In recent months the global art market started to come back and it is already reaching old highs in terms of the prices that are being paid for exceptional art. Only last month a bronze sculpture by Alberto Giacometti was auctioned for a record $104.3 million at Sotheby’s for three times the expected price after a round of intense bidding. There have been several incidents over the last few weeks where new record prices have been achieved for popular art. The best thermometer for the art market is probably Sotheby’s stock price (BID is the ticker).
In March 2009 Sotheby’s stock price saw its low almost at the same level where it had seen its low in 2003. Both times the stock market had turned and with it Sotheby’s stock. Sotheby’s, or shall we say the art market, followed all recent stock market bubbles ever since the stock was listed in 1988. As you can see from the chart of Sotheby’s stock price it mimicked the Japanese bubble in the late 80s, the Nasdaq bubble in the late 90s, and the most recent financial bubble in 2007. Recently it looks like Sotheby’s stock price and the art market want to tell us that there is a new liquidity bubble on its way. However, the most interesting thing about Sotheby’s is its value as a lead indicator. In all three previous bubbles, which I mentioned above, Sotheby’s started selling off way before the market did. Even in the most recent sell-off in 2007 Sotheby’s fell off a cliff way before the general market did. Sotheby’s started to fall in November 2007 by more than 40%, while broad stock markets did not fall until December of 2007, and not as much as Sotheby’s initial sell-off until September 2008, almost a whole year later. There is no telling whether Sotheby’s stock price will continue to work as a lead indicator, but if it the market has not shown any weakness by the time Sotheby’s starts to sell off then you should be prepared to sell the rest of your equity portfolio.
Disclosure: "no positions"