Saturday, December 11, 2010

The rich are different from you and me

As I mentioned in my post about Mellon and the Morgans, works of art are the epitomic rich man's toys and credit bubble assets.

Sure, you can get planes and boats that are as big (and expensive) as your heart desires, and there is a long lead time to build them, so the price swings are extra volatile.

But nothing compares to the perfectly inelastic supply of artworks where the artist is dead. The prices can theoretically get bid to infinity, and relative to the value of the materials, they do.

There is an interesting family called the Mugrabis. According to this Economist article, they own

"some 110 Hirsts, including an installation that features 30 sheep, two doves, a shark and a splayed cow in formaldehyde. The Mugrabis offered $35m for the artist’s diamond skull, “For the Love of God”, but failed to secure the work that was marketed at $100m and has never sold."
Damien Hirst is an appallingly awful conceptual "artist" who is notable because he has learned to game the system and has become the richest artist in history.

The Mugrabis have an infallible knack for bad art, and apparently owned close to a billion dollars worth of it at peak values.
Before the economic downturn, the Mugrabis said that the value of their collection was approaching a billion dollars. “If it’s two-thirds or three-quarters of what it was, just like everything else, so be it,” Alberto said in November.

“Art will hold its value better than the rest of the things, better than real estate, better than funds,” Jose claimed, just before the London auctions in February. But now he estimates that works by the “top tier” of artists are worth a lot less what they were a year ago. With so much of their money tethered to the market values of a small group of artists, the Mugrabis hardly own a diversified portfolio. If, for whatever reason, they needed to raise a large sum of cash in a hurry, they could find themselves being forced to sell low.
The Mugrabis also have an interesting background, according to this WSJ profile.
Born in 1939 into a middle-class Jewish family in Israel, Mr. Mugrabi is the son of a grocer... At 16 he was sent to live with an uncle in Bogotá, Colombia, who worked as a textile distributor. [...] By 1963, he had struck out on his own. During the 1970s, his company, Soditex, imported thousands of yards of wholesale fabric.

Rival textile firms like Coltejer, based in Medellín, increasingly complained to Colombian textile-industry officials that Mr. Mugrabi wasn't paying import taxes on his fabrics and was actually selling smuggled goods at fire-sale prices, according to Coltejer and Carlos Eduardo Botero Hoyos, executive director of the Colombian Textile and Apparel Association. "He did a lot of contraband," Mr. Hoyos says.

Mr. Mugrabi denies dodging taxes and smuggling, and there are no Colombian criminal or court records linked to him or Soditex, according to police records and Reinel Beleño, a spokesman for Colombia's Superior Judicial Council. By 1984, Mr. Mugrabi was fed up with the textiles industry and moved his family to New York.
Is it a coincidence that Credit Bubble Stocks is structurally bearish when a shark preserved in a tank of formaldehyde is considered an iconic work of art worth millions of dollars? No.

No comments: