ANIMAL SPIRITS FLOW IN UPSTATE NEW YORK

Saratoga Springs, NY — The Horse Racing Business post of August 3, 2011 asked “Can Fasig-Tipton Weather the Raging Storm?” The answer was a resounding “yes” last night—notwithstanding that the U. S. stock market had one of the worst days in history. Attribute it to animal spirits.

Since the August 3rd article was published, Standard & Poor’s downgraded U. S. debt for the first time ever and stock markets in the U. S. and around the world have plummeted further. In fact, on day number one of the Fasig-Tipton sale the Dow-Jones Industrial Average plunged over 600 points, or about 5.5%, and stock markets in Europe and Asian also were roiled.

With this backdrop, the first night of the Fasig-Tipton sale was up against monumental odds. Yet to my knowledge, this sale was the only market that gained yesterday.

While the direction of markets is impossible to predict in the short-term, over the longer term of several years, markets adjust to underlying earnings fundamentals. In the case of horse racing, the fundamentals are pari-mutuel handle and purses.

But horse racing is not a pure (economically-driven) business in that a large element of sport is involved. As long as wealthy people are willing to risk huge sums on the chance of obtaining a Triple Crown winner, prices for racehorses will depend on both economic fundamentals and what the famous British economist John Maynard Keynes called “animal spirits”:

“…our decisions to do something positive…can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”

Animal spirits were flowing in abundance last night at the sales pavilion in Saratoga Springs. You could feel it.

Copyright © 2011 Horse Racing Business

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