With Hard Asset Prices Plummeting, What's Next for the OA Market?

[jjonahjameson1]

OMG! The sky is falling. Take cover, the sky is falling!

 

. Been there, done that.

 

Past performance is no guarantee of future results, and if you only look in the rear-view mirror, you'll never see what's coming up the road.

 

I'm not telling anyone how to spend or not spend their money. All I'm saying is that the cognitive dissonance between what OA prices have been doing versus what other hard assets have been doing and what is going on in the economy and financial markets has reached the point this week where it's become impossible for me to ignore the elephant in the room. To me, it makes no sense that the price of real money - gold - is down nearly 30% from its 2011 peak while most high-end OA is probably up 20-30% since then (more, in some cases).

 

Whether people acknowledge it consciously or not, they have been spending what they have on OA at least in part because, "I'm earning 0% in the bank", "the dollar is becoming worthless", "the Fed is printing money so we will get inflation and you want to be in hard assets", etc. Some collectors, including at least a few on the Boards here, have been quite explicit about the connection between the macro picture and their OA buying motivations. People can't find anything better to do with their money, so they have been piling into a commodity they both know and love - comic art.

 

But, what happens when interest rates start to go up, like they are now? What happens when the dollar is rampaging higher instead of going down like it was a few years ago? What happens when gold plummets 30% and silver plummets 60% from where they were in 2011? What happens when the price of other hard assets have been falling for 2 years and you can no longer ignore it? What happens when cash is getting scarcer and more valuable by the hour? Might it not be prudent to question whether record OA prices are warranted when the price of money is going up and the price of other hard assets continues to deflate month after month?

 

I wonder if we will look back at the $500K purchase of the ASM #50 cover as the bell-ringing moment for this market. Or maybe it was last summer's ASM #328 sale - not like the market has gotten appreciably stronger as a whole since then outside of a handful of big acquisitions mostly by one individual.

 

- Gene

 

I'll be able to purchase more art?

[vodou]

Post the art !

No. The wee bit on CAF is all you get. Which reminds me, been meaning to pull most of that back down too...

[vodou]

I'll be able to purchase more art?

Not if you lose your job.

Not if your credit lines dry up or art moves toward a cash-only market.

Not if your cost of living goes up but your income doesn't.

Not if you lose confidence in anything but what's in front of you right now, today.

Gene's describing deflation. These are just some of the outcomes if systemic deflation sets in. They write thick books about this stuff, obviously too much to go into on a board.

[delekkerste]

All the printing CBs are diluting their currency in lieu of Treasuries raising revenue (taxes) on their populace. Since spending isn't going down, somebody has to buy the fresh debt paper. If it's not CBs, then who? Riiiiight. And there you go. Maybe the same operations under different names/cover but never going to end. Unless you think spending will shrink, deficits will disappear, actual debt (not just service) will be re-paid. Again, riiiight.

 

I hear what you're saying, but even with $85 billion of money printing a month, commodities have been in a bear market since 2011, during which time gold (I.e., real money) has plummeted nearly 30% and silver more than 60% from their respective highs, even as the U.S. dollar continues to rip higher against most major currencies.

 

If you believe that the price of gold represents the price of real money, then OA has become horribly overvalued on a relative basis since 2011 if you are using a quasi-gold standard analytical framework, no two ways about it. Despite all the QE of the past couple of years, from far debasing the currency, the U.S. dollar has actually gained in value versus both gold and other currencies. And yet, OA has only continued to get more expensive in dollar terms (and ludicrously expensive in gold terms).

 

I spent almost as much on art in 2011 as I did in 2002-2010 combined. To me, this action was justified by a weakening U.S. dollar and a surging gold price, which nearly hit $2,000/oz. that year. But now, the U.S. dollar trades like a champion and gold has plummeted to the $1,200s. Does it make sense that OA should be at record highs? I cut back on spending in 2012 and will likely do so again in 2013 unless certain long-coveted pieces become available. At this point, I am very thankful that I lost out on the ASM #121 cover earlier this year; I definitely would not bid anywhere close to what I did if the auction had been held now instead of back in February. I don't know what everybody else here does, but when the facts and circumstances change, I change. And, right now, I don't think OA prices make a lot of sense while both financial and hard asset prices have been getting flushed like an industrial strength toilet.

[buttock]

With all respect Gene, that completely ignores the "collector" aspect of the market. OA is not just a hard asset. People actually spend big money on it because they like it and want it.

