A Vigil Before the Great Public Spectacle

On this day, Americans sit down to dinner, bow their heads and give thanks. It is a holiday in the Homeland. But here at Markets and Money headquarters in Paris… far from hearth and home… we have neither leaders nor followers. So, we continue our vigil before the great Public Spectacle alone.

Yes, we reckon today as everyday. And what we reckon with is a form of temporary insanity that takes over the multitudes from time to time. Sometimes it expresses itself in politics; sometimes in finances; sometimes in fashion and culture. We look around this morning and where do we see this collective insanity?

‘All of the above,’ comes the answer.

In politics, there is the War on Terror. Many Americans are convinced that Muslims want to cut their throats. They’ve never actually met one with a bloody knife, of course. But they read the papers; they know what’s up.

In lowbrow popular culture… grown men wear short pants… we used to call them ‘pedal pushers’… and young boys wear their pants below their underwear. At the other end of the culture curve, hedge fund managers bid millions for works of ‘art’ that would make a serious man choke himself laughing. No kidding. We watched a report on the BBC last night. The art market has never been more flush… and never more in need of flushing.

Today’s new art collectors are far more aggressive than previous generations, said the experts. They hire specialists to create multi-million dollar portfolios of what looks for all the world like junk. Twisted bits of metal. Fabric samples. Paintings done with rollers… or grotesque representations of the human form. Klimt’s “Portrait of Adele Bloch-Bauer II” left the auction house on November 8th, after some addled art lover paid $87.9 million for it.

The Frieze in London brought in more than 60,000 gawkers when it put on a show of contemporary art recently. Sales of the stuff reached about $65 million.

“By investing in artists at the beginning of their careers,” explains an article in The Business, “it is possible to acquire a major work. There is also the warm glow of having given an artist crucial support before everyone else jumped on the bandwagon.”

How does the ‘investor’ know there will be a bandwagon? What makes him think he can make money by buying bits of inanimate trash? What does this stuff yield?

But then, the writer for The Business takes leave of his senses altogether:

“The art world has finely tuned antennae for those who put financial considerations before an interest in art. Any art buyer is expected to make a personal as well as a financial commitment; even the most hard-nosed dealer resents seeing artworks only appreciated in terms of accruing value…”

Here, we had to stop writing; we were laughing too hard. Getting a grip on ourselves, we continued

“…Artists hate it when their works are sold like commodities.”

What planet does he come from? Artists are delighted if anyone buys their stuff at all. “Appreciated only in terms of accruing value?” They should be overjoyed if it’s appreciated in anyway at all.

Agnes Gund, a famous collector, once noticed that her cat had appreciated a sculpture by Mary Frank, by using it as a litter box. Most contemporary artists would be lucky even to get that kind of attention. And as for financial appreciation – well, ha ha ha…

Meanwhile, in the world of finance, we are spoiled for choice.

Yesterday, we mentioned Google. The stock shot up over $500. At that price, an investor has a choice. He can earn the ‘risk free rate of return’ from Treasuries – which, for the purpose of sticking with round numbers, we will say is 5%. Or he can buy a stock – Google – with an earnings yield of 1.8%…and enough risk to satisfy a teenaged skydiver.

We learned a few days ago that Sam Zell had sold out. It was the biggest, most important property transaction since the Louisiana Purchase, said the papers. Today, we discover a bit more about the terms and conditions of sale. The buyers, a subgroup of BlackRock, Inc., paid $5.4 billion for a couple of big properties in New York City. The old rule of thumb was that New York property would cost its owners about 10% per year – in taxes, maintenance and operational expenses. So, at today’s ‘risk free rate of return’ a buyer needs to get 10% to cover his cost…and another 5% or so to come out even with Treasury bonds. But the BlackRock group didn’t even come close. Five percent of $5.7 billion is $270,000 million. But the projects’ estimated rental income is only about $170,000 per year. In other words, investors aren’t even covering their interest cost – to say nothing of their operating expenses. What are they thinking? The same thing Google buyers are thinking…and ‘art’ investors are thinking…that bear markets may have existed in the past, but they won’t exist in the future. Yes, property, stocks, the economy…even bonds and the dollar…may have fallen in the past, but never will they do so again. Everything only goes up, forever and ever…Amen.

But it is Thanksgiving… and we are thankful to BlackRock, Google, Klimt and all the others who make our world so entertaining. We have been living in Europe for more than ten years. But we are still proud to be an American. Because in America, there is still a fool on every corner, a clown in every public office, and every village has not one, but several, idiots.

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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