Some people mark the cycle of the years by holidays. Others by their birthday. (Mine was yesterday, and unlike my hero Walter White, I made it through my 52nd full year unscathed). Others by events like the Super Bowl, the World Series, opening day, the first day of school, yada yada yada.
But for me, there’s only one annual event worthy of marking a cycle’s completion, and it happens again this Saturday in Louisville.
For bettors who want the most likely winner, regardless of price, I give you American Pharoah. (No, I didn’t choose the spelling). Owned by Ahmed Zayat, an Egyptian Jew who made his money in beer, this horse is a freak. He runs fast and makes it look easy. The question is, has it been too easy for him so far? What will he do when others with a lot of ability challenge him? Maybe they’ll knock him out, and maybe he’ll just laugh at them.
I wanted to write that betting American Pharoah would be like buying an investment-grade convertible, overpaying for “quality,” but I don’t think the analogy is all that apt. His odds will probably be high enough to look like a bargain if he runs away with the race, as he very well could. I think he’ll be around 5-2, roughly the odds that California Chrome went off at last year. American Pharoah is a more talented horse than CC, but he faces a tougher group. So we’ll say that if you bet American Pharoah, you’re buying an investment-grade bond around fair value. Of course, a bond can’t stumble coming out of the starting gate or get stepped on by another bond.
If you want a high-yield bond with the potential for big-time credit improvement, I suggest you consider the appropriately named Upstart. He’s a New York-bred and he’s never run a bad race. He lacks American Pharoah’s brilliance, but the way the race is likely to play out could favor Upstart more than any race he’s ever been in and more than most other horses in the Derby. He spiked a fever a few weeks ago, never a good thing, but is supposedly fine now. I think he’ll be around 12-1 and I think he’s worth a moderate bet in that price range.
If you want a crossover bond, look at Carpe Diem. His price will be in between the first two, though probably closer to American Pharoah’s. He’s not as fast as the Pharoah but he is a bit more proven making his way through traffic, which is a good skill to have in the Derby. He might be less likely than American Pharoah to win but more likely to finish on the board (Top 3). So maybe he’s the real investment grade.
So those are the buys. My top short idea is Dortmund. He’s never lost, but I don’t think he’s beaten much. He’s the second best horse in the race from the guy who also trains American Pharoah. It says here Dortmund will be off the board.
If you want a big longshot, I give you Far Right, even if my Berkeley upbringing makes his name hard to take. If the speedsters knock each other out completely, he might be the last one standing. Think of him as an out-of-the-money put on the race.
(This is the cover letter for the subscription-based weekly Hillside's Hybrid Vigor newsletter. For a complete copy, please contact John Anderson at + 1 (646) 712-9289 x 107).