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High End Materials Matter When Shopping for Art

High End Materials Matter When Shopping for Art

Shopping for art can be an overwhelming experience.  There are a multitude of different styles, mediums and artists to choose from, for starters.  The situation becomes even more complex if you want to buy a work that has the potential to appreciate in value over time.

The old dictum to “buy what you like” is certainly a good rule of thumb for the aspiring art connoisseur.  However, following this art collector’s tenet isn’t sufficient by itself to ensure that you will purchase a piece with appreciation potential.

However, there is one simple trick that can help you to choose artworks with more universal appeal.  You can look for art that is made with high end materials.  I know this might seem like a very basic suggestion – especially if you are a seasoned art collector – but it can be surprisingly powerful.

Let me give you an example.  When I was browsing on Etsy recently, I came across a magnificent contemporary brass and walnut sculpture for under $100.  I immediately fell in love with this sculpture’s unique combination of precise, almost Cubist, angularity and fluid, organic undulations.

But almost just as intriguing to me was the work’s use of high end materials.  This unique contemporary sculpture was handcrafted from a solid piece of Bastogne Walnut that was then placed atop a solid brass base, creating a visually compelling contrast.

Bastogne Walnut is a very interesting hardwood.  It is a hybrid between the Persian (or English) Walnut – a species native to the Balkans and Central Asia – and Claro Walnut – a tree found in California and Oregon.  Bastogne Walnut is also known as Paradox Walnut because it not only grows much faster than either the English or Claro Walnut, but is also denser, stronger and harder than both of them.  This is a very unusual attribute for a hardwood, as there is usually a direct relationship between how slowly a tree grows and the density and strength of its wood.

In addition to having superior physical characteristics to its parent species, Bastogne Walnut is often found with spectacularly figured grain patterns – burl, crotch and curl Bastogne Walnut are all possible.  These can be immensely beautiful pieces of wood when put in the hands of a capable woodworker.

So Bastogne Walnut undoubtedly sits among the pantheon of high end materials.  Perhaps more importantly, the artist who created this contemporary brass and walnut sculpture noted the specific variety of walnut lumber he used for the piece.  I am convinced that this wasn’t by coincidence.

Competent artists do not choose the materials they use haphazardly.  They are very particular about the mediums they work with, often becoming experts at manipulating these materials.  And they consistently choose high end materials because they usually have exceptional physical characteristics or visual effects that can’t be mimicked through less expensive alternatives.

The additional cost of these higher end materials is a secondary consideration for many artists.  Instead, the aesthetics of the artwork come first, which is exactly what we want as art aficionados.

Art collectors would do well to learn from experienced artists.  High end materials matter.

A competent artist will not hesitate to specifically enumerate the different mediums he has used in a work, even if it seems overly technical to the art buying neophyte.  These high end materials can range from premium, 100% acid-free cotton paper to solid 18 karat yellow gold to anything in between.

As a corollary to this rule, I would be reluctant to purchase a work of art where the artist is vague or ambiguous about the materials used.  A real artist will be proud of the mediums he works with, and will take every opportunity to sing their praises.  On the other hand, a less experienced or amateur artist might be tempted to choose lower end materials for a work in order to save money on supplies.

Or worse yet, an inept artist might actually work with materials that he doesn’t know the specifics of.  I believe this is the worst possible outcome, because it is almost a certainty that such an artist will not know the distinct characteristics of the medium he is working with.  This can only lead to a subpar work of art.

So how do we make sure we are buying artwork made from high end materials?  I think the answer is fairly straightforward.  If the artist can’t list the specific types of materials used in a project, it is best to walk the other way.

For instance, the contemporary brass and Bastogne Walnut sculpture I referenced above would be far less intriguing it were nebulously described as a “contemporary metal and wood sculpture”.  A description that lacks material details is a dead giveaway that an artwork is lower quality.

I do think there is a single exception to this maxim of always choosing works made with high end materials.  If an artwork is being sold in the informal secondary market (in other words, not straight from the artist or a knowledgeable art dealer) there is the possibility that the precise mediums used will have been lost or forgotten.  I would exercise great caution in these situations, though.  You would need to successfully analyze a variety of cues to confirm if the piece in question is worthwhile.

 

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Anime and Manga Fuel Future Demand for Japanese Antiques

Anime and Manga Fuel Future Demand for Japanese Antiques

Japanese anime and manga – Japanese animation and comics, respectively – have taken the world by storm over the past 20 years.  Their beautiful illustrations, compelling storylines and skillful treatment of adult themes have vaulted anime and manga to the forefront of modern culture.  This is in stark contrast to Western cartoons and comics, which are widely viewed as being children’s entertainment (although Disney’s recent treatment of the Marvel Universe is beginning to change these perceptions).

