is the bubble due to burst?

Calder about 25,000 works

Picasso about 30,000 works

The art market is much larger than the classic car market.

 

But, remember, that the overwhelming majority of those works are not multi-million-dollar masterpieces. A lot of small drawings and otherwise minor works.

Michael

 

It'd be interesting to see a graph, but some rough approximations are available in the 'prices from the golden years' thread. There are some back-of-the-envelope IRR calculations in there that suggest that over time, the best Ferraris did better than the market indices, sometimes much better.

 

I always wanted a 275 GTB/4 and was looking at one for about $440k about 10 years ago. I recall that gold was about $450/oz at the time, so a 275 GTB/4 was worth about 1000 ounces of gold. About a year and a half ago when all the "Bubble talk" was boiling GTB4's were about 1.7mm while gold peaked at $1,700. I perused through the "Prices from the Golden year thread" and pulled out 275 GTB/4's (excluding alloy) and mated them with prevailing gold prices. What I found that unlike the '88 peak that occurred following Enzo's demise, in 2013 GTB/4 prices were largely supported by the rally in gold prices. The continued rise in GTB/4's while gold has been declining prompted me to update the data. Draw your own conclusions...

For the statisticians out there the updated regression results are:
275GTB/4 = -466,739 + 2532.9(Gold)

std error = 723,126
R^2 = .69
t-stat = 5.9
p = .0000218

So currently, vs gold at $1,140.90 the relationship would indicate 275GTB/4 = $2.422mm.
The recent RM sale at $3.75mm is 1.8 standard deviations above the trendline.

275GTB/4's compounded at 14.9% from 1972 to 2014, while the market with dividends reinvested compounded at 10.1%

Here is the original thread, PM me if you want the data.
http://www.ferrarichat.com/forum/vintage-ferrari-market/405222-275-gtb-four-cam-values.html
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John, not to quibble, but your graph needs tweaking: in 2011 gold peaked at $1900/oz

 

True, but still the 275 looks like it's killing the averages.

 

The Vintage thread is THE BEST on F-Chat. So many intelligent, engaged & thoughtful participants that bring such perspective.

Thanks,

Jack

 

No prob, I wasnt picking peaks and troughs, but rather the gold price coresponding to the date of the GTB/4 prices I found.

 

Granted John B's methodology, he only missed the 2011 gold peak by about a month.

Prompted by some of the earlier comments, I printed out a monthly gold continuation chart (very jagged with peaks and troughs) and superimposed John B's GTB/4 spot price data on it. It appears that up until 2011, gold led the GTB/4 market. Since 2011, there has been an almost perfect negative correlation between the two series as depicted in John B's graph. Only Mr. Market knows how long this divergence can continue before one of the series reverts to the mean.

 

Next would be to calculate the time value of money versus gold versus 275 when you looked at the car 10 years ago.

 

Sure.
10 yr govt bonds yielded 4.0% 10 years ago, that's a good proxy for the risk free return.
$440k(1.04)^10 = $651k

Ibbotson data show a long term rate of return on large cap equities of 11.7%, so that would be a reasonable expectation for opportunity cost of the investment at the time.
$440(1.117)^10 = $1.33mm

The actual return of the S&P500 with dividends reinvested over the last 10 years was 9.4%, that would be the actual opportunity cost in hindsight.
$440(1.094)^10 = $1.08mm

And a nice GTB/4 sold at RM in August for $3.75mm

 

When I look at the chart above it tells me that gold is cheap not that 4 cams are expensive.
Check back in 5 years.

 

Inverse in 5 years? Bold,

Jack

 

I'm not saying inverse - my prediction is 4 cams at $5m - $7m and maybe gold at $2,000.
I also see stocks 50% higher in 5 years so no relative outperformance of 4 cams cf stocks.

Maybe it's all wishful thinking haha

 

The article I haven't read yet but it's written by a guy with very good presentations in the past (my Car Quest). I think he will probably back up my theory that fine art is a game of chance, based on the example of Warhol prints. There used to be a committee of the Warhol family that "identified" prints as real (similar to Ferrari Classiche, the way they do cars) but even the committee has been wrong so many times, and sued so many times they are ceasing activities. So millions have been spent on fake art all over the world. There are fake Ferraris but it is a lot harder to build, say a 275 GTB 4-cam than to fake a painting or print. So they are more documentable than paintings and you can have the fun of driving them. I also think newcomers, new money from Russia and China, is coming into classic cars. Let me give an example. If I wanted to meet Peter Sachs, of Goldman Sachs, and I was an ordinary billionaire, he probably wouldn't want to have lunch with me. But if I had a racing Ferrari similar in era to his 250GTO, i might get to sit next to him at Cavallino Classic, Pebble Beach etc. So in effect buying the right car gets you into certain circles, like joining the Bel Air Country Club would as well. And we're talking a finite amount of cars, only so many from each model year, and new billionaires being created daily. so the prices will keep rising as more money chases fewer cars.

 

A very good perspective.

 

Niiiiice post John! Thanks for the work. We are overdue for a Fall tour. I just bought a hemi RoadRunner that would be a radical contrast to the GTCs!

 

John great post. I want to believe prices will come down significantly over the next few years but realize they will come down but still always be high because of the limited supply ie finite number of Enzo era cars and the poor actual value of money. When money and gold became untied the cat was out of the bag. Countries now just print the stuff. No real value and going to get worse. Until the time comes that interest rates are back up at 18% money will have no value. The train is out of control. Just my 2 cents which is worth less even after this post

 

Sotheby's "opened" the Fall Art Auction Season this week in NYC..... to, you guessed it..."Record Sales" with "many new price records broken".

Two sculptures in particular....a reason given?..."limited number in existence"....sound familiar? "limited number"

Jack

 

Thank you John, this was the type of comparison I was looking for. Pretty amazing!

 

The bubble perpetrated in real life

 

Terrific article on what is happening in the contemporary art market in Bloomberg Business Week. The scale makes the car collectors look like small fry.

Price of Christopher Wool's 'Apocalypse Now' Soars With Art Market - Businessweek

There is, peripherally, an interesting reference to a sort of wealth-effect that influences very elite collector marketplaces; specifically, buyers with extreme wealth trend towards price-insensitivity at some level. The bidding for Wool's "Apocalypse Now" painting is the main illustration, but you also see it in the offhand comment that 'art has become a significant slice of the net worth of... the planet's richest..." e.g. Ron Perelman's art collection valued at ~$3B is fully a fifth of his net worth; David Geffen's $2.3B collection is a full third of his. No portfolio manager would support that lack of portfolio diversification, but at those wealth levels, an individual can ignore their portfolio advisor.

These wealthy bidders aren't completely price insensitive; there are obviously a group of disappointed underbidders every time a contemporary painting hits a new record. But the demand curve seems to really steepen dramatically as it converges toward that final very wealthy buyer..

 

Thanks for posting this article. Fascinating. And a very interesting tangential comment on the lack of diversification of mega-wealthy art collectors.

 

There are many interesting parallels with car collecting: "contemporary art sales shot up 33% last year and 1,078% over a decade". David Ganeks collection including the Wool helped him "conquer prestigious social turf ... Of the upper east side: a board seat at the Guggenheim" which translates roughly to joining the GTO club or buying a Mille miglia eligible Talbot Lago.



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Great parallel, Thank you