SKATE'S MARKET NOTES

February 4, 2010

Giacometti vs Picasso and the Art Market in 2010

If not by tomorrow, then certainly by next week, Sotheby’s phenomenal sale of Alberto Giacometti’s Walking Man I (L'homme qui marche I) in London yesterday will be something of a distant memory. Such is the nature of hype surrounding big-ticket art purchases like this one. The reporters will quickly take their readers to more exciting events. Sotheby’s will enjoy its hefty commission - over USD 11 million from Walking Man I alone - and still higher share prices (down over 6% today but still up nearly 400% from March 2009 lows). The still unnamed buyer will get to enjoy this most iconic of Giacometti’s sculptures. And we, the analysts, will be left to determine what effects, if any, this sale will have on the greater market. What does $104 million (give or take a little) really mean in the greater scheme of art market dynamics?

To start, we need to decide, once and for all, whether Walking Man I was the most expensive work of art ever sold at auction.

According to the average Interbank GBP-USD exchange rate for yesterday - USD 1.5952 / GBP 1 - Walking Man I sold for USD 103,689,992. Although it wasn’t as low as Bloomberg’s reported figure of USD 103.4 million, it’s not the widely reported and record-breaking USD 104.3 million either.

Given the speed with which journalists do their work, we can’t help but wonder whether in the excitement of the moment a few digits in Bloomberg’s figure were simply transposed. Bloomberg’s figure of USD 103.4 million is very much in line with what the pound sterling could have been trading at the very moment the hammer fell at Sotheby’s; the widely-reported figure of USD 104.3 million falls well above the entire Interbank range for February 3.

And so, in our view, Pablo Picasso still occupies the #1 spot with Garçon à la pipe in Skate’s Top 1000, our ranking of the most expensive works of art ever sold at auction.

But does it really matter?

No, it doesn’t. What matters is what the Giacometti sale means for the state of the art market this year. Walking Man I clearly sets the tone for the spring auction season and, barring another financial crisis, for all of 2010. The sale will surely bring many collectors and investors back to the market; it will also enable auction houses and dealers to convince owners to sell on the wave of increasing prices. In other words, we expect greater volume moving forward this spring. In this sense, Walking Man I could have sold for double Sotheby’s estimate - USD 57 million - and the market implications would have been the same.

Although traditional assets have recovered well from their 2009 lows, possible stagnation in those markets will likely mean that investors will continue to channel capital into alternative assets like art. Impressionist and Modern art has done exceeding well over the past year, as collectors view these works as solid investments, if not from a return standpoint, than at least from a liquidity standpoint. Giacometti is a particularly safe bet in this respect. In Skate’s Top 1000, there are five Giacometti works that have positive average annualized rates of return (ERR), ranging from 6.5-16.55%, a phenomenal statistic for such a highly valued artist.

Alas, even a proven master like Giacometti has his market limits. The buyer of Walking Man I must surely be aware that the chances of making a profit on this particular investment are slim to none. Recouping anywhere near the purchase price will actually prove a great feat. And here it might be worth quoting Skate’s Art Investment Handbook on the irrationality behind yesterday’s purchase:

“...if historical performance is any guide, any purchase of an artwork for more than $10 million virtually guarantees a negative return. This means that spending more than $50 million for a work of art is simply trading cash for art without any consideration of the financial implications. This might be considered as irrational premium par excellence - the joy of ownership at any cost.”

Addendum - February 5, 2010

Yesterday, when we published our latest issue of Skate’s Market Notes, we stated that a variety of exchange rates led to mixed reporting on the final sales price of Giacometti’s Walking Man I. These variations have resulted in confusion on whether Giacometti has topped Picasso as the artist with the most expensive work of art ever sold at auction.

In its press release, Sotheby’s states that it “uses HSBC Bank Mid-Market Exchange Rate against Sterling which for today was 1 GBP = 1.6050 USD.” Under this rate, the total sales price for Walking Man I was USD 104,327,006 - clearly ahead of the 2004 sale of Pablo Picasso’s Garçon à la pipe.