Japanese anime and manga had humble origins.  Early releases from the 1960s, like Osama Tezuka (Astro Boy) and Mach GoGoGo (Speed Racer), often featured stripped down, bare bones animation that depended heavily on reused frames.  But in spite of these tentative beginnings, the genre steadily evolved.

By the 1980s, anime and manga became something that any Japanophile would immediately recognize today.  Groundbreaking animated feature films such as the cyberpunk classic Akira, the environmentalist saga Nausicaä of the Valley of the Wind and World War II tragedy Grave of the Fireflies were all produced during this time.  Anime and manga had finally come of age as a storytelling medium.

Once Japanese creators cracked the code for great anime and manga, they began to export their product worldwide.  And young people around the world quickly embraced the new creative genre with open arms.  Anime and manga are now viewed, read, streamed and purchased all over the globe, from ultra-conservative Saudi Arabia to sophisticated France and everywhere in between.  At this point, Japanese anime and manga are ubiquitous, with anyone under the age of 35 instantly recognizing their characteristic style.

So at this point you may very well ask the question: What does anime and manga have to do with Japanese antiques?

The answer is simple.  Anime and manga have been important vectors for the 21st century export of Japanese traditions, culture and aesthetics to a global audience.  While anime and manga span a multitude of different storylines, almost all of them share a common theme – they emphasize Japanese history, Japanese style and Japanese mythology.  Anime and manga provide ample opportunity for the absorption of traditional Japanese culture by foreigners.

For example, the Japanese samurai is a mythical, larger than life figure in Japanese culture – the East Asian equivalent of the cowboy in the American West.  And, largely due to the influence of anime and manga, samurai are also held in the same esteem abroad.  There are innumerable anime and manga that use the samurai and ninja of feudal, pre-modern Japan as a backdrop, including popular titles such as Naruto, Samurai Champloo and Gintama.

There are many Japanese antiques from the time of the Tokugawa Shogunate that would appeal to these anime and manga fans.  For instance, exquisitely-crafted, Edo-era Japanese samurai sword guards, or tsuba, are readily available for only a few hundred dollars or less.  It is also possible to purchase genuine examples of 18th and 19th century Japanese “samurai money” for less than $100 a coin.

The subtle beauty of the Japanese tea ceremony is something that many younger people will recognize, even if they only have a passing understanding of Japanese culture.  Why?  Because they have absorbed it through countless slice-of-life anime and manga.

I would not be surprised if this familiarity helped to drive future demand for beautiful and durable Japanese lacquerware outside of the island nation.  Vintage or antique lacquerware often figures prominently in Japanese tea culture and is surprisingly affordable.

Even traditional Japanese attitudes towards beauty are slowly seeping into global culture from the export of anime and manga.  The Japanese love of clean lines and uncluttered design is almost universally reflected in modern aesthetic trends.  I believe this will ultimately have a profound impact on the demand for Japanese antiques.

For instance, shin hanga was an early to mid 20th century Japanese print movement that combined traditional Japanese themes with groundbreaking Western artistic understanding of light and perspective.  It was an export-oriented artistic movement that was wildly popular in the West in the period between World War I and World War II.

In many ways, Japanese shin hanga prints are precursors to today’s manga comics, displaying the same technical accomplishment and classic Japanese sensability.  Not only that, but vintage reprints of these delightful Japanese antiques are readily available for relatively modest prices.  As little as $100 or $200 can get you an aesthetically compelling example to hang on your wall.

I grew up in the 1980s watching the Japanese-derived animated television series Robotech and Voltron.  In the 1990s, I raptly watched the anime Sailor Moon on Cartoon Network.  In 2000, I stumbled upon the anime masterpiece Neon Genesis Evangelion, which forever changed my perception of what an animated television show could be.

Since that time, I have devoured anime and manga wherever I found them.  And, as a result, I fell in love with Japanese culture.  Not only that, but it has also spurred an interest in Japanese antiques that I almost certainly wouldn’t have had otherwise.

I don’t believe I am alone in this trend.  At just over 40 years old, I am among the first generation outside of Japan to have really embraced this new form of entertainment.  Most anime and manga fans are younger than I am and their interest in Japanese culture, history and design is inexorably growing.  You can bet that Japanese antiques and art will be on their radar as they mature into their 30s and 40s.

 

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Antiques, Millennials and the Rebirth of Formal Dining

Antiques, Millennials and the Rebirth of Formal Dining

One of the most persistent myths of the modern age is that Generation Xers and Millennials abhor antiques, while at the same time oddly adoring anything “vintage” (as if there was much difference between the two).  The mainstream narrative goes something like this:

The younger generations love living in apartments, condos or townhouses in the inner city.  Your average Millennial employs a sleek, streamlined sensibility when decorating his (or her) posh city condo.  The color palette is invariably bright and colorful and design choices are always modern and sophisticated.  All things considered, in the popular imagination a typical Millennial’s urban pad looks remarkably like the product of a James Bond villain – part contemporary art collector and part evil genius.

