The Eye of the Beholder
An inquiry into the nature and origins of value... during an epic market meltdown
Joel Bowman, reckoning this Sunday from Buenos Aires, Argentina...
Greetings and salutations, dear reader. Welcome to another installment of the Sunday Sesh, where we gather at our favorite (virtual) watering hole to thresh out the pressing issues of the day.
Issues like, does the Associated Press know what freedom of speech (or irony) means? (Spoiler: No)
Or how the White House’s new Truth Czar, Nina Jankowicz, wants “verified Twitter users” (you know... like her) to “edit” others’ tweets if they find them to be misleading. Nothing weird or creepy or Big Brother-ish about that. Hmm…
Or even how Ken could have been so irresponsible in letting Barbie get him knocked up.
Okay, so that last one is satire... but how long will it be until such a scenario is for ‘realz’, as the kids say? And who would have thought ten, five, even two years ago that the raciest, edgiest parodies of modern life would emanate from the conservative Christian right?
There is a season for all things, it seems, and a time to every purpose under heaven, as the Byrds and the Babylonian Bees might say.
And that brings us to today’s topic: value... in particular, whence it cometh... and to where does it goeth? The subject has been floating around the Interwebs of late as investors try to make sense of the Vesuvius-level meltdown in the digital asset market – crypto currencies, non-fungible tokens (NFTs) and the entire metaverse ecosystem built up around them.
At one point this week, something in the order of a trillion dollars (give or take a few billion) had been wiped out of the cryptocurrency markets, leaving many people to wonder what - if anything - these fledgling assets are worth.
Being somewhat of a nascent economy, it’s probably fair that such questions should arise. Recall that Bitcoin itself, the grand daddy of all cryptos, is still but a spotty teenager itself, forged in the crucible of the 2008 financial crisis.
Then came “hard forks”... “proof of work”... “smart contracts”... “alt-coins”... “DeFi”... and a whole vernacular of trendy neologisms, insider acronyms and hip portmanteaus.
No sooner had the world began to get its arms around the concept of a non-fiat, intangible medium of exchange... when along came non-fungible tokens, sending head-scratching hard money folks back to their ol’ Funk & Wagnalls to review those long-forgotten f-words.
It’s hard to tell just how much money has drained out of the NFT market in the wake of the recent exodus, but the Dorsey genesis tweet story gives some indication as to flailing demand.
In March of 2021, Iranian crypto investor Sina Estavi purchased an NFT of Jack Dorsey’s first ever tweet for the princely sum of $2.9 million. In April, the Twitter founder’s clumsy one-liner was listed for sale at $48 million.
Top bid at close of auction a week later: $280. (Not $280 million. Just $280. As in, less than 1/10,000th of the original purchase price, or about 1/175,000th of the asking price.)
Whence cometh value... and where did it go, indeed? A fitting question for this week’s feature essay...
The Eye of the Beholder
By Joel Bowman
Art is anything you can get away with, Andy Warhol once quipped.
Like $210 million for a Gauguin... $250 million for a Cézanne... $450 million for a da Vinci...
... and $550 million for... a Dog Coin?
We begin today’s missive with a basic precept, one so simple it is almost universally misunderstood: Value is subjective.
That is to say, just as beauty is in the eye of the beholder... and offense in the ear of the listener... so too does value depend on human experience.
Ludwig von Mises, the great Austrian economist, was on the case when he observed that value was not determined by the nature of objects themselves, as existing in some kind of tree-falling-in-the-woods vacuum, but through our interactions with and subjective appreciation for them. The extent to which we find them useful in achieving our desired ends in a given moment, in other words.
“Value is not intrinsic, it is not in things,” Mises argued in his magnum opus, Human Action. “It is within us; it is the way in which man reacts to the conditions of his environment.”
And therein lies the X-factor... the deus ex machina... the wild card... or, perhaps more aptly, the joker in the pack...
Man, in other words, the biggest joker of all. Remember him? Hubristic, folly-prone, own-tail-chasing man? As long as perceived value depends on the whims and caprices of homo credulus it is, almost by definition, bound to be irrational from time to time... prone to flights of fancy, bouts of lunacy, “extraordinary delusions and madness of crowds,” as Charles Mackay had it.
Which may help to explain the manic ride that has characterized the market for digital artwork in the form of non-fungible tokens NFTs over the past year or so.
Seasoned investors and market veterans alike have had their chins in slings this past month, as the market capitalization for virtual artwork all but collapsed.
But it was not always so. It was only last September when the world looked on, agape, at a market launching “to the moon,” seemingly defying every rational explanation. As we reported in this space at the time (and please excuse the wonky lingo; it’s an occupational hazard when dealing with shiny-new-thing economies)...
Top dog in the NFT pack - the DOG Coin - set a new record just last week, after the NFT, which was purchased for a “mere” $4 million waaaay back in early June, was fractionalized into nearly 17 billion $DOG tokens, 20% of which were snapped up for 11,000 ETH, or about $45 million, bringing the total value of the DOG Coin to... wait for it...
...$225 million!
