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Tuesday, April 12, 2011

Auction records

Visiting my grandmother in Stone Harbor, New Jersey during the Summers remains a fond memory of my childhood.  She was a wonderful, sweet woman but was not one to splurge or allow waste.  In fact around lunchtime she would ask "What would you like dearie, peanut butter OR jelly?"

Sadly that is what has happened to a large percentage of the best minds in the United States.  Instead of making bold moves to create new businesses, they find ways to bargain hunt solely as a means of generating income for themselves and their partners.  "Buy low, sell high" is no way to make a country great.   Using some our most beautiful minds to create so called "trading programs" for stocks will be viewed as one of the great wastes and tragedies of the late 20th and 21st centuries 500 years from now.  Our descendants will marvel that so much time was wasted on a pursuit that did no good for the people of the United States.

When large proportions of our best minds devote themselves to looking for bargains with their money and the money that others give them to invest, it spells the end of a society.  Only when the best minds are pressing to open up opportunities by pursuing new ideas does a society really grow and make life better for all of us.

Here is a story about one mistake that the bargain hunters have made:  they rely on auction records for art solely to determine value.  While auction records have a place, they are easy to manipulate for a sophisticated dealer with patience and a full understanding of the vast quantities of testosterone running through the bodies of his planned victims. 

Very simply a dealer with hundreds or even thousands of the same or similar works of art can put one example up at auction once or twice a year for a period of years, find a cohort to bid against him and create a dramatic increase over time artificially running up prices until the madness of crowds takes over.

If you think this kind of "so called" art is truly rare, why do you think Andy Warhol called his facility a "factory."  Right in the face of the whole world he told all of us that he was a mass producer.  His greatest spark of genius was that he realized that the sales of his multiples was only limited by the number of people who would buy them - the exact same genius that made Joe Segal the founder of the Franklin Mint over half a billion dollars between 1965 and 1973.   Al Taubman did much the same thing at Sothebys going after rich collectors that were easily manipulated.

The genius of Warhol, Segal and Taubman - the three greatest art dealers of the 20th century - was their ability to use MEDIA to create value when there was none.  Their use of promotional materials - their elegant venues, newspapers stories, their mailings, promotions, spectacular catalogs, posters, use of PR companies, the appearance of scholarship, cocktail parties and charity events is in itself the greatest "art" of the 20th century.   It is my prediction that 500 years from now that these promotional documents will be what collectors will value the most highly.  They are truly beautiful created by those who were the most artistically talented.

Yes.  My prediction is that a complete run of Sothebys Contemporary Art Catalogs will be worth more than any work of art that they sold in any of those catalogs.   To me the story of HOW they sold this art is vastly more beautiful than the art that they sold.

Only Hitler used the Media better in the last 100 years using his brilliant understanding of pageant to lure 50,000,000 people to commit the greatest evil of all time. 

What follows is a story of Garry Oily whose understanding of the Media and testosterone will someday put him in a league with the names above.  Perhaps he is there already.

Let's say a dealer like Garry Oily has 1000 works of art by an artist like Simian Dirt.  He can put one up at auction in year one and with a confederate drive the price up to $1,000,000.  Then he can go to a great publisher like Franciscan Bashin and persuade him to publish a book about this artist.  Then he can make a $1,000,000 gift to the Witless Museum of Art and have a show.   Then at the next auction he and his cohorts can push the price up to $10,000,000 bidding against themselves, then a year later he can press the price to $25,000,000.

What has his cost been so far?

$25,000,000 to the artist Simian Dirt for 1000 works of art,  $5,000,000 to the auction houses for sales commissions, $1,000,000 each to 5 Art Museums like the Witless and overhead of $10,000,000 for an investment of close to $50,000,000.

Wow.  That is a HUGE risk.  How could one possibly make a reward from this huge investment.

What is the reward???????????????????????????????

1000 works of art with a "fair market value" of $25,000,000 each or 25 BILLION dollars.

So a $50,000,000 investment gets you back $25,000,000,000 or a 500 times return on your investment.


So now people with my grandmother's nose for thrift, a billionaire bargain hunter with no knowledge of art named Halfwit Major, asks their favorite question which is "Just tell me the auction records.  How much did this make at auction.  And tell me over a four year period.  I am not interested in just one event.  I need to see a "trend."  ("The trend is your friend" is the #1 rule of all good traders.  In this case that is their fatal flaw.) 

So the Oily dealer shows Halfwit Major a series of auction records going from 1 million to 10 million to 25 million over the course of 4 or 5 years.  And he is shown those auction records in a gallery with some of the most splendid examples of the female form on the planet standing in VERY close proximity.  Now Halfwit, armed with a trend showing increasing auction records and his mind severely numbed by women that could ignite the Trojan Wars, shows off in front of them and makes an offer of $200,000,000 to buy 40 thinking he is making a great buy getting them for $5,000,000 each.   Dealer books a profit of $198,000,000 or 100 times his money.   Halfwit thinks he has made a great buy getting 80% off the auction price. And maybe he gets a romp with one of those women for a few nights until the wire funds.

Now let's say the dealer cant find enough people to put up $200,000,000 to buy 40.  Maybe he cant find more than 10 people like Halfwit.  He still has 600 of these works of Simian's art left!!!!!

What to do????????????????????

Give them away to 500 places like the Witless Museum of Art and make $10,000,000 in tax savings on each painting that is given away. 

Who pays for this????????????????????????

You do.

And Congress is going to find out about this and kill tax deductions for fair market value and put them back to cost.  So Museums will especially lose because no one will want to give art away anymore if they can't get a tax deduction for "fair market value."

And if that happens most of these guys will move to a place called "offshore" and pay only the taxes they feel like paying.

So auction records mean a lot but they are not everything.   Get an expert to help you determine value, give money to Museums and Libraries to get the experts there to help you, buy reference books and YES look at auction records.   Sothebys, for one, is vastly more honest than any dealer I can think of.  If they knew something like this was happening, they would have nothing to do with it.

Once a work of art sells for more than what it costs to put a bright kid through a good Medical School the values of that society are out of whack.

The bust of the last three years has brought prices down.  So when the tide went out, things got ugly.  There are a lot of very ugly stories of what has happened to collectors who have tried to sell their artwork.  But now the governments of the world are printing money like crazy and those rickety legs are going to get hidden possibly never to appear ever again.

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