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Art Is the Next Gold: Novogratz

Wednesday, 15 May 2013 | 2:04 PM ET
Record Auction at Sotheby's
Wednesday, 15 May 2013 | 7:45 AM ET
Sales at Sotheby's contemporary art auction totaled $293,587,000, reports CNBC's Robert Frank.

The high-priced art market may be poised for a fall, according to a top investor.

Appearing on CNBC's "Squawk Box" Wednesday morning, Michael Novogratz of Fortress Investment Group said the art market has all the signs of speculation and that he could see a correction similar to the recent drop in gold.

"Art is 100 percent a bubble—I mean it has all the markings for a bubble," Novogratz said. "Prices have gone parabolic. You go to any of the art shows and you know even the cheap stuff that was $10,000 two years ago is now $80,000. The expense of art has gotten crazy."


He said the correction, when it comes, will be dramatic. While Novogratz is not short Sotheby's stock, he said the turn in prices could be more than 50 percent. "These $90 million paintings, you know, they might be worth eight one day. They won't go from 90 to 70, it will go from 90 to eight."

(Read More: Impressionist Art Fetches $230 Million)

Last night's sale of contemporary art at Sotheby's saw the sale of a Barnett Newman painting, Onement VI, for $43.8 million. The price was nearly double the previous record for a Newman.

The second-highest price was for a Gerhard Richter painting, which sold for $37 million. The same work was purchased at auction in 1998 for $3.6 million.

Granted, collectors have been predicting a sharp correction in the art market for years. Many art dealers and collectors called a bubble in the art market in the late 2000s. But after a brief correction, art prices continued to soar throughout the recession partly because of oreign buyers.

A woman bids at auction.
Getty Images
A woman bids at auction.

But Novogratz said this art market feels perilously similar to the dot-com bubble of 1999 and that it is benefiting from easy central bank policy that's largely helping the wealthy.

"The Fed has this policy of trickled-down monetary policy ... helping the rich get richer, and the rich are getting tremendously richer because asset prices are going up around the world," he said.

Novogratz said the art market is also being propped up by the rich in China and Russia who are looking for a safe store of value for their wealth offshore.

(Read More: Newer Art Works Expected to Lead Auction Boom)

"You also have the illegal money, the dirty money, the money laundering that is coming out of ... vast parts of the world where people ... want an easy an easy place to store their money," he said. "That's what's really giving this its turbo-charge to the art market."

The auction houses say the prices convey confidence that quality art will stand the test of time and that demand is coming from all over the world.

"The global nature of today's art market was yet again underlined with collectors from 35 countries registering to bid in the sale, 20 percent of whom were new to either Sotheby's or the category," the auction house said in a statement.

—BY CNBC's Robert Frank. Follow him on Twitter: @robtfrank

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  • A reporter and editor, Robert Frank is a leading authority on the American wealthy for CNBC.