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Luxury Spending: This Financial Indicator is a Real Masterpiece
Elliott wave analysis of the art market foretells social and economic change

By Bob Stokes
Tue, 15 Jan 2013 17:30:00 ET
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A diamond is forever. 

The stone itself may last virtually forever, but the public has not always embraced the "forever" sentiment of the slogan.
 
A recent television documentary noted that before the 1940s De Beer's advertising slogan -- "A Diamond is Forever" -- diamonds were not prized nearly as highly as they are today. Indeed, many other precious stones are more rare than white diamonds, including rubies and emeralds. According to Jewels du Jour, the most rare is jadeite, which can exceed $3 million per carat.
 
Point being: Luxury is what most people say it is.
 
Luxury seekers can push prices higher when they agree that a given commodity is valuable. The most over-the-top spending occurs near market tops.
 
[Luxury spending] always booms in the late stages of a mania.
 
The Elliott Wave Financial Forecast, April 2000
 
In 1999, extravagant spending was evident as financial markets approached the 2000 top.
 
Luxury spending has attended other tops in speculative fevers. In Extraordinary Popular Delusions and the Madness of Crowds, Charles MacKay wrote about Holland's Tulip Mania in the 1630s: “Houses and lands, horses and carriages, and luxuries of every sort, rose in value.”
 
At the 1929 market top, Irving Berlin's "Putting on the Ritz" summed up the sentiment. In 1989 in Japan, peak demand for high-end goods marked the bursting of their economic bubble.
 
Back in the U.S. in 1990, the then-record price of $82.5 million for Van Gogh's "Portrait of Dr. Gachet" approximately coincided with peaks in U.S. stock indexes.
 
Fourteen years later, as the U.S. economy was recovering from the 2000-2002 bear market, the winning bid for this painting set another record in the world of art.
 
 
 
The art market just had its biggest month since May 1990. In addition to the all-time record price for a painting, $104.2 million for Picasso’s 'Boy With a Pipe,' new records were set for works by a host of contemporary artists such as Jackson Pollack and 13 others.
 
Financial Forecast, April 2004
 
Unlike 1990, new price records for works of art in 2004 did not mark the end of this larger degree topping process. The desire for luxury continued as the Dow Industrials approached its all-time high.
 
Unlike prior manias when pretentious consumers gorged themselves on their whims 'no matter the price,' the pretense this time is that a high price itself is what matters. 'For the Love of God,' a platinum cast of a human skull covered in 8,601 diamonds, probably best illustrates this principle. The $100 million sale of the piece by Damian Hirst is the highest price ever paid for the work of a living artist. It may well mark a conspicuous end to the era of conspicuous spending ...
 
Financial Forecast, October 2007
 
The Dow reached its all-time high just days after the October 2007 Financial Forecast published.
 
What does the art market indicate about the financial future now? The January 2013 issue of the Financial Forecast studies the Mei Moses World All Art Index from an Elliott wave perspective for insights investors in luxury shouldn't be without.
 

 


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