But like all myths, this one isn’t quite authentic.  It is true that younger people like different antiques than older generations.  For example, overly ornate and frilly Victorian styles are out and alluringly sleek Mid-Century Modern is in.  Grandma might not approve, but this is a story that has been retold many times throughout human history.

The real issue for Millennials is that they were born into less than ideal economic circumstances.  Jobs and raises have been scarce for many people since the Great Recession of 2008-2009, but younger workers were hit especially hard.  As a result, Millennials have been forced to live in smaller apartments, live with roommates or even, under exceptional circumstances, move back home with their parents.  None of these living arrangements is conducive to buying antiques.

In addition, practicality reigns supreme in the lives of most 20 and 30 somethings these days.  If your dining nook doubles as a living room, you’re not going to feel particularly inclined to clutter it up with unnecessary furniture or knickknacks.  Instead you would carefully and thoughtfully decorate in a way to make maximum use of the space.

Another major reason that Millennials shy away from buying antiques is because they don’t host formal dining parties.  Given their fluid living arrangements and restrictive space constraints, this is perfectly understandable.  Instead, they tend to focus on more intimate, informal gatherings with good friends.

But these trends may not last forever.  I think that formal dining (or at least more formal dining, relatively speaking) will make a comeback over the next couple of decades.  Why do I believe this?  That’s easy – demographics!

Right now it is a safe bet that most family gatherings in the U.S. occur at the clan matriarch’s house.  This could include holidays, graduations, birthdays or anniversaries, among others.  And for many families, these celebrations involve semi-formal or formal dining.  After all, Thanksgiving dinner just isn’t the same without fancy place-settings around the big mahogany dining room table.

This means that under most circumstances, Generation Xers and Millennials make the pilgrimage to the ancestral family home several times a year for these events.  And while traditions vary from family to family, it isn’t uncommon for the fine china, good silver and formal dining room suite to be on full display during these meals.

This is a system that exists because it works.  But it only works because the older generations – the Baby Boomers and Silent Generation – tend to live in the largest houses and, just as importantly, have the accessories for formal dining.  It is difficult to host a family gathering in a cramped condo.  Likewise, formal dining requires nice silverware, plates and glasses – many of which are invariably antiques.

But right now the Silent Generation is quickly passing into the mists of time.  The youngest members of that generation are in their mid 70s as of 2018.  The Baby Boomers are not far behind.  They range in age from their mid 50s to early 70s.

And now we come to the crux of the matter: downsizing.  The ancestral family home and de facto gathering spot is usually owned by the oldest members of a family.  These houses are, generally speaking, generously proportioned and chocked full of a lifetime’s accumulation of stuff.  But they are also highly demanding in terms of time, money and maintenance.

Within the next 20 years, the Silent Generation will pass away and many of the Baby Boomers will choose to downsize for the sake of convenience and expense reduction.  But the family gatherings will not stop just because grandma and grandpa have moved to a retirement community in Florida.  This will leave a formal dining vacuum that will need to be filled.

Enter the Generation Xers and the Millennials.

These younger generations will be forced to take up the challenge of formal dining and family gatherings.  By this time it is probable that, just like the generations before them, they will have abandoned their tiny inner city condos and apartments for larger suburban housing.  And this is just as well, because they will need the room.

Now, I don’t believe that this means that Millennials will adopt the tastes of their parents or grandparents wholesale.  Quite the contrary, they will continue to carve their own eclectic stylistic path.  But, discretionary funds allowing, they will buy antiques or vintage items in some form.

Long gone will be the practical but boring, white IKEA furniture.  In its place will be real wood furniture.  It is doubtful that Waterford crystal and Depression glass will make a comeback, but formal dining with paper plates and plastic utensils is equally unlikely.  Instead, a middle path of sensible Fiestaware and meticulously chosen vintage sterling silver decor is more probable.

Is formal dining dead among younger people?  Hardly.  They just haven’t had the opportunity or demographic push necessary to adopt it yet.  Informal entertaining is great, but it definitely has its limits.  The rebirth of formal dining is on its way, and some parts of the antique market will benefit from the trend.

 

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Future Stock Market Valuations and the Shiller P/E Ratio

Future Stock Market Valuations and the Shiller P/E Ratio

The above graph shows the historical Shiller P/E ratio for the broad U.S. equity market from 1881 through early 2018.  The Shiller P/E ratio is also known as the CAPE ratio, which stands for Cyclically Adjusted Price Earnings ratio.  This is because the ratio uses the trailing 10 years of reported earnings data in an attempt to remove earnings cyclicality from its calculation.

