James Grant: Jay-Z Rapping About Warhol Is Evidence Of An Art Bubble

JIM GRANT: Jay-Z Rapping About Warhol Is Evidence Of An Art Bubble

ROBERT FRANKCNBC SEP. 11, 2013, 6:25 PM 2,285 9

Plenty of economists, art dealers and collectors have warned of an art bubble over the past year. But there is one sure sign that the art market is overdone: Jay Z is now rapping about Warhol, Basquiat and Art Basel.

“It ain’t hard to tell 
I’m the new Jean-Michel
Surrounded by Warhols
My whole team ball
Twin Bugattis outside
Art Basel”

Market guru James Grant quotes Jay Z’s “Picasso Baby” in his latest Grant’s Interest Rate Observer, arguing that prices in the contemporary art market may not be justified by long-term value. While well-hyped artists like Jeff Koons, Damien Hirst and Jean-Michel Basquiat are fetching eight-digit prices, it’s unclear whether their work will withstand the test of time, art critics and museums.It’s hard to tell, for instance, whether one of Koons’ famous pieces, “New Hoover”—four vacuum cleaners in an acrylic case —will be valued as a work of genius or “just another vacuum cleaner,” Grant said.

(Read moreArt is the next gold: Novogratz)

“Modern art is valued in terms of modern money,” he wrote. The Fed’s low-interest-rate policies have driven the wealthy increasingly to collectibles of all kinds, including art, cars and jewels. “Miniature interest rates have reduced the opportunity cost of investing in any kind of nonyielding asset.”

And while Koons and Basquiat are hot now, they might end up like the English portraits of the early 19th century, whose frenzied boom was followed by a spectacular bust. Prices never recovered.

So how can a smart investor play the collectible game without getting sucked into the Koons hype?

Grant suggests buying historical documents: letters from Abraham Lincoln, bills signed by Thomas Jefferson and even public credit reports from Alexander Hamilton. Of course, prices for historical documents have soared along with art.

And a yellowed letter doesn’t look as good over the mansion mantelpiece than a Hirst or Barnett Newman. But the names Jefferson and Lincoln may be more likely to hold up over time.

“Sell Newman, we say, and Jeff Koons, too: buy the Founding Fathers and—as far as that goes—Abraham Lincoln,” Grant writes.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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