Every recession is accompanied by claims from alternative investment specialists that while all else is collapsing, their corner of the market is unaffected. Last year they could even cite evidence: while stockmarkets and property prices were tumbling, new records were being set for works of art and racehorses. This year, reality is suddenly catching up with alternative investments.
Neither paintings nor horses are essentials: they are something the rich buy when they have surplus cash and an easy purchase to avoid when income is tight or the rest of your wealth has diminished.
Sales of thoroughbreds by Tattersalls in Newmarket have fallen sharply this year. At the Guineas Breeze Up sale in May the average price of 38,097 guineas (£40,000) was 20 per cent lower than last year and only 53 per cent of the horses offered for auction sold.
Now the test will move to art auctions. The New York May sales are the most important of the year but after 2008’s record prices for works by Bacon and Freud, the respected Mel Moses index is down 35 per cent in the first three months of this year. The Sotheby’s and Christie’s sales of modern art and impressionists will demonstrate how demand has been hit.
The sales will not only burst the bubbles in their own asset class but puncture the myth that there are niches of alternative investment that are immune from global trends. House values are down in almost all countries. Commercial property has tumbled too. Wine prices have fallen by 22 per cent. Classic cars have stalled and even gold, after initially defying world economic conditions, is down by 15 per cent.
These alternatives do peak late in the cycle however. Last September, even as Lehman Brothers was collapsing, Damien Hirst sold 223 of his works for £111m. It might have looked like flooding the market but he cleverly got out at the top of the market. This year many of the works would be unlikely to sell at all, nevermind for record prices.
At last year’s Craven Breeze Up sale of racehorses, the top price was 470,000 guineas and the average 102,000. At April’s sale the average price of the 115 thoroughbreds sold was 74,000 guineas. That ends a 15 year bull market in horses.
A winning racehorse can now be bought for less than one year’s training fees. And that is part of the problem. The capital outlay at auction is only the start of the cost: the running costs can turn an asset into a liability unless the horse can earn its keep in winnings. Only a third of all last year’s 20,000 runners won more than £2,500 in total.
With art, the cost of security and insurance gives a negative cashflow to offset against capital value. Even with interest rates low, gold, another alternative investment that costs money to keep, has fallen in price over the past year.
Higher income taxes in the UK mean less money to spend on non-essentials even if potential buyers are still earning. It has taken time for the credit crunch to work its way to these investment niches but time is proving that gravity still works there too.
(pic Floyd Nello cc2.0)