[delekkerste]

With all respect Gene, that completely ignores the "collector" aspect of the market. OA is not just a hard asset. People actually spend big money on it because they like it and want it.

 

Sure, but do people like and want OA 20-50+% more in 2013 than they did in 2011? That is the real question.

 

Some people seem to subscribe to the rationale that nostalgia and love for the art trumps all the external factors that help determine market prices. Unsurprisingly, I do not subscribe to that point of view. Aside from a few curiosities of nature in the hobby, I think most people have a high degree of price sensitivity. I don't know about the rest of you, but I can love a page at $10K and hate it at $20K.

 

If the price of gold is at $1,850/oz., I may be willing to pay $10K for a page of OA. If gold is at $1,275/oz., I'm not sure I want to pay $15K for the OA, because the relative valuation of the OA versus both dollars (nominal money) and gold (real/hard money) has skewed hugely in the wrong direction. Asset price returns are mean reverting. After the parabolic blow-off in the high-end of the OA market the past two years, I am very concerned about mean reversion, especially seeing it hit virtually every asset class out there in recent weeks (and months/years for some).

 

I'm sure I'll keep buying some pieces. But, overall, I'll be bidding less than I otherwise would have if the macro environment were more favorable (of course, if the macro picture improves, I'll adjust my spending and valuation of OA accordingly - "when the facts change, I change my mind...what do you do, sir?") And, for whatever I do buy, it will be because I love the piece(s) so much that I'm willing to accept a high likelihood of loss (if not in nominal, then at least in real, inflation-adjusted terms) upon the piece's eventual resale.

 

Remember that virtually 100% of the OA out there will change hands at least once in the next 30-40 years, if not sooner, as collectors age and die off (remember, this hobby reached critical mass/maturity so recently that no generation of collectors has retired or died off yet, so looking in the rear-view mirror is a useless endeavor). I sincerely doubt that there is enough money in the next generation of collectors to turn over all this art at prevailing market prices plus upward adjustments for future inflation. But, that is another story for another day.

[vodou]

If you believe that the price of gold represents the price of real money, then...

I don't. I think it represents the levered (or delevered these days) price of securitized 'whatever' (which I don't differentiate from other securities). The securitization of gold has stripped all value of ownership or signal-sending away. Well that's paper gold. It remains to be seen if bullion outside the financial system will decouple.

 

Leverage exists in OA too, to the extent that dealers and collectors can get credit terms, bank lines of credit, hit up credit cards, refinance rising real estate value (again, gah!), but not to the same extent as financial markets, especially forex and commodities futures.

 

One thing is for sure, if the art you want is rising in price faster than your income (and investements, so net worth?), then there's a problem. The other side is opportunity cost (gold 2010 price vs art 2013 price, etc). Different subject which actually assumes at least one will 'rise' in value from here; not necessarily true!

 

I don't know about the rest of you, but I can love a page at $10K and hate it at $20K.

Well for $20k I'll still love it, but on your wall instead of mine is fine too. (thumbs u

I don't see ownership as a pre-requisite to love.

 

Remember that virtually 100% of the OA out there will change hands at least once in the next 30-40 years, if not sooner, as collectors age and die off (remember, this hobby reached critical mass/maturity so recently that no generation of collectors has retired or died off yet, so looking in the rear-view mirror is a useless endeavor). I sincerely doubt that there is enough money in the next generation of collectors to turn over all this art at prevailing market prices plus upward adjustments for future inflation. But, that is another story for another day.

I disagree. I think the 1990s Christie's and Sotheby's auctions were mostly populated with the first generation's retirement party dishoarding. It's really hard (imo) to separate those sales from the Internet Phenomenon (and all that goes with it OA-wise) though. That resulting great spike in new demand creation is not likely to be repeated. But will the great supply continue? Are we in the middle of the second generation's dishoarding right now, with the result that most major pieces are changing hands once and then going back into hiding? Could be that much of the art traded since 2003-present isn't coming back around for another 20-30 (but probably not 40) years.