This last point is so important that it cannot be overstated.  Any attempt to measure stock market valuations must take into account the fact that corporate profit margins and, by extension, earnings are highly variable.  When the economy is rapidly expanding, companies have pricing power and margins rise.  When the economy is mired in recession, pricing power declines, leading to lower profit margins and lower earnings.

If you look closely at the historical Shiller P/E graph, you’ll notice that I’ve added two different bands.  The first is denoted by green dashed lines.  This reflects the approximate boundaries of undervalued and overvalued markets in the period from circa 1880 to 1995.  During this timeframe, stock market valuations rarely declined below 7.5 for any significant period of time.  Similarly, valuations spent relatively little time about 22.5.

I think this is largely due to the fact that the stock market during this time was dominated by professional investors.  These stock market pros knew that low valuations were good times to buy and high valuations were good times to sell.

In addition, it was an epoch when central bankers were still sane.  They knew the boundaries of their mandate and that it was their job to take away the monetary punch bowl just as the party was getting started.

A funny thing happened in the mid 1990s though.  Central bankers collectively lost their minds and began wildly inflating securities market bubbles.  They decided that there was no problem that easy money could not solve.  Global central banks, led by the U.S. Federal Reserve, became activist institutions.  They adopted asymmetrical monetary policies which encouraged speculation and the reckless accumulation of debt, while simultaneously discouraging prudence and savings.

In addition, we saw the arrival of the armchair or amateur investor.  This trend was driven by millions of workers who were given 401-k or IRA accounts and told to go invest their retirement funds themselves.  Most of these people were not financial professionals and didn’t know when to buy or when to sell.

I delineated the modern era of stock market valuations with red dashed lines in the Shiller P/E chart above.  During this period, stock market valuations spent most their time much higher than they had historically, bounded between a P/E ratio of 21 and 32.

Interestingly, my analysis of historical stock market valuations does not rely solely on the Shiller P/E ratio for its validity.  You could easily substitute a variety of other cyclically-adjusted valuation measures and get basically the same chart.  So price-to-revenue, market cap-to-GDP or Tobin’s Q ratio would all work just as well (provided you can find the historical data).

Now the real question for equity investors today is which way will stock market valuations go in the future?

As I see it, there are three possibilities.  First, we could ascend to a new, higher range.  This would seem to be what the stock market is discounting at the moment, but it implies societal and governmental changes that I don’t think many people would be comfortable with.

For example, I believe higher stock market valuations could be supported if we were to enter a neo-feudal age.  In such a scenario, corporations would effectively become partners with the government – especially large tech companies like Facebook, Amazon, Apple, Alphabet (Google) and Netflix.  Tax and anti-trust laws would be changed to give these already gargantuan firms even more advantages then they already enjoy today.  As a result, their earnings would permanently readjust upward.

This would be a dystopian nightmare for average people.  Income inequality would become far worse than it is today, as the rich would get richer and workers would see their salaries stagnate or even decline.  Only those people with large equity, business or real estate portfolios would make good.

In the second possibility, stock market valuations would stay within the red dashed boundaries I’ve defined for the modern era.  This would be a muddle through scenario, where the global economy continues to underperform while inflation remains largely suppressed.  Income inequality would continue to worsen, although not at the same pace as under the first scenario.

Wages would remain weak and corporate profits would continue to grow at a reasonable clip.  Most equity investors would be disappointed by this status quo outcome, as it would involve a reversion to the stock market valuation mean that would suppress future returns considerably.

The third possibility would be a return to the stock market valuations of the pre-1990s.  Nobody is prepared for this scenario at the moment, which would probably be driven by chastened central banks that reign in loose monetary policies for any number of reasons.

Central banks could have a come to Jesus moment as federal debt levels explode, thus forcing them to confront the negative consequences of their prior feckless behavior.  Or it might be revived inflation that finally forces the central bankers to raise interest rates higher than they would otherwise.  Central banks might even be compelled to change their longstanding easy money policies due to political changes driven by disgruntled electorates.

In any case, this third scenario would be a catastrophe for most financial assets.  Stock market valuations would be cut in half while property and bond markets might not do much better.  Many local governments, corporations and pension funds would undoubtedly go bankrupt in this situation.

I will leave it up to the reader to decide which of the three scenarios that I’ve presented is more likely to occur.  But I will say this.  If you are relying on traditional portfolio diversification to protect your nest egg, you are taking on an extraordinary risk.

Neither stocks, nor bonds, nor real estate is in a position to save you if an average recession, much less a financial disaster, unfolds.  This is one of the reasons I like investing in tangible assets, such as precious metals, fine art, gemstones and antiques.  They are some of the only assets left that still trade for reasonable valuations.

 

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