Bubbles on the art market? - December 03, 2017

Bubbles on the art market?

Low interest rates may create new investment bubbles on the market. The latest one might very well be art, as da Vinci’s Salvator Mundi was just sold for $450 million at an auction. The painting was considered to worth “only” $100 million before.

Da Vinci’s “Salvator Mundi” (Savior of the World) was just sold for a record breaking $450 million at a Christie’s auction. The painting became the most expensive work of art ever, reported CNBC. Up until now, the most expensive artwork was Picasso’s “Women of Algiers (Version O)”, which was sold for $174.9 million.

This da Vinci painting is among the few that are held private, and was sold three times since 2013. First, for $80 million, then for $127.5 million and now at the record price. This amount was rather surprising for many. Experts valued the 65 by 45 centimetres painting at $100 million before, so now it is more than four times its original price.

Low interest rates

This may be a sign of a new bubble’s birth on the art market. There are already signs of a real estate bubble on the market, and bond bubbles may happen just as well. The reasons are generally the same: interest rates are record low.

This means that keeping money in the bank is not great. If interest rates are close to zero, there are no real returns, and when they are negative (which also happened lately), there may even be a loss for the owner. Even government bonds are overvalued as rates are low but bonds are expensive.

High risks

As a result, people are turning to other investments, even when it means overvaluing them. We underlined several times how close to zero and negative interest rates are hurting the economy in general, but they also make people taking unnecessary risks.

These may mean instruments with high risks, but Ponzi schemes have their renaissance just as well. OneCoin and Questra World is a hot topic for many authorities right now. Schemes don’t tell investors about risks and normal bank rates are too close to zero, so of course, they are popular.

Stocks and correction

Lately, stocks are popular just as well, and the market is indeed optimistic about the markets. This may mean that a correction is due, and prices may fall in the near future.

Still, a well-diversified portfolio may mean safer investment than real-estate or other overpriced instruments. Even if owning the most expensive painting of the world is indeed something to brag about.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.