Growth Stocks Fizzle, Art Markets Sizzle

Today’s growth stocks are Warhols, Basquiats and Jeff Koons’s, not the likes of Apple, Microsoft, Meta-whatever and Alibaba. These babies track far below highs set over a year ago. Netflix was taken out and shot while even Apple, the $2 trillion beauty trades 20% below the 2021 yearend high, like a sardine.

Reciprocally, iconic art pieces like Warhol’s Marilyn and Basquiat canvases have pressed into 9 figures. There’s plenty of money for modern art, too. Names like Giacometti and the romantic colorist Chagall get snapped up by individual collectors with lots of open-to-buy.

Nobody focuses on it, but art market returns do compare with successful venture capital plays. I’m talking 100 to 1, even 200 to 1 returns on capital. Consider, Claude Monet, near starvation, was kept alive by his dealer. It was the robber barons in the U.S. who cottoned to Impressionism’s canvases, around 1900, that made this market bloom.

Lemme tell one on myself. It was 1983 when I got a call from Mary Boone, who told me they just pulled a pothead in off the streets, named Basquiat. He had busied himself chalking up building façades and subway cars. “Come down and take a look. I’ve got a half a dozen canvases you can have for $2,500 apiece.” So, I looked and turned them down.

Not that they didn’t show some merit, but I was busy collecting the German Neo-Expressionists. Namely Kiefer, Baselitz, Immendorf and others. Appreciation for some of their work runs 1,000% or more over 2 to 3 decades. The Basquiat work in question now goes for $100 million. Think of it! Thirty years later these half-dozen boldly painted Basquiats are now a $1 billion package. Most of my time since was engulfed in the financial world. Today, I wouldn’t have to read dozens of quarterly reports, peruse the FRB’s wimpy pronouncements or even care whether the market sold at 15 times or 20 times forward 12 months’ consensus earnings forecasts.

Consider, almost all of wealth management and the banks with their 60/40 pie charts missed the peaking of the market and the economy at yearend. Prime houses like Goldman Sachs have just begun to shed their bullishness. Now they see a 40% chance for recession and further weakness for bonds and equities.

Should anyone care that prime growth stocks like Microsoft and Apple now trade 30% below yearend highs? Only if you’re a money manager or growth stock investor. Money managers like Tiger Global Management and Ark Investment Management, heavy in high-multiple tech houses, have dropped over half their asset value past 12 months. Probably, never change their spots. I don’t see them ever owning prosaic paper like banks and industrials. Maybe growth pharma but not railroads or farm equipment.

Why should one asset class like art run so contrapuntally to financial markets? Normally, you’d expect art to be a leading indicator, or at the least a coincidental gauge tracking financial markets up and down, with no great lead time gap.

Talking with top executives at Sotheby’s and Christie’s, they point out that the demand from foreign players, especially Chinese collectors, accounts for sizable interest in the contemporary and modern sectors. Honchos still hold plenty of open-to-buy. Not that they know so much. At dinner with a youngish Chinese collector, he told me he didn’t know enough to go head-to-head with dealers, afraid to be taken advantage of. So, he joined his friends bidding up pieces that are not so tough to understand like Warhol’s Marilyn.

Auction house specialists have identified all the big operators in their market, fewer than 100, and they are stroked into activity on auction nights. I thought of all this as I dug back to my early days as a collector – age 22 with no capital, earning maybe $75 a week as a copy editor, just back from the Korean War, 1953.

I started buying canvases from my artist friends in Woodstock. The going rate was $300 and you could pay it out $25, monthly.

Meanwhile, Abstract Expressionism was breaking out abroad and in New York, which was then its capital. Early fifties you could buy Jackson Pollocks and Mark Rothkos for a thousand bucks. Only Peggy Guggenheim and the Rockefellers had the gelt to do so.

I discount art indices because they don’t capture concentration of interest in specific sub-sectors and the rapid escalation of anointed artists’ work. Not just Warhol, but Jeff Koons’s balloon dogs and Roy Lichtenstein’s comic book like works. The indices, too, miss the overnight, sensational markups and markdowns that do run into tens of millions, up or down. There are at least a thousand legit are dealers operative today.

I’d keep my eye on the proliferation in newly minted billionaires. These new bloods do gravitate into the art market scene. No longer popular to own Pebble Beach golf courses or even high-rises in the Hudson Yards. For the $100 million Warhols, Francis Bacons and Giacometti’s walking man bronzes whittle down the players to a couple of dozen sports with $10 billion in net worth.

Bedrock, low interest rates remain the granddaddy of all leading indicators for art (and equities). A decade or so ago I saw Munch’s The Scream go for $120 million to Leon Black. Elaine Wynn bought the Francis Bacon triptych for $142 million.

Such largesse reminds me of what F. Scott Fitzgerald remarked to Ernest Hemingway: “The rich are different than you or me.”

“Yeah!” Hemingway responded. “They have more money.”

Next couple of years, I see fewer newly minted billionaires because more fluff needs to be combed out of the Big Board. This could top out pricey art, but nothing too serious. Today, we’re nowhere near a floor on valuation for the S&P 500 Index. I’d pencil in at least 10% to 15% lower.

Note the good ol’ days in the art market, 1959.