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Fine Art Fire-Sale


Multimillion-dollar hobby no longer good idea.

For the last 2 decades, wherever Wall Street went, the art market was sure to follow. This time, it's following it right over a cliff.

For nearly a decade, the great bubble in art nicely inflated in concert with the one on Wall Street. And even when that artifice began to crumble, art investors expected Russia, China, India and the oil-rich Arab countries to fill the void.

Not so: Sales at auctions worldwide -- much like the price of oil and the stock market as a whole -- have declined significantly in the last 6 months. Gone are the days when Sotheby's could sell a painting by Congo the chimpanzee for £1,650 - and at an auction devoted to "Modern British Art," at that. (That was in March 2008.)

Christie's International, the world's largest auctioneer, auctioned $3.1 billion worth of art during the first half of 2008, but only about half of that during the rest of the year. And at the last major auctions in November, Christie's and New York-based Sotheby's (BID) had an estimated $63 million of combined losses from guaranteed artworks that went unsold. This never happened prior to 2008.

Many of the largest buyers -- private-equity, hedge-fund and investment-bank executives -- are now conspicuously absent at auctions. Some of them, in an ironic twist, have even been forced to sell their art to pay off debts.

Lehman, for example, plans to sell about $8 million in artwork to help pay its creditors. In November, former CEO Richard Fuld and his wife sold 16 drawings for $13.5 million through Christie's, for a figure below the $15 million low estimate.

In addition to the artists whose clients now have emptier pockets, Christie's and Sotheby's have been hurt terribly by the downturn in art sales. And they're responding with "significant" job cuts.

Christie's said earlier this week that it's going to fire an undisclosed number of salaried employees; contracts won't be renewed with many of its art consultants and freelance workers. The cuts will take place throughout its 85 global offices and 14 salesrooms in New York, Hong Kong, London and Paris - a global reminder of the economic crisis. Last month, Sotheby's cut $7 million from its salary pool when it fired an undisclosed number of people.

"We need to reshape our business to ensure that we emerge from these challenging times as a stronger company," Ed Dolman, Christie's chief executive, wrote in an email to staff.

To reshape their businesses, however, the auction houses will need to wean themselves off the financial executives who turned art into a commodity. Academics devised buyers' tools like the Mei Moses Fine Art Index, financiers started art investment funds, and investors published bulletins like "Skate's Art Valuation Letter." As one Forbes writer said: "People were buying by .jpeg."

Until last year, Christie's, Sotheby's (whose stock chart looks like a cliff I once dove off of in Jamaica), and other companies that cater to the rich were viewed as being immune from recession, because their clientele didn't have subprime loans. As it turns out, that doesn't matter. In fact, their stocks have experienced more acute pain than the S&P 500.

Those who followed this line of reasoning -- that the rich are immune from the petty monetary concerns that crush the rest of us -- found the idea that Wall Street could collapse frankly unimaginable. But now it's come to pass.

So if you've been storing cash under your mattress, now may be the time to buy that Picasso or Warhol at an upcoming Sotheby's auction. There won't be nearly as much competition.
No positions in stocks mentioned.

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