 

As for available 'money', high and low 'prices'...moving targets. The dollar (and all faith money) is a fine transaction device but terrible savings vehicle. Does anybody know what M1, M2, M3 will look like in 10, 20, 30, 40 years? How about the same but aggregrated globally for all currencies? Yet the same (and less due to damage and loss) 'great' OA will be here. Will it still be perceived as 'great'? Dunno. Will you sell your Kirby covers for 'dollars' (if you have nothing else to immediately buy) or will you swap it for land, commercial real estate, a small business (ice cream shop to manage in your retirement)? While hot dollars, inflation adjusted, may be in shorter supply in the future will the things you actually want be? Only you know that, and you probably don't even know what you want when you're 60 right now! People's feelings on that change too much every 5 years anyway. Or maybe it's as simple as being the guy with the right Kirby cover moves to swap moves to the front of the line for a heart transplant, and this would not be the case for just 'another guy with a lot of money in the bank'???

[jjonahjameson1]

With all respect Gene, that completely ignores the "collector" aspect of the market. OA is not just a hard asset. People actually spend big money on it because they like it and want it.

 

Sure, but do people like and want OA 20-50+% more in 2013 than they did in 2011? That is the real question.

Some people seem to subscribe to the rationale that nostalgia and love for the art trumps all the external factors that help determine market prices. Unsurprisingly, I do not subscribe to that point of view. Aside from a few curiosities of nature in the hobby, I think most people have a high degree of price sensitivity. I don't know about the rest of you, but I can love a page at $10K and hate it at $20K.

 

If the price of gold is at $1,850/oz., I may be willing to pay $10K for a page of OA. If gold is at $1,275/oz., I'm not sure I want to pay $15K for the OA, because the relative valuation of the OA versus both dollars (nominal money) and gold (real/hard money) has skewed hugely in the wrong direction. Asset price returns are mean reverting. After the parabolic blow-off in the high-end of the OA market the past two years, I am very concerned about mean reversion, especially seeing it hit virtually every asset class out there in recent weeks (and months/years for some).

 

I'm sure I'll keep buying some pieces. But, overall, I'll be bidding less than I otherwise would have if the macro environment were more favorable (of course, if the macro picture improves, I'll adjust my spending and valuation of OA accordingly - "when the facts change, I change my mind...what do you do, sir?") And, for whatever I do buy, it will be because I love the piece(s) so much that I'm willing to accept a high likelihood of loss (if not in nominal, then at least in real, inflation-adjusted terms) upon the piece's eventual resale.

 

Remember that virtually 100% of the OA out there will change hands at least once in the next 30-40 years, if not sooner, as collectors age and die off (remember, this hobby reached critical mass/maturity so recently that no generation of collectors has retired or died off yet, so looking in the rear-view mirror is a useless endeavor). I sincerely doubt that there is enough money in the next generation of collectors to turn over all this art at prevailing market prices plus upward adjustments for future inflation. But, that is another story for another day.

 

Actually, that's not really the question.

 

What if that piece wasn't available in 2011? Then there is no basis for a like-for-like comparison.

 

On a related note, if its a piece i *must* have and I need to spend more than expected, the real question is: am I willing to sacrifice more? And if so, what I am willing to do without in order to make this purchase happen?

 

You can slice and dice the financial aspects of the Global markets all you want, and the markets do play a factor in purchases for some folks, but at the end of the day, if I piece comes to market that someone's gotta have, well, they'll find a way to get it. The collector bug will trump fiscal restraint most of the time.

[delekkerste]

Actually, that's not really the question.

 

What if that piece wasn't available in 2011? Then there is no basis for a like-for-like comparison.

 

On a related note, if its a piece i *must* have and I need to spend more than expected, the real question is: am I willing to sacrifice more? And if so, what I am willing to do without in order to make this purchase happen?

 

Just because a piece wasn't available in 2011 doesn't mean that it didn't have a value in 2011. But, in any case, let's say that you or someone else has to have a fresh to market piece in 2013. OK. Just look at, say, the recent Miller Wolvie 3 cover sale. Sells for a fresh to market price in 2010 and then re-sells for a not fresh to market price in 2013 that is lower after commissions (let alone keeping up with inflation or any investment benchmarks during that time). Given how much prices have run up since then, chances are that, for a new fresh-to-market purchase in 2013, by 2016, you'll still be underwater in real terms. If you love the piece, great. If you love the piece but don't want to lose money on it...that's another story.