Just to be clear (and so readers don’t think we are losing our marbles) that’s almost a quarter of a billion dollars to (collectively) own a unique pointer on the Internet which directs to an image of a dog.
Oh, and the price doubled within 24 hours... to a cool $550 million.
How does that rank, historically, we wondered? And could a dog pointer possibly be worth more than, say, the Savior of the World?
No Accounting for Taste
Consider the Top 5 most expensive paintings ever sold, shown here in reverse order, least to most expensive. (We have included some additional details so as to make tangential remarks a bit further on...)
5. Number 17A by Jackson Pollock, 1948, oil on fiberboard, 112 x 86.5 cm. Sold in 2015 for ~$200M
4. Paul Gauguin, Nafea Faa Ipoipo? (When Will You Marry?) 1892, oil on canvas, 101 x 77 cm. Sold in 2014 for $210M.
3. Les Joueurs de cartes (The Card Players), Paul Cézanne, 1894-95, oil on canvas, 47.5 × 57 cm. Sold in 2011 for $250M.
2. Interchange by Willem de Kooning, 1955, oil on canvas, 200.7cm by 175.3. Sold in 2015 for ~$300M.
1. Salvator Mundi (Savior of the World), Leonardo da Vinci, 1499-1510, oil on walnut panel, 45.4 cm × 65.6. Sold in 2017 for $450M.
[NB - It is perhaps worth noting here that ALL of the Top 10 paintings on this list were sold within the past decade, giving some indication as to the Niagara of liquidity looking for a safe haven during this worldwide fiat flood...]
Procrustean Values
Now, by what objective metric might one fairly value these pieces?
By scarcity? Each original above is a “one of a kind” piece... but so are millions of others which didn’t make the list. That hardly helps us.
Besides, there are copies on copies on copies of all the most famous works in the world. Take a stroll along the banks of the Seine. Anyone would think the Louvre would be empty, given all the masterful reproductions up for hock on any given afternoon. And yet, this fact hardly seems to diminish the value of the originals. If anything, these reproductions only heighten the near-mystical allure of the genuine articles.
(It’s the same reason Louis Vuitton and Gucci don’t really care that the plazas and bazaars of Shanghai and Istanbul are flooded with their cheap knock-offs... nobody who spends $50k on a Birkin bag was ever going to buy a street stall fake, and vice-versa. In the end, it’s just brand recognition and free advertising.)
What’s more, Jackson Pollock’s pieces become scarcer by the day. As a man committed to his bottle as well as his brushes, the absent-minded artist regularly failed to properly treat his canvases, thereby condemning them to certain ruin, like a sinking Venetian apartment. Does this mean they should then command a “limited time only” premium... or are they more like fast-depreciating options contracts, suffering from terminal time decay until they eventually expire worthless?
There appears to be no rhyme, no reason... no rationale. Only perception. Only subjective value.
How about raw materials, then? Don’t they come with some “intrinsic value”?
Let’s see... Gauguin’s piece is roughly two-thirds larger than Cézanne’s. Both are acclaimed post-impressionists. Both Frenchmen. Both painted around the same time and with the same materials; oil on canvas. Should the former be worth two-thirds more than the latter?
Hmm...
Say we focus on pure aesthetic achievement, attempting to stare through the “eye of the beholder.” What do we see?
Your editor has no particular beef with Mr. Kooning... but who among us can really tell a masterpiece of abstract expressionism from a 7 year-old’s spilled breakfast?
And yet, modernist marvels are all the rage among the highest priced pieces ever sold. We checked the Top 100 Most Expensive List and discovered plenty of Warhols, Rothkos and Bacons...
But search as we did, there was not a single Caravaggio to be found... not one Velázquez... nary a John Singer-Sargent, a Johannes Vermeer, a Jan van Eyck, anywhere on the list...
So you see, Dear Reader, whether fishing for JPEGS in the cyber soup or canvassing the archive under the Christie’s auction hammer, there’s simply no accounting for taste.
But then, who are we to argue? We’re just one irrational being among many...
As for Mr. Warhol’s assertion above, you can get away with a lot for a while… until, that is, you can’t.
And now for some more Fatal Conceits...
Finally, we spoke to Byron King earlier in the week to get his take on everything from Russian sanctions (and their blowback) to a gold/methane-backed ruble, the bifurcation of the global monetary system and the erosion in once-great American institutions in the wake of the Supreme Court leak.
There was a lot on the table during our hour-long conversation. You can listen to the entire episode (or read the transcript), right here...
As always, please share the show and feel free to comment (on it or anything from today’s Sesh) in the section below.
This coming week we’ll catch up with Bonner Private Research macro analyst, Dan Denning, to discuss the state of the world. If there’s something you’d like us to get his take on, drop your suggestion in the comments section and we’ll try to address it during our powwow.
And that’s all from us for another week. Tune in again tomorrow, when Bill returns with his regular missives.
For now, we’re off to brunch with friends at local favorite, Sucre. Whatever you’re up to this weekend, remember to be good... or be good at it.
Cheers,
Joel Bowman
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A dose of reality in an insane world!
For a topic this week. Freezing Russian reserves and other assets. Can they be liquidated and used for reparations?