By Franklin Boyd

Only a month ago – well after the Crisis had kicked off – Forbes was breathlessly reporting that some billionaires had managed – inadvertently or otherwise – to 'hedge' their balance sheets by investing in fine art. Eli Broad, for example, had lost approximately $2 billion in his equities portfolio over the previous year, the magazine reported, but the 'soaring value' of his art collection (it increased by $1.9b in the same time, according to a recent appraisal) had nearly made up for it.

Well, I've got some bad news for Mr Broad and anyone else with art on the balance sheet. Based on last week's auction results (and last month's in London), collectors should be marking down the value of their holdings by roughly 40 percent – which, as it happens, parallels the year-to-date losses on the Dow Jones Industrial Average (down 37 percent since this time last year) and the S&P 500 Index (down 42 percent for the same period).

While the contemporary art auctions in New York last week were not the bloodbaths that some had feared (or hoped for) — Christie's and Sotheby's sold 68 percent of the lots in their evening sales (but only 54 percent and 43 percent by value, respectively) — one thing should now be perfectly clear: art is not the strategic investment it has been widely proclaimed to be.

It wasn't supposed to happen this way. According to the money magazines, the art-investment fund advisors and the auction houses, art was supposed to be a 'safe' alternative to equities, because the 'returns' on art had a negative correlation to returns on stocks, meaning that in an economic downturn you might take a bath on your stock portfolio, but the value of your art collection would hold up (or at least long enough for the economy to pull through and for the equity markets to rise again). As Citi Private Bank's Suzanne Gyorgy told The Business Times last month, when there is a decline in equities, investors will turn to tangible assets and the art market will see a 'bump' in value, 'counter-cyclical to the equities markets'.

Unfortunately an overwhelming number of art market analyses have been relying solely on the conclusions provided by the Mei Moses Fine Art Index. The Fine Art Index compiles 'art market returns' (which are derived by looking at works that have sold multiple times at auction) and compares them to the S&P, concluding, primarily, that when the stock market skids, the art market won't follow suit for another 18-24 months. And sure enough, the last art-market peak came two years after 1987's 'Black Monday'. But looked at from a Japanese perspective, there's no such lag: just as the art market was peaking, so did the Nikkei, which to this day has not returned to its high of 29 December 1989. When the stock market of the world's biggest art collectors went into freefall, the art market immediately followed. In short, the art market doesn't trail, and neither is it 'counter-cyclical', particularly today, when the bulk of the buyers are far more reliant on wealth that in many instances exists only on paper (and can disappear very rapidly).

Yet no one has been more enamoured of applying financial lingo in the service of increasing prices for contemporary art than the auction houses. Based on recent statements, Tobias Meyer (Sotheby's Worldwide Head of Contemporary Art) and Amy Cappellazzo (International Co-Head for Christie's Contemporary Art Department) seemed to believe that art at the high end was not just a good alternative to stocks, but close to bullet-proof. As Meyer told Forbes in October, 'There is an enormous amount of cash out there for very limited [numbers of] works of art… It's the golden ratio for any market: limited supply, unlimited demand…. The high, high end will get more expensive.' Of course, Meyer just presided over a sale where demand was not only limited, a mere six works managed to meet their low estimates. And this past April, Cappellazzo, participating in an Artforum panel, told the audience, 'Warhol's market trades like currency — it is the most efficient market there is… If you execute the trade at the right level… the market will absorb it all at all levels. It is a perfect market, really.' Based on the results for Warhol this week (13 percent sold by value at Christie's), that market isn't so perfect after all. Can we all now agree that having a painting of a dollar sign isn't the same thing as having dollars?

None of this is to say that there aren't good deals on art out there. Just like in the stock and real estate markets, there are works available right now whose value will increase, if not soar. But the thing is, those values are going to peak in tandem with the next run-up in global wealth. Gone are the days of the geographic and financial isolation of art collectors, and gone too is the 'alternative' of art as an asset.