Market Monday: You Can't Always Get What You Want

This week, a collection of stories about undesired outcomes and their even less desired effects...

In the aftermath of Brexit––which few in the art industry seemed to support––Katya Kazakina explored some of the many challenges and uncertainties now facing galleries, dealers, and auction houses in the UK. Primary among them is currency devaluation. The pound sterling's eight-percent death spiral since Friday means that every available artwork in the country is suddenly on sale to collectors buying in USD (a phenomenon I've written about in an art-market context before). If the pound stays weak for long, that could create a terribly vexing situation for British gallerists. Given that industry standard dictates an artist's primary market prices should never descend, gallerists could theoretically offset the currency fluctuation by marking up their roster members' inventory––but only if they're committed to maintaining those elevated prices forever. Eight percent may not sound like much of a hike on paper. But in the short term, is it still enough to persuade international collectors to look away from defense-minded galleries, especially if their local rivals continue to effectively offer discounts by holding their own prices steady? What about in the long term, if the pound ultimately recovers and locks in the crisis-induced mark-ups for good? It's a prisoner's dilemma, and only time will parole the answer. [Bloomberg]

For more on Brexit's potential effects on the industry, London art-law firm Boodle Hatfield LLP put together a brief primer on the top four nonprofit and for-profit issues the referendum now throws into question in the UK. The piece nicely complements Kazakina's, since it touches on a few subjects outside the intended scope of her reporting. In particular, I would highlight the fate of the Artist's Resale Right (ARR), the statute that entitles qualifying artists to a small percentage of revenue every time their works sell on the EU's secondary market. If parliament indeed obeys the non-binding result of the Brexit vote, Tim Maxwell of Boodle Hatfield predicts that British art sellers may try to renegotiate, if not vaporize, ARR in an effort to level the playing field between London and rival art markets where artists receive no royalties (primarily New York and Hong Kong). If UK gallerists, dealers, and auction houses were to succeed in that effort, they could further damage the already weak prospect that ARR-like laws will ever be ratified in the US and China. Why? Because the EU minus London––far and away the alliance's art-industry epicenter––might mutate into something of a minor player in art-market terms. And if a minor player becomes the only region whose laws acknowledge that artwork and its creators deserve to be treated differently in some ways than typical retail products and their manufacturers, that sets an ugly new precedent for resale-rights proponents where the vast majority of art sales actually take place. [Art Law & More]

Fortunately for English artists, they now have a new means to fight back on issues like the possible repeal of the ARR. Although it seems to have taken a few weeks for we in the art media to realize it, on June 6, 2016 the Artists' Union England (AUE) received its official certification as the country's first and only union for visual and applied artists––as well as one of the few entities of its kind anywhere in the world. While the AUE's recognition is an encouraging development for artists who might want to organize in the US and other countries, the reality is that the union has won the battle but not yet the war. Like so many other labor activists in history, its members will now have to withstand the self-interested push-back of their industry's gatekeepers (particularly gallerists), who––whether subtly or blatantly, independently or in collusion––may begin to prioritize the careers of non-member artists in a completely legal effort to dodge the union's requirements. Similar to what I wrote about the clash between the New Museum and NYC artist-activist group WAGE, that means the AUE's best leverage would come from enrolling as many high-profile English artists as it can, as quickly as possible. Otherwise, the organization's influence may be limited to small gains at the low end of the market rather than industry-altering reforms. [ArtForum]

As further support for one of my central themes––namely, that "investing" by acquiring art is usually as flawed a concept as "protecting" a child's health by refusing to vaccinate them–– researchers from the University of Luxembourg published a study finding that analysts have grossly overestimated financial returns on artwork for the past 50+ years. Based on results from the Blouin Art Sales Index (billed as the most comprehensive of the industry's many auction-price databases), the study's authors concluded that, between 1960 and 2013, artwork as an asset class actually delivered less than two-thirds of its alleged 10 percent return on investment, as well as only about one-third of its alleged Sharpe Ratio. The primary culprit for this misrepresentation?Selection bias. In this case, the concept means that only the most sought-after pieces tend to be offered at auction, which in turn guarantees that only disproportionately profitable results will be available to the public. That, in turn, makes art sales as a whole look much more robust than they are, since collectors effectively bury every acquisition whose value craters. Yet I would argue that art's real returns are even worse than the Luxembourg study finds, thanks to two blind spots in its methodology: first, the absence of any private-market data whatsoever (not the researchers' fault, of course); and second, the absence of the many significant expenses associated with actually holding high-value art over time, including shipping, storage, and insurance, as well as installation (if you actually want to look at your "assets") and possibly conservation (if damage or wear occurs). All of which strengthens the case for responding like Inigo Montoya anytime someone recommends you "invest" in art: "You keep using that word. I do not think it means what you think it means." [Phys.org]

Finally this week: Despite a long-sustained chorus of criticism from all sectors of the German art industry, the Bundestag ratified an extreme new cultural heritage law on Thursday. The resulting regulations mean that any object deemed "nationally significant" by Germany's culture ministry, for any reason, can be blocked from export outside the European Union if it exceeds €150,000 in value and 50 years of age, or within the EU if it exceeds €300,000 and 75 years of age. I already wrote an entire post in February detailing why economic incentives and early evidence suggest that this move is a catastrophe for all sectors of the German art world. But if you don't have time to click through, I'll just say that that piece was titled "Chaos Theory" (shout to Jeff Goldblum/Dr. Ian Malcolm)––and that the added turmoil of Brexit only makes me more confident that Germany and the EU's loss will be the US's gain. [artnet News]

That's all for this edition. If your wishes go unfulfilled this week, just remember one of the lessons of the great Bill Watterson: It builds character.