 

Some people say that OA prices didn't dip at all in late 2008/early 2009. That's a crock. I picked up some of my best bargains ever during that time. Had these pieces been sold in the summer of 2008, they would have fetched more - just because the pieces weren't available then doesn't mean that valuation wasn't affected during that time period. The macro collapse and palpable fear/crowd psychology affected the OA market. I don't know why this is shocking to some people. Now, mostly the market just froze up and people generally sat on their hands during this downturn and, thankfully for them, the reflation came swiftly. Will the same happen for the next downturn?

 

Not everyone will alter their buying behavior if and when macro conditions worsen. But, most will. And most people who say they will be scooping up bargains and spending just as much or more when that happens, won't. I didn't see anyone, not even the whales, making big offers and scooping up art by the armload in early 2009. It was impossible not to be affected by what was going on in the world, even if you personally were not hit that badly. It's just human nature.

 

But, again, I'm not telling you or anyone else what to do. I'm just telling you what I'm going to do. I'm not sure why some people have a problem with that; if I'm wrong, then the only person who's going to be affected is me.

[batman_fan]

In my mind the only thing that really comes into play for buying collectibles is the perceived disposable income. The reason I say perceived is various people see a variety of influences against what they have to spend. For myself, the price of gold has no direct tie to my disposable income so the price dropping has no meaning to me other than as a conversation item. The stock market does have a big impact on my perceived disposable income since I have money directly linked to the market that I watch constantly so my perceived disposable income has a direct relationship to the markets because I can easily correlate the two.

 

The housing market only comes into play if rental rates drop since I see rental income directly but that has actually gone up over the past few years. Similar on my primary residence. I am way above water on my mortgage so home values need to drop a ton before I get concerned, especially since I am not planning on selling anytime soon. . So right now, increasing interest rates really has no impact on my perceived disposable income.

[Pete Marino]

What I hear is prices may go down because we'll have less buyers in the short to mid-term so there will be quality buys.

 

Just spend smart, and don't throw your money at every fancy lookin' hussy that says hello and winks her eye.

[drdroom]

What I hear is prices may go down because we'll have less buyers in the short to mid-term so there will be quality buys.

 

Just spend smart, and don't throw your money at every fancy lookin' hussy that says hello and winks her eye.

 

Why will there be less buyers?

[Pete Marino]

What I hear is prices may go down because we'll have less buyers in the short to mid-term so there will be quality buys.

 

Just spend smart, and don't throw your money at every fancy lookin' hussy that says hello and winks her eye.

 

Why will there be less buyers?

 

When the economy crumbles as is being alluded to above....

[delekkerste]

What I hear is prices may go down because we'll have less buyers in the short to mid-term so there will be quality buys.

 

I wrote this to a friend earlier today:

 

Anyone buying high-end art in 2013 knows how competitive that segment of the market is. To beat out the competition, you have to be willing to overpay, sometimes grossly, to be the last man standing. This is not conducive to long-run price appreciation or even capital preservation. Look at what happens when people pay up for fresh to market pieces and then try to re-sell them within 1-3 years (as some collectors have done over the past few years). Those underbids disappear faster than Danny Green's shooting ability in Games 6 and 7 of the NBA finals, and it will only get worse going forward when you're starting at 2012-13 price levels instead of 2010-11. I think that anyone who pays up for art in this market and then thinks what they paid is a realistic estimate of its true value is nuts.

 

Anyway, I am not saying that I'm going to stop buying completely. I will just be even more focused/selective and price conscious than ever before, and I'll buy with my eyes open that I'm probably locking in a loss (of course, I've often stated that I mark-to-market every new purchase I make at a bare minimum of 20% below cost anyway). Cash was trash in 2011; in June 2013, Cash is King, much as it was in late 2008 and early 2009, which tells me that it no longer makes sense to spend like it's 2011 or 2012. And, while I'm not sure if we'll see a big overall price correction, I do think we'll see higher-end pieces that are bought in 2012 and 2013 and resold in the coming years doing poorly overall for their owners.

 

In other words, I can see fresh to market pieces continuing to do well and giving a false barometer of health and vitality to this market, because where two people will bid up a fresh to market piece at a given point in time is not indicative of where the market will be the next time around. Just look at the Miller Wolvie #3 cover, just to name one example (I could name others, but I don't want to single out and embarrass anyone) - overall, the high-end OA market is probably up 30-50+% since 2010 but that piece netted its owner a small loss over 3 years after commissions (let alone keeping pace with inflation or anything else).

