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Wednesday, July 14, 2010

Art or Bonds?

Just a quick post here.  Planetmoney did a good little podcast on the economics of art selling.  As an art hobbyist, I found it intriguing because I do occasionally produce canvases, and I do occasionally have an opportunity to try and sell them.

The gist of the podcast is that the return on Bonds is always higher than the physical investment of a piece of art.  Well duh.  It turns out that one of the metrics of a how a painting is sold turns out to be popular swings in taste.  Though not surprising, this can have alarming effects on the price of your art investment.  A Van Gogh will always be worth millions, but if French Impressionism goes out of style, that could shave millions of dollars off your investment.  Whereas your investment in a bond is by its very nature a fixed investment.

There is one thing that they don't talk about in the podcast which surprised me.  Art is very fragile, and very space consuming.  One of the things we learn about in economics is that money, by it's very nature has to be fairly easy to store, and it has to be easily divisible and difficult to counterfeit.  There is a ton of risk in the art market that what you're buying is a fake, and moreover, if the housekeeper decides to dust the painting with dillouted ammonia, he'll destroy a 20m dollar investment in five minutes!  Your whole house could burn down and everything in it, and a bond will still retain its value, so long as the company, or government which backs it continues to exist.  It's funny too, because just the day before, "All Things Considered" ran its own podcast on the artmarket and they talked to an art seller whose client had had that very thing happen to him.  His housekeeper ruined his investment.

I am a nobody, and my art is only midling realism.  I paint mostly acyrylic and oil canvases between 8.5 x 11 and 30 x 40 inches.  In fact, a 30 x 40, canvas is the largest canvas I've ever worked on.  I may have the opportunity to sell some of my paintings fairly soon, so how would I price them?  And what am I likely to get for them?  So here, you have a piece that I have never shown before, that I am going to attempt to sell, it's an oil painting of a famous Japenese Garden in Florida.  It's 30 x 40 inches, and comes preframed, as in, I wanted to hang it myself and framed it to make it look nicer.  Cheap frame, but it looks good.  So how much, and what can I expect?  Well, the painting is only one of its kind.  Not easy to reproduce.  Even the cost of getting a lamine of the painting would be a good $100, though the price would then come down on each print thereafter.  Morevoer, getting it properly scanned at this point would require removing it from the stretchers which would damage the painting considerably.  Printing it based on a photograph?  Possible, but getting that well done would be fairly arduous as well, and lighting and veneer are critical issues.  What is this painting worth to me?  Well, two women in my life like it very much, and both would like to keep it.  But at least one wouldn't begrudge a little extra flow, and a little extra wall space.  Given that the painting took me three years to complete (long periods of no work done) my asking price is $2,000.  But, as with any work of art, I would expect to bargain on the price.  Is it worth 2,000?  Certainly, my name will never be worth anything, at least, not as a painter.  But sentimentally, the painting is definitely worth that much to me.  But I could piss $500 away in two weeks, and there I am, without one of the two oil paintings I've done.  Is that sentimentality worth a payment on my debt that would be negligable at best?  No.

Here's another one.  An oil 30x40 of the Rio Grande.  Also framed.  I have far fewer takers on this one, though as a painting I enjoy it more because of the feeling of space that the Rio Grande valley evokes.  Again, I'd ask for $2,000.  But neither of the two women in my life who wanted the first painting are particularly interested in this one.  Neither of them were cowboys for Halloween, I guess.  But I'd be more willing to part with this painting because it would make at least one of the women in my life very happy.  Particularly if I made a buck for it.  But here again, we come into some interesting economics about art.  I have a target audience for this, I know a guy who hails from this part of the world.  Would he be interested in a painting like this?  I have no idea, but if anyone would, it would be him.

Which leads me to the last topic for today.  Prices.  Prices are determined by the negotiations of buyers and sellers.  If there are no buyers for a particular asset, it's difficult to set a price.  This, we're told, is the reason why toxic assets had such variable values during the height of the crisis.  Or at least, that's what Planetmoney would have us believe.  But the avabilability of buyers and sellers is really only one aspect of price.  This is why so many long term investors, like those who buy and sell for pension funds, have such a negative feeling for shortsellers.  They aren't bothering to value an asset based on its actual worth or quality, but on speculation that the price will drop because of external market factors.  If the factors were internal, it would be a variant of insider trading.  If the perceived demand for my paintings is low, so is the value.  If the perceived quality of my paintings is low, so is the value.  But if the quality of my painting is perceived as really high, and demand is still low, then so must be, the price.

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