Changing Valuations

Over the past year we have seen substantial changes in auction outcomes as expressed in US dollars. Auctions of course are priced in local currencies, the dollar, pound [-5%] and euro [-12.5] predominate but there are also sales in Mexican pesos, Canadian dollars, Australian dollars [-27.5% ] Swiss francs and occasionally a few others. We always convert to dollars to make comparison easier. This said, this past year has seen dramatic shifts in currency values that are affecting the overall market by creating larger differences in outcome by region.

Of course, in a perfect world, prices would seamlessly adjust day-to-day and place-to-place to reflect exchange differences but that is not always happening. We can tell because, while the number of auction lots in Europe continued to increase in the first half of 2015, the continent, which has wrestled both with the “Greek problem” and resistance to the monetary easing that has been employed in the United States, have seen outcomes reported in euros weaken. These differences have made the euro particularly unstable and for the first time in memory suggest, we think mistakenly, that the long-term trend toward a worldwide auction market is losing steam. It is not but it is a reminder that the euro is an incomplete experiment.

Auction sales, by dollars and units, do not always increase. We see periodic declines because of uncertainty, be it war, recession or depression. We know that sellers, when they feel this uncertainty, waxing prudent, withhold material and or impose higher reserves to protect themselves against momentary bidding collapses. And auction houses by and large reflect this reality by not disclosing reserves [which can and do get quietly adjusted] based on market conditions and consignor cold feet. After all, from seller commitment to the banging down of the auctioneer’s hammer, it often takes six months and not uncommonly a year. And in that time a lot can happen.

Beyond all consideration for life’s uncertainties the introduction of dramatic shifts in exchange rates presents opportunities and risks not seen since the 1970s, the last time that auctions were essentially local and often not accessible to distant bidders. Theoretically, an item should be worth the same in London, Paris and New York and the Rare Book Hub Transaction Database assumes this to be the case. But this spring’s results suggest that local prices do not so effortlessly adjust.

Such shifts are as often political as they are economic. China recently devalued the Yuan to keep their factories operating at full capacity. They did so because they felt the need to maintain a 7% growth rate, a rate that is the envy of the developed world. But the underlying story is that as the general population shifts from county to city more people need jobs and in a Communist country the government is expected to provide them. Keeping people on the farm so to speak is fine for some but for many others the challenge and economic advantages of the city lead to unrest if the need is not met. In other words, China devalued to maintain social order.

In Europe the euro is the outcome of a social system that also manages economic integration. The European union is clearly more a social than economic alliance and perhaps their deepest motivation is to avoid war. They have their history and it is a bloody one. Through economic alliance they hope to minimize conflict. And they are succeeding. But they are also packaging Germany and Greece in the same currency package and it’s an untested idea being tested for the first time.

The United States, before they were united, was a short-lived confederation that quickly gave way to the subjugation of states rights to a unified central government. Today’s EU is the equivalent of America’s confederation and many expect the United States of Europe to become the logical long-term outcome.

While the EU labors on the euro will continue to be periodically unstable, for itself and by extension, casting instability among other currencies. One outcome will be unusually significant differences in European auction results when translated into US dollars, numbers that on their face suggest weakness this spring but that, when examined more closely, simply reflect Europe’s social, political and economic transformation from a group of counties to a group of states.

Finally another way to look at the data is to set aside the assumption that auction results should be uniformly expressed in dollars. When all results are converted into euros rather than dollars the first six months of 2015 show a 2% gain rather than an 18% decline. The world is changing and we will adjust our methodology as/when needed.

The following analysis compares the past eight years’ January-June auction sales expressed in both dollars and euros.

*January-June Sales from 2008-2015*

	In US Dollar Terms		Average FX Rate		In Euro Terms
	$mm	% Growth	EUR/USD	% Growth	€mm	% Growth
1H 2008	$247		1.56		€ 159
1H 2009	$135	(45%)	1.35	(13%)	€ 100	(37%)
1H 2010	$169	25%	1.31	(3%)	€ 129	29%
1H 2011	$190	12%	1.43	9%	€ 133	3%
1H 2012	$307	62%	1.30	(9%)	€ 236	78%
1H 2013	$322	5%	1.31	1%	€ 246	4%
1H 2014	$345	7%	1.37	5%	€ 251	2%
1H 2015	$283	(18%)	1.11	(19%)	€ 256	2%

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Changing Valuations

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Changing Valuations

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