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Bullish Art-Market Predictions: Irrational Exuberance? Tilted Playing Field?

Record Breaker? Picasso, “Nude, Green Leaves and Bust,” 1932, offered tonight at Christie’s

It seems to me that many art-market reporters have been too gullible in buying the auctioneers’ and dealers’ spin that art prices are going to come roaring back during the coming round of evening Impressionist/modern and contemporary sales.

Consider this from Carol Vogel of the NY Times:

Optimism has returned to the multibillion-dollar art market. Expectations are so high that many will be disappointed if Picasso‘s 1932 painting, “Nu au Plateau de Sculpteur (Nude, Green Leaves and Bust),” doesn’t break the record for a work of art sold at auction when it is offered at Christie’s on Tuesday [today].

That would mean that a work estimated to bring $70-90 million would instead top the astonishing $104.32 million fetched three months ago by Giacometti‘s “L’Homme Qui Marche I.”

And this from veteran art-market writer Alexandra Peers of the NY Observer:

The rich are still rich and are apparently eager to forget the art market’s swoon, as evidenced by the success of some recent auctions.

And then there’s Lindsay Pollock‘s upbeat analysis for The Art Newspaper:

The reign of Alberto Giacometti‘s emaciated “Walking Man I” as the world’s priciest trophy at auction is likely to be short-lived. The six-foot tall bronze, which fetched an outsized $104.3 million in February at Sotheby’s, London, is expected to be overtaken by a painting of Picasso’s lusty, lilac-hued mistress, Marie-Thérèse Walter.”

That there’s a lot of exuberance on the sellers’ side is clear enough, as Kelly Crow of the Wall Street Journal reports:

Overall, the houses [Christie’s, Sotheby’s and Phillips de Pury Co.] expect to sell at least $803 million worth of Impressionist, modern and contemporary art—twice as much as they sold last May.

Christie’s $70-million low estimate for the 1932 Picasso, Crow notes, is “more than the auction house got last fall for its entire evening sale of Impressionist and modern art.” Christie’s estimates that tonight’s 72-lot evening sale of Impressionist and modern works will fetch hammer prices totaling some $266.18 million to $373 million. Sotheby’s pegs its more modest Wednesday evening Impressionist/modern sale of 58 lots at $144.8 million to $208.8 million.

Abandoning the caution that was exhibited by both houses after the market went into post-Lehman freefall in the fall of 2008, Christie’s has brashly offered guarantees for a hefty 32 of the 72 works in tonight’s sale, 28 of which were from the eagerly sought-after collection of the late Frances [Mrs. Sidney] Brody. For six of those works (the star Picasso, as well as three more Picassos and two Giacomettis), Christie’s has lined up third parties to fully finance the guarantees.

One of the things that I don’t understand about the presale coverage for the sales is that no accounts that I’ve seen have noted that the possible record price for Picasso’s Marie-Thérèse portrait could well merit an asterisk. The final price will not be what it seems if the winning bidder turns out to be the third-party guarantor for the painting (an outcome that most likely would not be publicly disclosed).

The “Saleroom Notice” of the online catalogue entry (but not in the hardcopy catalogue entry) for “Nude, Green Leaves and Bust,” Christie’s discloses this:

Christie’s guarantee of this lot has been fully financed by a third party who is bidding on this lot. The third party will receive a financing fee from Christie’s, whether or not they are the successful bidder [emphasis added].

In other words, thanks to this fee arrangement (amount undisclosed), the third-party guarantor’s net cost for purchasing this painting would be less than the final hammer price plus buyer’s premium that anyone else would have to pay. What’s supposed to be a “level playing field” among buyers at auction is significantly tilted. The supposed transparency of auction prices is clouded by what are, to my mind, inappropriate and murky side deals.

Sotheby’s policy on third-party guarantees differs significantly, keeps the playing field horizontal. In response to my query, press spokesperson Lauren Gioia told me:

A third party guarantor does not bid [emphasis added]. Instead, he simply is a partner on the guarantee and shares in the loss or profit, as they case may be.

Gioia also clarified for me the rules governing irrevocable bids at Sotheby’s:

An irrevocable bid is a bid provided by a third party that will be executed during the sale at a value that ensures that the lot will sell. The irrevocable bidder is only compensated if the bidding exceeds the level of the irrevocable bid and another bidder buys the lot. If the irrevocable bidder is the successful bidder, he pays for the lot, including the full buyer’s premium, as does every other buyer at Sotheby’s, and is not otherwise compensated [emphasis added].

Accountable to shareholders as a public company (unlike privately held Christie’s), Sotheby’s is still being cautious about offering price guarantees to consignors: It has only one guaranteed work in its Impressionist/modern sale—Picasso’s 1965 “Femme au Grand Chapeau. Buste,” from the estate of Patricia Kennedy Lawford. It has lined up an irrevocable bid (amount undisclosed) for that work, which is estimated to sell for $8-12 million.

In its recently issued Proxy Statement, Sotheby’s was far more measured than the bullish journalists in assessing the current state of the market:

With the international art market showing signs of recovery, improved Company revenue margins, and a significantly reduced cost base, management believes that Sotheby’s is well positioned to improve upon its financial results in 2010. At the same time, management remains mindful of the prevailing level of global economic uncertainty and the potential for continued art market volatility.

If journalists’ art-market exuberance proves to be irrational (as I think it may), we’ll soon be reading postmortem reports that buyers were “selective,” with a few breakout prices among otherwise solid, if unspectacular, results. These sales could well be a case of too much material loaded too soon onto a gradually recovering but still delicate market. (There were 84 works offered by the Big Two at last May’s Impressionist/modern evening sales, compared to 130 this week.)

I suspect that too many hopes may have been pinned on the anomalous Giacometti price. It’s a confidence-booster, to be sure, but not necessarily a reliable indicator of the general state of things.

Then again, I may soon have to eat my grand chapeau!

an ArtsJournal blog