The Sotheby’s Indicator Points to Caution

27-Aug-2014

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BY CULLEN ROCHE 

Just passing along some interesting thoughts from our friend Martin at Macronomics.  Not sure how useful this is, but interesting nonetheless:

In this previous conversation we also argued that the performance of Sotheby’s, the world’s biggest publicly traded auction house was indeed a good leading indicator and has led many global market crises by three-to-six months. Looking at the fall in Sotheby’s stock price on the 8th of August following a second-quarter profit fall of 15% with the share plunging 11% after its earnings miss, we wonder if indeed the S&P 500 is indeed not vulnerable down the line using the aforementioned relationship we discussed – graph source Bloomberg:

sothandspxandrecessions

Mind the gap…Also note that Sotheby’s private sales fall by 50% in first half of 2014 as reported by Philip Boroff in Artnet on the 12th of August in his article entitled “What Sotheby’s Doesn’t Want You To Know About Its Private Sales”:

“Sotheby’s private sales have plunged following the auctioneer’s public feud with activist investor Daniel Loeb.

Long a focus of company executives, private sales tumbled 48 percent in the first half of the year, according to an August 8 Securities and Exchange Commission filing. The value of private transactions, in which Sotheby’s discretely brokers art and other collectibles to one prospective purchaser at a time, dived to $294 million in the first half of 2014 from $561 million a year earlier. It was the lowest private sales total since 2010. The drop contributed to a 15 percent decline in quarterly earnings and an 8 percent drop in Sotheby’s stock on Friday. The shares are off 15 percent in the past year, as the benchmark Standard & Poor’s 500 Index rallied 15 percent.” – source Artnet.

The role of Sotheby’s stock price as an indicator was as well confirmed by our good friends at Rcube Global Asset Management back in our November conversation but them using MSCI World as a reference – graph source Bloomberg:

msciworldvssoth

“The Art market has always been an interesting indicator. The only major public auction house is Sotheby’s since its floatation in the mid-1980s. It has proved a timely indicator of potential global stock markets reversal.

Whenever its price reached 50 or so with sky high valuations, a reversal was not far away. We can also take notice of the extremely weak jewelry and contemporary art auctions recently.”

The Sotheby’s Indicator Points to Caution

 

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