Warhol/art: Shot Sage Blue Marilyn loses edge as inflation hedge

Stocks, bonds and crypto are in turmoil. But more tangible assets are on a roll. An Andy Warhol silkscreen on Monday went for a record $195mn; just the week before, a second hand football shirt — one admittedly worn by Maradona when he scored the world’s most memorable goal — fetched over £7mn. Is Warhol’s Shot Sage Blue Marilyn the perfect kitschy inflation hedge?

Empirical evidence is sketchy and mixed. Art, like gold, is a store of value. Along with many other real assets, it has underperformed in the low-inflation environment of recent years and proved far less volatile than most securities. Art and antique dealings fell to a decade low in 2020, but sales rose 29 per cent to $65bn last year, ahead of pre-pandemic levels.

Over the long term, based on Sotheby’s Mei Moses Index, art has beaten inflation but lagged behind the S&P 500. Big caveats attach, however. Broad brush indices tracking performance are imperfect; unlike publicly traded stocks these are illiquid assets that come with high maintenance costs. Price discovery, via repeat sales, is measured over years or decades.

The market’s underpinnings are inherently more fragile. It is prone to more subjective impulses than gold or even houses; beauty after all is in the eye of the beholder. The pool of buyers is small, essentially the ultra wealthy and philanthropists. That wealth is often inextricably linked with equity markets, repository for many tycoons’ fortunes. There is further linkage: like equities, art has also benefited from low interest rates, with an increasing move towards borrowing to fund aesthetic purchases.

Government policies hurt. Take the drive in China — home to the biggest posse of buyers after the US — to reduce the wealth gap, which has crunched the fortunes of several business captains. Or more recently still, sanctions on Russian oligarchs, many of whom are collectors of fine art.

Owning the art market’s picks and shovels would be a better bet: witness the $25mn auction house fees on the latest Warhol sale. The biggest auction houses, Sotheby’s and Christie’s, are privately owned. Further down the food chain, humidity-controlled art storage facilities and custodial services are growing in hubs such as Hong Kong.

Of course, high price tags can also serve as high watermarks, as demonstrated by Japan’s spending spree on impressionist art before the bubble burst. That seems unlikely right now, but does not necessarily leave the new owner of Shot Sage Blue Marilyn sitting pretty. As inflation hedges go, art is often more pup than pop.