by Gerrit Gohlke & Stefan Kobel
Michael Moses, a finance professor at New York University’s Stern School of Business, may well be the art-world’s most famous academic expert on art prices. With his colleague Jianping Mei, Moses co-developed the Mei Moses Index, a fine-art price index that widely made news for showing that artworks sold at auction over the past 50 years had a compound annual growth rate better than that of bonds and close to that of the Standard & Poor 500 index. With U.S. financial markets facing the biggest crisis since the Great Depression, Artnet Magazine Germany contacted Moses for a telephone interview on the role that art investments might play in the ongoing fiscal-market drama.
AM: The finance world has not experienced such turbulence for decades. Will there be repercussions for the art market?
Michael Moses: Historically speaking, the art market has tended to lag downturns in the financial market by 6-18 months. But the art market is also dependent upon worldwide wealth creation. So a downturn in a single market may not affect the art market, but a downturn in world markets will most likely affect the art market. But it’s driven more by global accumulated wealth than by short incremental changes.
AM: Could art become a substitute investment? In times like these, do investors move their funds not only to gold, but if necessary also to artworks?
MM: When individuals sell equities, they need to put the proceeds somewhere, whether it’s gold, cash or art. Historically, art has been basically an asset class, and money flows to it during good times and bad times. The question is how much is flowing. And when people are disposing of other assets, there may be an opportunity for some of those assets to flow into the art market.
AM: Is speculating in art a good idea during volatile times like these?
MM: Historically, art has had positive returns over many different holding periods. In the last five to ten years, art has outperformed financial assets. In the last 20 years, financial assets have outperformed art. Art is like any other asset, it has good times and bad times -- it’s not a silver bullet. My perspective is that the thing that most affects the art market is major changes in world-wide accumulated wealth.
AM: Can the loss of capital on the financial markets lead to “emergency selling” in private art collections?
MM: Yes. We’ve seen it before when the dotcom bubble burst. There were executives who had to sell works that they had just recently bought during the glory days, and that’s true with any asset. [Editor’s note: It has just been reported that Richard Fuld, chairman of the now-bankrupt Lehman Brothers banking firm, has consigned $20 million in art to Christie’s auction house.]
AM: Is the gallery market invisibly linked to the finance market? Will New York lose influence as a marketplace?
MM: Again, this is a question of ups and downs. It would stand to reason that, due to changes in Wall Street and changes in some American companies, the people who were long in all of these markets will stand to lose money. The people who were short in all of these markets will tend to make money. On balance, most likely in the short run, there probably will be more losers than winners. But in the long run, there’s nothing that I see that shows that things won’t rebound over time -- they always have in the past. But I don’t have a crystal ball.
AM: The market has many different sectors, like contemporary art, or classic modernism, or 20th-century design. Will this financial crisis effect sub-sectors of the art market differently?
MM: Currently I think that we’re finding that new money seems to go after new art, and this tendency might be one of the reasons that post-war art has done so well over the last five years, so potentially, this category might be more susceptible to downturns in new wealth creation. But we have to remember that wealth creation is a worldwide phenomenon now more than it has been in the past, so it may be that the world market picks up now where the American or European markets may slow down.
