Felix Salmon at Reuters:
One of my pet distinctions is the one between a bubble and a speculative bubble. All speculative bubbles are bubbles, but not all bubbles are speculative. In the markets, the late-90s dot-com bubble was speculative: it was based on the greater-fool theory that even if you were overpaying today, you’d be able to sell to an ever greater fool tomorrow, and make lots of money. A speculative bubble is fueled by flippers — people who don’t much care for or about what they’re buying, but who reckon that whatever it is, they’ll be able to sell it at a nice profit. So the Miami condo bubble of the mid-00s was speculative, while the current Miami real-estate market, which is nearly as hot, isn’t.
Non-speculative bubbles are often fueled by FOMO: you spend more than you can really afford on an apartment today, because you have a very rational fear that if you wait any longer, you’ll never be able to afford a place to live, no matter how much you stretch. And one way of ensuring that speculative bubbles never take place is to put lots of friction in the system: no one will ever buy-to-flip a grand NYC co-op apartment, for instance, because New York’s co-op boards are very good at preventing such activity, and making life miserable for would-be flippers.
This is one reason why I’ve long said that even if there is a bubble in the contemporary-art world (and I think there is), it’s not a speculative bubble. The people spending millions of dollars on trophy art aren’t buying to flip; the people selling aren’t selling to make a fast buck. Rather, they’re selling because of one of the “three Ds”: death, divorce, debt. The exceptions to this rule are dealers, of course, along with a small number of collectors who are so active they start becoming quasi-dealers in their own right. If you’re well connected in the art world and willing to make an opportunistic purchase, then you’ll probably be willing to make an opportunistic sale as well, when the price is right.
But right now, I’m beginning to see indications that things are changing: if you look at this month’s big contemporary art auctions, you’ll see quite a lot of art being flipped, including art being flipped by one of the biggest collectors of them all, Stevie Cohen. According to Carol Vogel and Peter Lattman in the NYT, Cohen is selling a Gerhard Richter which he bought from the Pace Gallery last year, along with “about a dozen other pieces, mostly at Sotheby’s, that he acquired in recent years at art fairs and auctions”....MORE
