I was in New York's Metropolitan Museum of Art today (a frequent rainy weekend destination of mine) and while walking through the galleries mentally comparing a seemingly endless number of 16th century European masterpieces to the quality of work that's been selling lately at widely publicized auctions, I began thinking about what a bubble the art market has once again become and how great it would be to be able to short it directly, or if that can't be done to instead short the shares of Sotheby's (BID). But then I did some math...
According to Forbes, the combined wealth of the world's billionaires is over $5 trillion. Even if one were to assume that one must be a billionaire to spend $25 million or more on a painting (thereby eliminating all of those worth in the hundreds of millions) and if one were to further assume that billionaires were-- on average-- willing to devote no more than 20% of their net worth to fine art, that's still $1 trillion worth of combined fine-art buying power. (Remember, someone worth a billion dollars who spends a combined $200 million on an intercontinental jet, a 175' yacht and three incredible houses still has over 80% of his wealth untouched, while someone worth $2 billion still has 90%.) So with $1 trillion of "billionaire art buying power" out there, that's enough money to purchase 40,000 (!) paintings at $25 million each, while last year only around 20 were auctioned at that price or higher.
The counterargument to this is that a billionaire can decide that no matter how much money he has, paintings have become too expensive and just as he wouldn't spend $1000 on a Hershey bar (despite having the ability to afford at least a million of them), he doesn't have to spend $25 million on a Basquiat either; instead, he can "just say no." Also, we don't know how much "billionaire money" is ALREADY tied up in art, thus reducing its marginal buying power. Finally, there is undoubtedly lots of lower-priced work out there which is "just as good" as what's currently selling for $25 million, and if tastes become broader this could theoretically greatly increase "the supply."
But still, it does indicate that-- relative to the amount of hyper-priced art available for sale-- there's effectively unlimited buying power out there, and to thus call for a break in the market one essentially has to call for a change in art's "perceived value" rather than a deficiency in the ability to pay (or overpay) for it.