pipe,” which sold at Sotheby’s for $104 million last week–a record for a painting sold at auction.

I guess the painting was bought by a Man With Lots of Dollars. Funny thing is, when it comes to art, I have a feeling there are a lot of dollars around these days.

Where else is the “big money” going to put their money today anyway? The stock market has been overpriced for some time. Those that didn’t think it was overpriced and didn’t think we’ve been in a bear market since the spring of 2000 are now paying the price.

With interest rates set to rise, the big money has abandoned the bond market too. Real estate is too high. It’s not the smart money buying the million-dollar homes… it’s the stupid money with big mortgages in tow.

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What’s left is gold and art. There are forces out there that would like nothing better than for the price of gold to fall– that’s because the flight to gold would signal gold is real money, rather than the U.S. dollar. Sooner or later, the yellow metal will prevail again, like it has for 5,000 years.

I believe the smart money got into gold at US$250 an ounce, and I know of many investors waiting for gold to move back down to $370 to $375 an ounce before buying more gold shares.

So that brings us to the art market. Smart, big money likes art for several reasons: (1) art is a store of value; (2) investments in art, unless you’re in the art business, are subject to the attractive capital gains taxes; (3) they’re not making any more of it; and (4) art stays in the family for generations.

The last time I was at Sotheby’s in New York, I was thoroughly impressed by the smart buyers in the crowd. Not one painting went below the reserve bid. Most serious buyers had art advisors with them. Today, $150,000 doesn’t buy much in terms of an investment grade original painting.

Expect to see prices in the art market continue to rise. Besides, where else are CEOs supposed to put those million-dollar compensation packages? They’re not buying their company’s stock… that we know. (Recent insider filing reports show corporate insiders are selling their stock at historically high levels when compared to the number of insiders buying stock in the companies they work for-lots of faith here.)