Wealthy put trust in art
Damien Hirst’s success in raising £111m, against expectations of £60m, for his art at auction last week appears extraordinary at first sight. But his success reflects the vested interest of his fans, happy to bid aggressively to keep the value of their collections up.
Wealthy investors currently have more faith in material possessions than funds or banks of any kind, despite the sharp rise in finance stocks last Friday, after regulators banned shorting.
Even money market funds managed by the likes of AIG have suffered redemption demands as a result of panic over counterparty risks. Hedge funds which, in theory, protect investors against volatility have been knocked for six by recent events.
Sadly, beautiful objects may not outperform much longer, as recession triggered by the credit crunch triggers misery in the broader economy.
A 35% fall in microchip prices, reflecting a slump in demand for new technology, indicates how misery is spreading. Over time, art will be squeezed by a combination of forced sales and a sharp cut in buying interest.
Veteran investor Jim Slater once remarked that in a really severe recession the only assets you should own are gold coins, cans of baked beans and a shotgun. Let’s hope it doesn’t come to that.
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