Author: Michael Chappell

With what the world financial markets have done over the course of the last few weeks, how could I possibly resist revisiting my last blog entry? My question is- Eric Knowles, are you still interested in buying stocks in preference to antiques? Frankly, we haven’t been re-pricing our inventory downward in any sort of response to the volatility of the world’s financial markets. We still have the large George III chest on chest that I’ve used to illustrate- what? four of my blog entries in the last few months. It still represents a lot of wood for the money, and, as established as it is in the canon of the decorative arts, will never really be out of fashion. Also- it is functional. Those drawers? Imagine how many pairs of underwear and socks they can hold.

In the last week or so, our domestic markets have been affected by the debacle of the so-called ‘sub-prime’ lenders, coupled with ex-Fed chairman Greenspan’s continued predictions of a recession, something he’s continually hinted at with no supporting rationale. Although he’s not said so until the last week, he now thinks that defaulting sub-prime mortgages and the failure of the lenders that had originated and warehoused these mortgages will be the leading cause of a recession.

Let’s get some facts straight. A sub-prime mortgage loan, in spite of what sounds to be a perjorative term, is not an inherently bad loan. In simple terms, these are loans that cannot be remarketed by the originating lender into the secondary mortgage market. The growth of sub-prime mortgages has been in direct response to the escalation of home values, particularly in the major metropolitan markets, over the course of the last 10 years- and to accommodate the complex income streams of the people who purchase those homes. The mortgage markets have traditionally been targeted to home buyers whose single or double incomes can be verified with W-2’s, allowing then for some simple ratio analysis to determine if the buyer can afford the mortgage payments. This, supported by good credit history, and the down payment for the house, is all that it took. These standard, income verification mortgages are the basic product that can then be resold into the secondary mortgage market.

Have you noticed the huge bonuses paid out to people in the financial services industry the past few years? These people- all of them- are holders of so-called sub-prime mortgages. Why? Because the complexity of the income stream for most highly paid people is far beyond what can be readily analyzed by a traditional mortgage lender. The performance bonuses that compose most of the income for many of the senior officers of banks and brokerage houses have complicated triggers and benchmarks that, while at the end of the year may result in bonuses many times that of their basic salaries, would be impossible for traditional mortgage loan underwriting to understand. As well, the complexities of the income stream are matched by the complexities of the tax planning utilized by most high income individuals. Consequently, what’s developed are so-called ‘no qualifying loans’ and ‘stated income’ loans- loans that require a significant down payment but require minimal supporting data from the mortgage borrower.

So, the irony is that sub-prime mortgages are oftentimes those granted to what one would assume are the most credit worthy borrowers. The problem is, the growth of the sub-prime mortgage market, responding to the dramatic appreciation of the best housing in the best residential markets, has outstripped the ability of the so-called sub-prime lenders to re-market this type of loan. Sub-prime lenders, then, are obliged to keep these types of loans in their own portfolios, or sell them to others with recourse. If the mortgage holder defaults- or even pays late a time or two- the originating lender may have to buy the loan back. What has happened, with all the media concern about the so-called real estate bubble, is that the limited sources for re-selling these mortgages have dried up, and caused some sub-prime lenders to become illiquid. This is exactly what happened to a number of savings and loans in the early 1980’s. How have we all fared since the so-called savings and loan crisis? Did the bottom fall out of the residential housing market? Let me put it like this- if any of my readers would like to sell their home for what it was worth in 1985, please be sure to get in touch with me!

Even in the art world, considerations of so-called brown furniture are not much more than a tempest in a teapot. Brown furniture, loosely defined as European and American 18th and 19th century furniture of typical form- chests on chests, dining tables, low boys, sideboards, bureaus and bookcases- used to be the main stock in trade of the middle rank antiques dealers. As the fashion for brown furniture has waned so have the fortunes, and the numbers, of middle rank dealers. A favorite tourist pastime used to be visiting the Cotswolds, that range of low hills dotted with medieval villages about an hour’s drive west of London, and browsing the antiques dealers in places like Moreton-in-Marsh and Stow-on-the-Wold. Now you better plan on just a cream tea or lunch in a gastro-pub- the antiques dealers are becoming a thing of the past.

With all that, 18th century brown furniture, while not yet on the cutting edge, is at least not as unfashionable as it has been. The Antiques Collectors Club maintains a furniture index, using as bench marks the standard pieces of the types I mentioned, and their figures show even pegging for 2006, following a 7 per cent drop in 2005. A simple comparison between standard brown furniture and the stock market makes investment in brown furniture, at first glance, appear a questionable proposition. A week ago, The Times of London headlined an interview with antiques expert Eric Knowles in their Sunday ‘Money’ section ‘Antiques? You’d be better off with shares…’. In fact, Knowles did say something like that, but went on to say ‘Antiques are only a good investment if you are buying the best.’

I guess this is the point of all this- a body gets what one pays for. As our business comes on its fifth anniversary, what we’ve found during our tenure is that you can’t go wrong with a confluence of quality, condition, and rarity- even if it is brown furniture.

All of us have seen the news headlines about the massive year end bonuses nearly everyone in the financial services industry will receive. For those of us in the antiques and fine art trade, we hope this has a significant trickle down effect. In fact, we are already getting inquiries from all around the world, realizing that Mumbai, in this age of globalization, is as much a money centre as New York or London.

