How Much Is That Picasso in the Window? A Lot Less Than It Was Last Year.

The most important two weeks in the art world's calendar commence today with the annual New York May art sales. And, given the state of the economy, this market will offer plenty of bargains — at least for those with the cash to take advantage of them.

Ian Peck, principal of Art Capital Group, which lends money against artworks, told the Financial Times: “We have cut our valuations 40% to 50% since the start of the year. We have seen some absolute forced borrowing but everyone, rich and poor, is facing liquidity problems.”

At Sotheby's Tuesday evening auction, the most expensive works on the block will be a portrait that Picasso painted of his daughter, Maya, when she was just two years old and one of Alberto Giacometti's rare sculptures of a cat. Both are estimated to fetch $16 million to $24 million, according to The New York Times. "That’s a lot of money in today’s world," the newspaper notes. "But over the last five years, art values escalated to the point where prices had to pass the $80 million mark to create sticker shock."

"For the past seven years," according to The Wall Street Journal, "an influx of newly wealthy buyers from around the world has spurred art prices to record highs, with artists like Francis Bacon, Mark Rothko and Andy Warhol commanding prices above $70 million. Prices kept climbing even after the credit crisis began in 2007, as collectors shifted assets from ailing housing and stock markets into tangible assets like gold and art." That all changed during the auctions last November, when "art sales pulled back sharply, and a Bacon painting priced at $40 million, along with dozens of other works, went unsold. Since year's end, buyers have been circumspect, some galleries have closed and contemporary art values have dropped by a third, almost as much as the record 41% drop during the last art crash of 1991." 

Of course, many question whether the whims of a marketplace are the best way to value art. "Art is not tradable, like an asset," said Larry Gagosian, considered by some to be one of the most astute dealers in the art world. According to a 2006 Knowledge at Wharton article about a conference titled, "The Business of Art," sponsored by Wharton and the Institute of Contemporary Art (ICA), Gagosian told the conference attendees, "you shouldn't acquire [art] to add to a diverse portfolio. There is intrinsic value in art. It should be easier for you to buy it than to sell it. The key is simply accumulating it."