Another bad thing about being rich... - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 26 September 2014
Another bad thing about being rich... A  A  A

Baltimore, Maryland

Dear Diary,

Talk about ringing a bell!

This ring-a-ding-ding comes from the New York Observer:

    With $2B in sales worldwide, it's a good time to be a world-renowned contemporary artist -- especially if you're Jeff Koons

    Sales of contemporary art at public auctions surpassed $2 billion for the first time last year, the Paris-based arts-data organization Artprice said.

    The report tallied auction sales between July 2013 and July 2014, and it found that contemporary art sales grew 40 percent from the previous year. The number of big-ticket items that sold for over 10 million euros ($12.8 million) more than doubled in the period.

    Those who follow the art market will remember the record-breaking Christie's auction in November that saw buyers walk away with the most expensive publicly auctioned piece of art ever, Francis Bacon's $142.4 million Three Studies of Lucian Freud (1969). That auction also minted Jeff Koons' $58.4 million Balloon Dog (Orange) (1994-2000) as the most expensive piece by a living artist ever sold at auction.
That's another bad thing about being rich - you have to live with this stuff.

Even if you don't own it, your new friends and neighbors will.

And unless you're mildly autistic or seriously savantic, like Warren Buffett, you'll find it hard to avoid. Contemporary art and big, expensive houses are hugely popular among the wealthy elite. And most people are very susceptible to peer influence.

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Of course, that is what creates investment opportunities, too. The great lumpen-investoriat - like the lumpen-electorate -- does not do much serious thinking. Instead, it reacts emotionally and primitively. It takes up positions that are too expensive...and then, in a panic, stampedes away from them, leaving them too cheap. That's when the bells start ringing.

Monday's 'Financial Times,' for example, chimed loudly. It reported on page one that US private equity group Blackstone "calls it a day in Russia." This followed a withdrawal from Russia earlier this month by DMC partners, a group of former Goldman Sachs executives. Further reporting revealed that the European Bank for Reconstruction and Development had "also suspended investments in the country." And if that weren't enough, "US group Carlyle has retreated from the market twice..."

Over on page 15, the FT continues to ring the bell, telling us that "Russia's Gazprom could lose 18% of its revenues as a result of competition from US liquefied natural gas exports."

On Tuesday, the bell ringing went on. A front page revealed that even the Rockefeller fortune was pulling out of fossil fuels. "The effort to make oil, gas and coal investments as unpopular as tobacco stocks...gathered momentum..." the paper declared.

Geez, you'd have to be crazy to invest in Russian energy stocks now, right?

Yeah...crazy like a fox. Any time the newspapers give you nothing but reasons to sell, it's time to buy. You can buy Gazprom for less than 3 times earnings...with a 5% dividend yield. "And that's post-theft," says our favorite beta strategist, Rob Marstrand. "You don't have to worry about corruption...or politics...or sanctions..." he says. "It's all in the price already."

The news about Russian energy companies is all bad; buy.

Meanwhile, what are people almost universally in favor of buying? A house!

Poor people buy cheap houses. And when they get more money, they believe they should 'trade up' to an expensive one. Both rich and poor
...take advantage of mortgage deductions...
...lock in low interest rates for the long term... equity
...improve their credit scores

All by buying a house. But is it true? Is housing a good deal? Now? Ever?

A year ago, housing was one of our favorite investments. But our chief researcher, EB Tucker, thinks he hears the bell ringing for housing too.

More to come... as our 'Homage to Poverty' continues...including a brief look at the "Worst Investment In America Today."

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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