POP*

The chairman of Morgan Stanley Asia had an op-ed in the New York Times yesterday about the dangers of a weak dollar:

Optimists may draw comfort from the vision of an export-led renewal arising from a more competitive dollar. Yet history is clear: no nation has ever devalued its way into prosperity.

The art world is still waiting to see if the art market — the auction houses, really — can use the devalued dollar to an advantage. The question seems to be: Would increased foreign demand triggered by the relative weakness of America's currency make up for decreased demand among American hedge fund managers and businessmen brought about by the so-called credit crunch?

Proceeding with caution, the bubble burst threat level stays where we last left it: 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).

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