Wonderful Watch, Fabulous Flag, and Corporate Confidence

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Recent art market activity has been spectacular. Record prices have been set in numerous categories ranging from watches to paintings. Contemporary art has been catching the attention of many, and bidding activity has been frenetic with many lots selling in excess of estimated prices.

Consider the fact that the Henry Graves “Supercomplication” timepiece sold last week at Sotheby’s for more than $24 million, setting a new world record price for a watch. The prior record was $11 million (See WSJ article here). Another noteworthy sale was a placemat-size Jasper Johns painting of an American flag. It was estimated to sell between $15 and $20 million, against a prior record of ~$29 million for a Johns painting. When the gavel fell, the winning price was $36 million.

The geographic breadth of art buyers participating in art auctions has been rapidly rising. Sotheby’s noted that yesterday’s contemporary art sale at which the Johns painting sold had bidders participating from 38 countries. (See Sotheby's release here).

So What? Art markets tend to be a good indicator of global confidence. Why’s that? Although art prices tend to appreciate over time, art markets tend to be based on expectations—the expectations of sellers, of buyers, of appraisers, etc.  Art markets are therefore cyclical.  Remember also that many buyers of high-priced art are themselves corporate and economic leaders.  As such, their personal bidding behavior provides an insightful glimpse into their confidence as business leaders. Corporate confidence is clearly rebounding.  It's not surprising to me that corporate mergers are also booming.  Art markets, merger activity, and corporate confidence are dots worth connecting.

Because rapidly rising confidence can quickly turn into overconfidence, art markets can telegraph bubbles before they burst. (See “The Art of Spotting Bubbles” and “Sotheby’s: The World’s Best Overconfidence Indicator”). While these markets are obviously heating up, they are not pointing to any specific bubble dynamic yet.  However, they're definitely not flashing "all clear" either.   There is insight in art…even if you’re not an art enthusiast or collector. Recent activity serves as a useful reminder to watch watches and pay attention when flags rise to new records…

 

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