Pondering Pre-Auction Imponderables: Weak Dollar, Emerging-Market Trophy Hunters

Francis Bacon, "Triptych," 1976, on exhibition at Sotheby's

After attending Sotheby's annual stockholders meeting  this morning (as a journalist, NOT an investor), I prowled the Sotheby's showroom, watching auctioneer Tobias Meyer adroitly woo clients in front of Bacon's "Triptych" (above): "I've been waiting a long time for this," he told one Bacon admirer with whom he spent considerable time.

After that conclave concluded, I received his impressions of the current level of buyer interest at a time when "consumer confidence" has been called into serious question:

I anticipate that the great things will do extremely well. The rest? We will see.

Much, he acknowledged, will depend on buyers from "emerging markets," such as Asia and Russia:

They are hard to predict. We don't know what they will do until the night. The 20th-century art collectors on Fifth Avenue we can predict. There's a dialogue there....[The emerging-market buyers] are not as passionate as the good American collectors. They are still skittish. They may not have any Cubist paintings, they may not be interested in Cubism, but they want a trophy and there it is.

Last fall, when much was said about the probable impact of global wealth, American buyers still predominated. Now the auctioneers anticipate that the weak dollar will stimulate European bidding. As Bill Ruprecht, president and CEO of Sotheby's, commented at today's annual meeting:

The dollar feels very cheap as a currency to buy in, if you buy from a Euros perspective or a Sterling perspective.

He also noted (as I also recently discussed here):

In an environment of very uncertain economic times, we have focused most keenly on managing our risks and limiting our exposures to guarantees, by taking on fewer deals where we exposed our balance sheet to material losses. Sales to date continue to be strong in their reflection of the steady demand for great works of art against a turbulent backdrop.

I have not heard about similar risk-reduction strategies from Christie's, but they don't need to be accountable to importunate stockholders. One of the questions today at Sotheby's annual meeting was why the price of the stock remains so depressed. In his introductory remarks, the auction house's chairman, Michael Sovern, had ruefully observed:

Would that our stock price took full account of the fact that 2007 was a record year for our great company. We realized a return on equity of 47%, fueled by the highest revenues in company history---$918 million---and the highest operating income in company history---$276 million.

But neither Sovern nor Ruprecht could answer the question as to why the stock, trading in the 50s as of early November, has since then been stuck in the 30s and now the 20s. No matter how well Sotheby's has done before or since, it's had a hard time living down the failure of one important work to sell at its big Impressionist/modern sale last November. Its shares plummeted in the immediate wake of the fabled failure to find a buyer for the late van Gogh landscape, "The Fields." (It still has not been sold.)

No matter how well it has done in its London sales this year, Sotheby's could use a very solid showing tomorrow night in New York to solidify its competitive footing. Its evening Impressionist/modern sale is estimated at $207-$284 million for 53 works, compared to Christie's $287-$405 million for 58 works.

In keeping with my "Blog Slog" commitment to post less and get out more, I will not be covering the upcoming sales at the frenzied, real-time pace with which I've previously attacked them. (I will, in fact, be at a major museum's press dinner tonight, instead of balancing catalogue and notepad at my usual perch at the Christie's Impressionist/modern sale.) I will eventually weigh in if I feel I can provide some counterbalance and commentary beyond the observations of the dedicated art-market press.

But never fear: The Wall Street Journal's On the Block is on the case. It will weigh in "from the auction floor and updating this blog with the latest sales and sightings during and after the evening auctions of Impressionist and modern art on May 6 at Christie's and May 7 at Sotheby's. We'll also be on hand for the post-war and contemporary art auctions on May 13 at Christie's, May 14 at Sotheby's, and May 15 at Phillips."

You go, Kelly Crow.

For two excellent pieces of presale reporting and analysis in today's Wall Street Journal, go to Crow's article here; Alexandra Peers' here.