Auctioneers breathe a sigh of relief

by John Dizard, Financial Times
Published: Nov 19, 2007

The successful sales of post-war and contemporary art in New York last week were palpably connected to a couple of days of upticks in the credit and stock markets. The previous weekend, when the collectors were trolling the previews at Sotheby’s and Christie’s, there were tight grins plastered on the auction house professionals. They were all haunted by the 36 per cent decline in Sotheby’s stock that week after a disappointing, but not disastrous, impressionist and modern sale. When, a few minutes into the Christie’s sale, a broad smile grew on Amy Cappellazzo, the international head of post-war and contemporary art, it was clear that the feared “correction” was not here yet.

The success of the Christie’s sale nicely primed the febrile buyers and the now-giddy auctioneers for a contemporary sale the next evening at Sotheby’s, which turned out to be the biggest in the firm’s history. The previous record was set 17 years ago, at the height of the yen-bubble-fuelled impressionist mania … remember that?

The buzz that Tuesday in the credit markets could have reassured Miss Cappellazzo even before the sale had started. Wall Street had taken the measure of the balance sheet hit that the big banks and dealers would be taking on “subprime” in this round. It had become clear that the immediate damage to the dealers and banks was not going to further cut back their ability to make markets for the securities owned by the bidders at the art auctions. So they would have the cash to buy.

As recent as the early 1990s, it took six months to a year for economic slowdowns and stock market declines to affect the art world. In October 1989, for example, there was a memorable plunge in the stock market on the failure of a buy-out proposal for United Air Lines. Nevertheless, the autumn art sales that year were fairly successful. It was not until later, in 1990, that real estate and art followed the stock market into the tank. In those days, the anchor buyers of post-war and contemporary art were the big real estate families in New York, Chicago, and Los Angeles. They reacted more slowly to bad news than the owners of the two-and-20 hedge fund fortunes of today.

Asher Edelman, the Wall Streeter turned art dealer, was not too impressed with what the auction people call “the mood of the room”. As he says, “it’s always that way at the top of every market. They are nervous; they have a long-term view, but are not sure about it.”

A number of the pieces that did especially well, such as Richard Prince’s “Piney Woods Nurse”, the Warhol double Elvis, or the on-the-run, as we say, de Koonings and Joan Mitchells, actually looked reassuringly like money. Splashes of colour, with familiar, recurring patterns, in a rectangle.

As Mr Edelman puts it: “Because they’re insecure, the collectors are buying things that are repeatable and obvious, as opposed to unique and special.”

So for now, the high-end art market is in a stasis similar to the US stock market, finely balanced and easily tilted one or another in the short term. When it does move, the contemporary market in particular will do so in much closer concert with the securities markets than in past cycles. Metals games

I’ve been hearing more talk about the manipulation of markets for industrial metals. The favoured tool for this, it is said, is the withdrawal or addition of inventories to the visible, exchange-approved warehouse stocks from other, less visible, non-exchange warehouse stocks. As the London Metal Exchange says: “It is perfectly possible for warehouses to hold non-LME stocks of metal, as all the Exchange reports and manages is material put on to LME warrant.”

So LME inventories, and non-LME inventories can be in the same building. When material is taken “off-warrant”, formally no longer available as LME stock, it may not have moved a millimetre. Before it can go back on warrant, it needs to be moved out, at least a few metres, before being moved back again.

Many industrial users and members of the investing public carefully watch exchange inventories, as if the numbers invariably reflect something other than a speculator’s tactic. The problem is that hidden inventories, by definition, are hard for the non-insider to find. Eugen Weinberg, a Commerzbank commodities analyst, has attempted to answer that question, though like the public, he can’t see behind warehouse walls. “I believe lead is the most vulnerable to a correction and to manipulation.” After lead, he’s most bearish on nickel. “Above $20,000 a tonne, it makes sense to refine [energy-intensively] lateritic nickel ore, of which there is no shortage.” Last week, the price was more than $33,000 a tonne. Much depends on the willingness of the Chinese government to release its own metals stocks. “They showed they would do that with sugar, and that caused a big price decline,” says Mr Weinberg.

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