POP*

In case you haven't heard the shouts of joy on Wall Street, the Fed sheared its benchmark interest rate to 4.75 percent yesterday, down half of a percentage point from 5.25 percent. Both American and Asian markets shot up following the news. This is a bit of good news for the art market and its upcoming bellwether November auctions, as the cut has the potential to calm the subprime storm and restore consumer confidence. "Potential" would be the key word here.

But Landon Thomas Jr. has a piece in the New York Times this morning about a new pennywise mentality that seems to be taking hold of some Masters of the Universe as American markets have been on a rollercoaster and Washington has considered raising taxes on hedge funds and private equity titans:

"So the pressure begins to build, and eventually, said Andy Kessler, a former hedge fund manager, 'you stop spending.' Why? Fear, mostly."

Thomas cites real estate as an example. And we'll bet that if they're rethinking the purchase of a McMansion, they're going to think twice about buying stuff to hang on its walls.

Given the waffling over the state of the economy, we'll set the bubble burst threat level at: YELLOW, bleeding into ORANGE

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).