The fine art market is a bubble ready to pop, according to Michael Novogratz of Fortress Investment Group.
In fact, it will be the next gold, he told CNBC, referring to the recent plunge in gold prices.
High-priced art, he noted, shows all the signs of a bubble: speculation, high and increasing prices.
"Art is 100 percent a bubble — I mean it has all the markings for a
bubble," Novogratz stated. "Prices have gone parabolic. You go to any of
the art shows and you know even the cheap stuff that was $10,000 two
years ago is now $80,000. The expense of art has gotten crazy."
The drop in prices when the bubble pops will be severe. "All bubbles
pop, and when they pop, they come down a lot further than people think,"
he explained.
"These $90 million paintings, you know, they might be worth $8 million
one day. They won't go from $90 million to $70 million. It will go from
$90 million to $8 million."
The Federal Reserve's policy of keeping interest rates low has added
fuel to the skyrocketing art market, according to Novogratz. The Fed has
a "trickle-down" monetary policy because it helps the rich get
wealthier from rising asset prices.
Plus, wealthy Chinese and Russians are buying expensive artwork as a
means to mover their wealth overseas. Criminals around the world are
buying artwork to launder their money, he said.
"That's what's really giving this its turbo charge to the art market."
At a recent Sotheby art auction, a Barnett Newman painting sold for
$43.8 million, almost twice as much as any previous Newman painting,
while a Gerhard Richter painting that sold for $3.6 million in 1998 was
purchased for $37 million.
Many records were also set at a recent auction at Christie's that took in a record $495 million, Reuters reported.
"We are in a new era of the art market," Jussi Pylkkanen, president and
chairman of Christie's Europe, told Reuters. "There is global
competition that we have never seen in the art world before.
"We've reached a stage where it's very difficult to gauge prices."
Purchase prices consistently exceeded even high price estimates, Reuters
reported. For instance, a Jackson Pollock painted went for $58.4
million, almost twice its pre-sale estimate. A painting by Roy
Lichtenstein predicted to go for about $30 million went for $56.1
million.