Although this blog isn’t really meant to be an open letter to those who are considering, now that they have the money, to invest in antiques, but, of course, that’s my business, and hopefully anyone who reads my blog will consider what’s written here- and not think it is too much an out in out commercial for our enterprise. The fact is, antiques continue to be an astonishingly good investment. Notice I said ‘antiques’ and not ‘art and antiques’. The fact is, fine art tends to be more driven by fashion than antiques- witness, at long last, the recent recovery of impressionist art after being in the doldrums for nearly 15 years. I’ve recently read Meryle Secrest’s biography of that redoubtable art dealer Joseph Duveen. In the early years of the last century, Duveen was selling Gainsboroughs to American collectors for prices that have almost never been realized in the 100 years since!

What’s less well known is that Duveen was also selling the Fricks and the Huntingtons magnificent 18th century furniture to enhance the settings of the artwork that took pride of place. While the Gainsboroughs and Raeburns might not have fared all that well, one has only to look at the recent Maurice Segoura sale to see that the Roussel commode Henry Clay Frick may have groaned when he paid Duveen $1,500 for it, would now cost the best part of $1 million. That’s a pretty good ROI in any man’s language.

Last night, all the decorative and fine art dealers in Jackson Square held an open night, offering hospitality to their best clients. We were ecstatic to have in excess of 300 people through our galleries between the hours of 5 and 8 PM. What was even more pleasant was to see the numbers of new faces, people who, presumably, don’t know the Jackson Square venue, and took the time to come down and browse.

That’s what’s important in marketing not only our individual shops, but the venues themselves- the opportunity to browse, particularly for the new collector. So often, even people who normally are the furthest removed from shy, become shrinking violets when faced with the intimidating world of art and antiques connoisseurship. The auction houses have tapped in to something here, marketing as they do to younger collectors who, when browsing or buying over the internet, can maintain anonymity and avoid thereby the sort of gaffes all of us have faced in our collecting lives. I wish we could all remember that, for instance, None of us were born knowing the difference between flame and fiddle back mahogany, or who Thomas Chippendale was. It’s should be easy to understand why it is much more comfortable, then, for our new buyers to go into the galleries knowing they aren’t going to be pounced on by a dealer eager to sell something, who asks penetrating questions about areas of collecting interest in an inadvertently intimidating attempt to be engaging.

No- going into the gallery when the door is already wide open and there are 20 or 30 people inside makes the otherwise hesitant visitor more willing to take the plunge. Ironically, one of our colleagues on the street complained that there were too many people in his gallery, such that he was concerned about theft. Surprisingly, he was also disappointed there were so many younger people. Crazy, isn’t it? I hope we have masses of people at any time, and the younger the better. As it is, it has appeared over the course of the last year that all our mature collectors have retired permanently to Florida on limited, fixed incomes. It doesn’t take too much intellect to realize that we need to be constantly adding to our base of collectors, and the younger they start, the longer they will be our clients.

Any of my blog readers have any comments about open days?

My friend Jane Furse has forwarded an article from the October 28 edition of The Spectator detailing the woes of the dealer in period decorative arts. The author, well-known arts journalist Susan Moore, entitles it ‘Crisis of confidence’, and relates how a number of dealers, trying to respond to changing purchasing patterns, are abandoning their traditional stock in trade, trying to blend in, with different levels of success, mid century and contemporary fine and decorative arts. Moore cites the success of mid century material at the Biennale, contrasted, sadly, with the less than stellar performance of fine 18th century material, the traditional mainstay of the fair.

Sadly, this sort of experience is repeated over and over, with the just completed International Fair in New York and the Olympia Fair in London also reporting disappointing results amongst period dealers.

The point of Susan Moore’s article, rather than just weeping into a towel about the fate of the antiques business, is to point out that patterns of purchasing change, and, whilst the mid century market is hot, that won’t last forever. In fact, one of my better colleagues had told me a story that illustrates this fact very well. A young couple of his acquaintance, well-heeled from success as hedge fund managers, had had their home decorated by a well-known designer, in the height of modern eclectic style. The designer had included a pair of black Donghia armchairs on either side of a Bagues cocktail table, both fronting an Arbus designed sofa. Above all of this was one from Alber’s series ‘Homage to the Square’. While the couple had paid the designer a lot of money for services, not to mention the cost of the objects, they were now a bit bored with the look. Not that they didn’t like the objects, but, for them, they had no resonance, no personal association, because, of course, a designer had selected them.

I suppose the moral to all of this is, we are in the midst of a changing of the guard in the collecting community, with the younger collectors in the acquisitive phase, under the hegemony of the interior designer. Certainly, in our galleries, we have seen in our brief tenure the business become dominated by designers, where formerly it was almost exclusively the collector with whom we dealt. Fortunately, beginning collectors are wetting their feet, albeit with the assistance of the interior designer. However, the aridity of having someone put together a collection for you will soon enough be replaced by the collector deciding, for his soul’s own good, to take collecting into their own hands. I suppose that’s really the underlying message of Susan Moore’s article: antiques dealers, don’t lose heart- the new generation of collectors is quickly emerging and they will find you.