The Tao (and Dow) of Stefan
This week’s most breathlessly discussed topic in contemporary art circles has undoubtedly been Artspace’s interview with “cultural entrepreneur” Stefan Simchowitz, who essentially comes out of the exercise sounding like a creature manufactured in a lab from the worst nightmares of art historians and established gallerists. If you don’t have time for the interview, I think I can sum it up by stating that mankind may manage to map every inch of the ocean floor before it finds a more enthusiastic representative of the nascent practice of art-flipping than Simchowitz. Unless you’ve been lobotomized, I think you can probably extrapolate anything else you might want to know about him from that.
However, I have zero interest in using my column space to savage Simchowitz’s character at length. If you’d like to read that post, I suggest clicking over to Jerry Saltz’s reaction piece; it’s basically a Spark Notes version of the interview with some crowd-pleasing darts, like calling Simchowitz a “Sith Lord” and an “ugly… breed of bear,” thrown from the breaks between trees. It’s a fine distillation of the de facto outrage those of us who love art are all supposed to feel when a transparent opportunist like Simchowitz ascends the podium. My problem, as always, is that it also immediately re-routes what could be a more nuanced or unexpected discussion into the usual “us vs. them” dead-end. I don’t engage in it for the same reason I never connected with Tolkien: parsing the world into absolute good vs. absolute evil eliminates what I find to be the richest, most interesting parts.
Instead, let’s talk about why Simchowitz’s clientele would willingly give their money to a guy who describes the following market dynamic as a positive:
If I sell you something for a dollar and you sell it to your mate for two dollars and he sells it to his mate for four dollars, and he sells it to his mate for eight dollars, and he sells it to his mate for 10—well, that’s five collectors who bought the work, discussed the work, studied the work, and made a profit from it. And then they feel good about investing in cultural production, which is a very difficult thing to do because art, at the end of the day, has no value.
Obviously, this is the kind of talk that people point to when they’re clamoring to declare the entire contemporary art market a bubble. I object to that blanket designation for reasons I’ll get into another time, but in the case of the rapidly appreciating young artists Simchowitz champions (Oscar Murillo, Lucien Smith, et al), I agree with the assessment. After all, Simchowitz is almost literally describing a Ponzi scheme here - an investment with no intrinsic value that only generates profit by being flipped to the next buyer before they realize they’re being conned.
Yet the “almost” is crucial. Why? Because true Ponzi schemes only succeed when the people investing in them don’t know that they’re investing in a Ponzi scheme. If Simchowitz is bellowing (which I picture as his vocal default) at his clients, not to mention everyone else in earshot, that this is his vision of an ideal market… why are they actually listening to him?
The obvious answer is that they’re not intelligent buyers. But like most other obvious answers, I think this one is an oversimplification. Despite Simchowitz’s egalitarian chest-thumping about how his clientele ranges “from the very rich to people who need to stretch to buy an artwork,” I’m reasonably confident that the vast majority of the “maybe 100” buyers he advises are successful people. It’s not impossible to succeed exclusively through luck, but in my experience it’s rare. So if we’re willing to credit his clients with enough savvy to stack chips in industries from tech (Sean Parker) to restaurants (Guy Starkman) to banking (Rob Rankin), then there has to be at least a semi-legitimate reason for them to enter the game of high-stakes hot potato that Simchowitz is pushing.
The better answer, I believe, is the current economy’s best chance at arbitrage. For anyone without either an economics glossary or a fetish for late-career Richard Gere movies, “arbitrage” is essentially a risk-free profit opportunity - an asset which one can buy low and instantaneously sell high. Arbitrage is an investor’s wet dream. And arbitrage, not art, is what I think Simchowitz is really pitching to his rich young class of Collectors Only In Name (or COINs, as I’m going to start referring to them).
Think back to his “mate market” hypothetical: each of the transactions in the chain offered returns on investment of 25-100%. In modern investment terms, a 25% return is orgasmic and a 100% return is tantric. But the excitement doesn’t stop there. The true honey pot is the fabled 3,000% return Simchowitz references several times in his answers. To complete the “pleasures of the flesh” analogy, a 3,000% return equates to something like the eternal carnal wonderland promised to jihadist suicide bombers: probably too good to be true, but so appealing that even the chance at attaining it is enough to lure people into extreme acts.
The fact is that right now, speculating in the contemporary art market holds more luscious profit opportunities than just about any other territory to which you can send your money in 2014. As the masked investor Jesse Livermore noted recently, cash and bonds are currently “offering historically unattractive returns.” The past decade has seen cash accrue a morbid 1.5% annually, and the ten year treasury bond is at an only slightly less grim 2.65%. Livermore goes on to argue that equity, at a 10% historical average return, is by far the most enticing traditional asset out there for anyone looking to turn money into more money through the sorcery of finance.
Compare those percentages to what we just extracted from Simchowitz’s narrative, in which a 25% return is just okay and a 3,000% return is possible, and flipping contemporary art suddenly begins to look less like mindlessly jamming a fork into the nearest electrical socket than like accepting a private eye case from a femme fatale: a potential reward sweet enough to muzzle the obvious risk of getting involved. And lest you assume that I’m basing my argument on nothing but Simchowitz’s self-promotion, I can assure you from my gallery career that the magnitudes of returns he’s talking about are real. I remember one particularly well-established New York gallerist calmly declaring on a conference call that he never bought work on the resale market unless he knew he could double his money on it. Hand that statement to a hedge funder and they’re liable to begin dry-humping the nearest soft surface.
As with so much else in life, investing in general - and investing in this sector of the art market specifically - is a results-based business. I think that most COINs enter the “white hot emerging artist” market with full knowledge that the arbitrage opportunity won’t last forever; the spark reaches the end of every bomb’s wick eventually. But if you can manage to pass off the artwork before it detonates, the benefits are better than any other asset available. George Soros, who knows a couple things about turning a profit, famously once said about gold, “When I see a bubble, I buy that bubble, because that’s how I make money."
Simchowitz and his clients aren’t stupid for getting involved in this one. The question is just how many of them get to leave as George Soros rather than a grisly pile of mismatched limbs.
I have some more thoughts on this topic, mostly on why I believe, in the long run, everything I’ve just discussed will ultimately benefit the legit blue chip artists and gallerists being ignored by the COINs, as well as how all this factors into the bubble question… but I’ll save those for another post.