Fasig-Tipton’s Saratoga Sale of “Selected Yearlings” is fast approaching on Monday night August 8 and Tuesday night August 9. The view here is that this particular sale is up against economic and political headwinds that are unprecedented in modern times. The timing is most unfortunate.
The state of the market for Thoroughbred bloodstock depends to a large extent on the “wealth effect.” People are more apt to spend when they feel secure about their wealth. Even spending by the richest people is subject to this psychology of economic confidence.
The wealth effect approaching the Fasig-Tipton sale is decidedly negative. Consider the following grim and documentable facts that weigh on buyers’ psyches:
As of this writing, the Dow-Jones Industrial Index has been down for eight straight sessions, which is only the 6th time that has happened in the past 30 years. The S & P 500 has erased all of its gains for 2011.
Despite this week’s agreement to raise the federal debt limit, the deal at best will only slightly impede the United States’ profligate spending that cannot be sustained. Federal budget deficits now and for the foreseeable future are for the first time ever counted in trillions of dollars rather than billions. The current federal budget deficit as a percentage of gross domestic product has been higher only three times in U. S. history—during the Civil War and the two world wars.
The U. S. economy grew by 0.4 percent in the first quarter of 2011 and by 1.3 percent (subject to revision) in the second quarter. Harvard economist Martin Feldstein puts the probability of a double-dip recession at 50/50.
The current presidential administration in Washington espouses the most anti-business and anti-investor rhetoric in memory. The president regularly rails against “millionaires and billionaires,” who are precisely the people who invest in new and existing businesses, create jobs, and support upper-level bloodstock sales. Other frequent targets of the president are “corporate jet owners, oil companies, and hedge-fund managers” (many of the jet owners and hedge-fund managers have been the President’s biggest financial supporters). Such soak-the-rich class warfare scares corporations and investors and has a deleterious result on the wealth effect. U. S.-based multinational corporations have a huge stockpile of cash on their balance sheets but are hesitant to spend it under the present uncertain economic and political circumstances. Much of the money is outside the United States and would be taxed at one of the world’s highest corporate tax rates if it were to be moved to the U. S.
Whether Fasig-Tipton has a decent sale in 2011–with average and median prices and buybacks in line with 2010—will soon be known. One reason for optimism amid the gloomy macroeconomic and political situation is that consumption of luxury goods and services has held up reasonably well during the ongoing economic malaise. Another potential bright spot is that foreign buyers could buoy the sale, although Japan, Great Britain, and Ireland are themselves also having a difficult time economically.
Copyright © 2011 Horse Racing Business
The Dow is down again today by over 200 points and the unemployment claims did not improve much. It just keeps getting worse.
Your point about the wealth effect is right on. I’m feeling pretty poor at the moment…certainly not in the mood to buy more horses.
Yes, the rhetoric out of the White House is decidedly anti-business and anti-millionaires, but the policy is utterly pro-business and pro-millionaires. One can’t solely blame this neo-liberal president for the fact that the ship called Capitalism has hit another iceberg. The peoples of the world needed a new ship. Of course it could be a problem for the World of the Thoroughbred when a much more equitable distribution of wealth is attained. However, I’m sure that The First People’s Congress of the Forever United Socialist Republics of the World will take up this problem of “Who the hell is gonna own and race these wonderful animals?” and a solution is sure to be found.
R. Elfman,
The Socialist countries of the world are falling apart. Been tried, doesn’t work.
The world economy is so risky that selling anything is tilting at windmills. Not only is the economy tanking but so are parimutuel handle and purses. I would be surprised if results from the Saratoga yearling sale are as good as last year. The Dow plunged today by over 500 points and panic has set in. Obama is turning into Hoover or Carter.
From the Thoroughbred Times, Sept. 28, 2008:
“On the same day the Dow Jones industrial average dropped a record 777 points, the picture was no brighter at the Fasig-Tipton Midlantic Eastern fall yearling sale, which saw total sales drop 34.8% compared with the opening session last year.
Fasig-Tipton reported 171 horses as sold from 264 offered for a total of $2,783,400 on opening day of the three-session sale at the Maryland State Fairgrounds in Timonium, Maryland. On the first day last year, 175 yearlings sold for $4,269,800.
Average price declined 33.3% on session-to-session comparisons to $16,277. Median was level at $10,000. Monday’s buy-back rate was 35.2%, compared with 32.7% during the first session last year.”
I wish Fasig-Tipton the best next week. The industry does not need another body blow. It is possible that the Fasig-Tipton sale will produce at least moderate results because it is a small and elite sale that attracts international buyers. Also, Sheik Mohammad of Dubai may support the sale for the top-level offerings. I don’t make public predictions, however.
I will be at the sale in person and will report back on this website next Wednesday with my analysis of what happened.