POP

Economic data released today showed that growth in the manufacturing sector decelerated in August and spending on construction took a nosedive in July. Sounds bad, right? Not entirely. The news led investors to believe that Bernanke would cut interest rates and resulted in gains for the Dow Jones industrial average, S & P 500, and Nasdaq.

Playing devil's advocate, we should note that the Fed hasn't cut rates yet, and there are some other litmus tests on the horizon: The Associated Press notes that reports on pending sales of existing homes, the U.S. service sector, and the job market come out this week, and the New York Times cites seven banks' attempts this week to raise money to pay for Kohlberg Kravis Roberts acquisition of First Data Corporation as a way to take the temperature of the debt market.

Things aren't looking much worse for the art market, but they're not looking much better, either.

We'll leave the bubble burst threat level* at: ORANGE and wait for the Fed to meet on September 18th.

* If you ask an art market savant what's driving the current boom in the market, he'll probably answer you with one or more of the following:

1. It's the hedge fund guys. They're using their millions and billions to fill their Greenwich McMansions with Hirst's conceptual turns and Warhol's candy-colored silk-screens.

2. It's new global wealth. As the economies of countries like Russia and China thrive, their nouveau riche want trophies for their walls.

3. It's the weak (weak) dollar. Apart from the international circuit of fairs, most of the action is happening in New York, and when your cash money is in, say, euros, not dollars, a Christie's catalogue looks like a bargain bin.

Our theory is that if one of these markets takes a hit, we may see the art market fall from its lofty pedestal. It's a hypothesis grounded historically: The general consensus is that the last rich and heady times for the market were driven by Japanese businessmen and that they came to an end when the Japanese real estate market crashed in 1990.

As the November auctions approach, we'll be regularly updating a feature we call "Pop." Aggregating hedge fund activity, the health of global markets, and fluctuations in the exchange rate, we'll assign the market a low risk of tanking (BLUE), a medium risk (YELLOW), a high risk (ORANGE), or an almost certain risk (RED).