This is good. wc
----- Forwarded Message ---- From: Disqus <[email protected]> To: [email protected] Sent: Thu, November 29, 2012 3:33:01 AM Subject: [artcrit] Re: Finally</> John Link wrote: Adam Smith was talking about commodities, I believe. As prices go up, demand goes down until the relationship between supply and demand reaches equilibrium. When prices go down, demand increases, again, until the relationship between supply and demand reaches stability. Stocks do not behave like commodities. As price goes up demand goes up as well - witness Apple over the last year. There is the same amount of Apple stock in "the float" as there ever was. probably more because of the shorts. It was not lack of supply that drove demand up, but rather the rising price and the herd-like behavior it induced. Bull markets are well named because they are like a stampede of cattle. Cattle don't question why they are all running in the same direction, they just run because everyone else is running. With shorting, the actual supply of a stock is increased, often by 20% or more, yet there is nothing like a short squeeze to drive prices even higher. The herd eventually gets tired and the stampede ends as suddenly as it started. The same stock "everybody" desperately wanted goes into free fall and soon the price is low, quite low. According to Adam Smith's theory of commodities, the low price should create demand but it does the opposite. No one wants the fallen stock so it sinks even lower. Witness AIG when they did a reverse-split to combine multiple shares into single shares with a high enough price to at least stabilize their free fall. They were backed by the full faith and credit of the government against failure, no less, but no one wanted their stock. It wasn't expensive enough.To the minds of the herd of stock players, it had the smell of death about it, not bargain. In commodities, buyers leave at the top and return at the bottom - that's the law of supply and demand. In stocks, buyers rush in at the top and leave at the bottom - that's the law of the house of cards. >From an objectivist point of view art looks like a commodity, including art >that is "established". It is stuff, like orange juice is stuff. Whether a Richter or a Rothko, both are pieces of cloth with used art supplies attached. From this point of view it should follow the law of supply and demand. But art prices do not behave like that of "normal" commodities. When prices go up demand follows, no matter how many similar pieces remain in the back rooms. When prices go down, no one wants what is left, no matter how few there are. I do admit that in a extreme climate of rising prices, such as we see lately in art, care must be taken not to foist too much on the market at once, not because of the law of supply and demand, but because the number of people who can pay outrageous prices is limited. So, like stocks, a certain amount of manipulation is required to keep the system tuned up for doing its job, including maintaining the perception that the law of supply an demand is in control, even though it isn't. So the ultimate law governing the art market is the number of adequately resourced players who are "in", not the law of supply and demand. They are a small herd, to be sure, but they are in stampede mode, like the herd that chases stocks in a bull market. Many of them have even ceased to look at art as art, but rather regard it as an investment. Bingo. That's why it has become weird. When prices break the other way, as they always do, those who did not have enough money to play at the top, but do have enough to play at the reduced rate, they will not rush in. They will rush away too. When prices hit bottom and supply is huge there will be very very few buyers. If the cost of a new Cadillac were cut 90% people would claw each other to death to get one. That's what Black Friday is all about. Not so with art. If Gagosian said he was discounting his offerings 60% it would cause great alarm, not a human log jam at the doors to be first to get in. For the fun of it, I will add that Hofmanns at $3-4 million are overpriced too, just not as overpriced as Rothko at $75 million. If they were true commodities, they would be worth less than the equivalent amount of new paint and canvas at an art supply store. And Fontanas would not just be sold as used art supplies, they would have to be sold as "seconds". User's website Link to comment ----- Claim and manage your comments Stop receiving notifications
