Happy pre-Independence Day. I’m Marion Maneker and this is Wall Power, my private email that tells you everything you’ve ever wanted to know (but were afraid to ask) about the art world.

Tonight, I’m sharing the market observations of Jacob King, a leading art advisor who recently outlined his views on the current market doldrums in a letter to clients. It isn’t higher interest rates, the interminable presidential race, the tough real estate market, the struggling Asian economy, or the political tensions caused by the two wars in Ukraine and Gaza. To me, the implications are, well, a bit frightening. But I’m a worrier.

Before we get to that, let’s lighten the mood with dogs…

• The dog days of summer: It’s time once again for Bonhams’ sale of art depicting dogs. The July 24 sale takes place in Edinburgh, but the appeal of dogs in art is damn near universal. Many of the 261 lots will strike the viewer as mawkish, bordering on kitsch, but the combination of sentimentality and low prices makes this sale very popular. The top lot is an early 19th century portrait of Colonel Newport Charlett’s Favourite Greyhounds by William Henry Davis. The large 6 x 4-foot painting is estimated at £50,000. Edmund Bristow’s A Newfoundland Off the English Coast is a bit cheaper, at £10,000.

King, who shared his letter with me—he’ll send you a copy, too, if you contact him here—connects the current malaise to the dynamics of the last decade, when buyers came into the art market with what he calls an “investment mindset.” Instead of viewing art as a cultural object to be prized and collected for its meaning, these new collectors—and many older collectors—began to view the art they bought as a transactional asset class, one expected to appreciate over time, and to be sold for a profit.

Of course, this investment mindset created very different market behaviors. In King’s view, the approach provoked “various feedback loops that caused prices for art to spiral higher, while propelling an ever greater supply of material onto the market.” As King points out emphatically, this gave rise to a bizarre ecosystem that confused value with marketability—that ignored the distinction between an artist’s career and their market value. “This shibboleth assigns far too much importance to the current market as an arbiter of judgment,” King wrote, “and it’s a symptom of how thoroughly the ‘investment mindset’ has confused what is essentially a short-term momentum trade with a long-term collecting strategy.”

Another detail that misled these new collector-investors: In 2009, everyone thought the art market would experience a prolonged slowdown similar to the aftermath of the Japanese financial crisis. Instead, Christie’s held the record-breaking Yves Saint Laurent-Pierre Bergé sale. In 2010, Lily Safra paid $103 million for a Giacometti statue; by 2011, many contemporary works were again trading at prices near their 2007 peaks, and collectors who had bought at that time rushed for the exits. In 2013, there was so much demand that everything went to auction to determine a fair price. In 2014 and 2015, we reached the peak of the so-called masterpiece market, where buyers paid top dollar for extraordinary examples of art. The apex moment of that mindset was reached in 2017, when a Leonardo sold for $450 million to Saudi Crown Prince Mohammed bin Salman.

At the same time, the art market was growing infatuated with young artists making process-oriented abstract art works. A wag dubbed this type of art “zombie formalism” and the name stuck. No one buys or sells many—or even any—of the zombie formalists’ works these days, but that point didn’t quite sink in once the pandemic hit and everyone was stuck at home with more money than they expected and little to do. They started buying art by young artists not realizing that these works had little chance of becoming masterpieces or real assets—or, frankly, that most art loses value after it’s sold.

The art market, particularly the market for new talent, was inevitably going to become a victim of its own success. For the past five or six years, collectors have been enraptured by the discovery of new painters. Demand spurred competition, which drove higher prices. “The higher the prices get, the more the investment mindset dominates,” King noted, “and the more the investment mindset dominates, the higher prices get.”

All of this buying, especially of new talent, had a series of cascading effects on the gallery world, according to King. The first is that, despite the pervasive fears that the art world would be dominated by a handful of mega-galleries, the last five years has seen an efflorescence of small galleries representing new artists. Now everyone—from global giants to midsized to emerging galleries—has more and larger spaces, sometimes with multiple locations in the same cities. Many artists have multiple dealers, too, ostensibly with exclusive geographical rights, competing for work from the studio. Indeed, all of this has led to a kind of “tragedy of the commons” for art, where the common good is degraded by the pursuit of individual advantage. In this scenario, competition among dealers to make money from their artists while they could is, in King’s view, central to how we got to multiple spaces, high primary market prices, and the inevitable overproduction the market is dealing with now.

Amid this milieu, collectors succumbed to the “investment mindset.” Buyers, especially new buyers, studied what was selling well at auction to determine what they wanted to buy. Rather than taking risks by acquiring art that was meaningful to them, many chose instead to just pile into the artists everyone else was buying. (King provided an extensive analysis of German painter Albert Oehlen’s market to evince his point.) When you’re buying an asset, you have to think about resale more than your own taste or interest. “The pervasiveness of this view makes it hard,” King noted, “to tell dealers and collectors apart.”

Even in the best of times, the art market is a bit of a pyramid scheme. The value of art is highly dependent upon new and larger groups of collectors coming in behind the first wave of buyers. If there were more collectors of zombie formalism today than there were in 2014, we would see high prices and active trading. But right now, works by those artists sit on collectors’ walls or in crates in warehouses. King predicts that much of the overproduction we’ve seen from the current crop of artists will wind up in warehouses, too.

In one sense, none of this really matters. So what if a few artists created too many paintings that sit in crates and may forever? If a collector bought their work because they thought it was an asset, and found out it was not an investment-grade work of art, who cares? Isn’t that their own fault for “buying with their ears and not with their eyes,” as the art world maxim goes?

The real harm to the art market is that we’re likely to see a generation of collectors sour on the whole project. (The artists, themselves, will always create art, whether they’re getting paid like bankers or not.) Furthermore, the investment mindset doesn’t seem to have helped the art market. In 2014, the year the art market peaked, according to Clare McAndrew’s annual report, there was $68.2 billion in public and private sales. The next time the total came anywhere close to that sum was 2022, with $67.8 billion in sales. But adjusted for inflation, that $68.2 billion from 2014 had the same buying power as $86.2 billion in 2022.

In other words, the art market contracted by more than 20 percent while collectors were treating art like an asset. It’s almost as if the best way to lose money in art is to try to make money in art.