 

Now, start at the vertiginous purchase prices of 2012 and 2013 and tell me people will be able to get their money out of a lot of these buys anytime soon (if ever). Can that $155K FF #55 page be resold at breakeven or a profit now? $170K ASM 317 cover? $657K ASM 328? $100K ASM #29 page? $287K ASM #121 cover (I was the underbidder on this one, but I wouldn't pay anywhere remotely near that amount now)? $78K X-Men #9 page? Don't call them outliers, because I can name many more, including private sales, a list longer than my arm at this point (and I've got long arms). Factor in inflation, storage/insurance and transaction costs and the true breakeven point for all of these is even higher, and I don't think any of these examples are even still where they initially sold for in nominal terms.

 

Anyway, like I said, I'm not telling anyone what to do with their money or their collections. I just think that everybody should go into it with eyes wide open. If people don't talk about stuff like the above, then all we'll hear is the hyperbole and hucksterism endemic to this hobby and the terrorists win.

[Terry Doyle]

I don't know about the rest of you, but I can love a page at $10K and hate it at $20K.

Well for $20k I'll still love it, but on your wall instead of mine is fine too. (thumbs u

I don't see ownership as a pre-requisite to love.

 

I totally agree. My appreciation for the type of artworks I collect (or want to collect) remains unaffected by any price-tag.

 

Affordability (and the means/desire to compete) is a separate issue, in that I can love the art but hate the asking price.

[delekkerste]

I totally agree. My appreciation for the type of artworks I collect (or want to collect) remains unaffected by any price-tag.

 

Affordability (and the means/desire to compete) is a separate issue, in that I can love the art but hate the asking price.

 

That is, quite obviously, what I meant in my original statement as well. If I throw out dollar figures and say that I love a piece at $10K and hate it at $20K, obviously I'm talking about how I feel regarding the potential purchase of a piece, NOT how much I appreciate the artwork itself. :doh:

 

I feel very misunderstood.

[vodou]

Gene I've met some of these folks - if they don't own it (and can't afford it), it totally sucks and they can get angry and even verbally abusive. Weird but true. Wasn't going to assume which camp you were in, my statement was more a general comment anyway.

 

When one truly accepts the world isn't your oyster...well I found a gentle sort of peace settled over me, and I appreciated what I do have a lot more than the endless scramble to get "more". I still get more, but the desperation (independent of "price") is gone. A nice place to be.

[alxjhnsn]

I have gone into this - especially given my taste in art, artists, and subjects - with the expectation that if I get back 40% of what I've paid, it's a success.

 

I "know" that the vast majority of what I own isn't "collectable," but it does bring me pleasure and good memories.

[delekkerste]

In my mind the only thing that really comes into play for buying collectibles is the perceived disposable income. The reason I say perceived is various people see a variety of influences against what they have to spend. For myself, the price of gold has no direct tie to my disposable income so the price dropping has no meaning to me other than as a conversation item. The stock market does have a big impact on my perceived disposable income since I have money directly linked to the market that I watch constantly so my perceived disposable income has a direct relationship to the markets because I can easily correlate the two.

 

I am not implying that there is a direct cause-and-effect between gold dropping and people deciding whether or not to buy a piece of art. I am suggesting, however, that a large drop in the price of gold in a relatively short period of time is probably symptomatic of and correlated with other factors that actually would impact both the pocketbooks and the psychology of art buyers.

[batman_fan]

In my mind the only thing that really comes into play for buying collectibles is the perceived disposable income. The reason I say perceived is various people see a variety of influences against what they have to spend. For myself, the price of gold has no direct tie to my disposable income so the price dropping has no meaning to me other than as a conversation item. The stock market does have a big impact on my perceived disposable income since I have money directly linked to the market that I watch constantly so my perceived disposable income has a direct relationship to the markets because I can easily correlate the two.

 

I am not implying that there is a direct cause-and-effect between gold dropping and people deciding whether or not to buy a piece of art. I am suggesting, however, that a large drop in the price of gold in a relatively short period of time is probably symptomatic of and correlated with other factors that actually would impact both the pocketbooks and the psychology of art buyers.

 

Hi Gene, I think you are able to connect the dots between the various indicators, but most people can't so they just don't see them. The astronomic increase in a lot of art over the last few years has been staggering. I find myself asking how long can it go on since no exponential curves can go on for ever but will it drop or just hit a lull before going up more. I am watching closely the Jungle Action 6 cover on HA as this is a cover I considered buying back when it was offered on eBay about 5 years ago.