Decadent and Depraved: the Kentucky Derby Spells D-O-O-M for the Market

June 13, 2012

--by John Titus

Since Wall Street's rigged casino has blow-torched unsuspecting investors and traders alike with high-frequency computers, which account not only for entire calendar quarters of profitable trading days by multiple mega-banks but also for 84% of all stock trades generally , it's high time to ponder one low-frequency forward-looking market indicator that has thus far avoided detection in the house of mirrors that is the financial industry.

Fittingly, the best indicator of massively downward stock market action lies but a short distance from the personal casino of Jamie Dimon et al--at the race track. I speak of the Kentucky Derby, the first leg of the Triple Crown.

Last weekend marked the second occasion since 2008 when a heavy chalk blew the Triple Crown by failing to complete the Belmont Stakes race amid a fog of doping rumors.

En route to Belmont, I’ll Have Another won this year’s Kentucky Derby and Preakness and was the easy favorite to take the Triple Crown at 4/5 odds. That’s until he retired a day before the race.

The timing was especially questionable in light of doping rumors.

The similarities to the 2008 Triple Crown races—which preceded the global stock market collapse by mere months—are eerie.

That year, Big Brown won the Kentucky Derby and “disappeared from the field” to win the Preakness. Big Brown then went into the Belmont as the 2/5 favorite. When he lost—failing even to complete the race, much less take the Crown—the doping allegations got a lot louder.

The Triple Crown races warrant a bit more historical scrutiny, particularly the oldest race—the Kentucky Derby--for a second and more important reason.

What made Big Brown’s win at the Derby so memorable was his post position: 20th out of 20. Geometrically, it’s the worst slot out of the gate because the animal has farther to run than the other 19. Big Brown won anyway.

It was only second time in 133 Derby races that the 20th slot housed the winning horse. The only other time that’s happened was in 1929, when Clyde van Dusen won.

You read that right. Whenever the Derby winner has emerged from the dreaded 20-hole--in 1929 and 2008--in the Spring, the stock market has crashed violently that Fall. And these aren’t your garden-variety market crashes, either. Each set off a Depression (regardless of what egghead economists say).

The worrisome thing in all of this is that the 20th position is only the runner-up for worst Derby post. The undisputed title of absolutely the worst position belongs to the 19th slot. There, the horse is hemmed in on both sides. The 20th position, by contrast, permits free locomotion--and an unconstrained whip hand--on the right.

Big Brown’s connections knew this, which is exactly why they waived the right to the 19th post, taking the 20th instead.

Horseplayers are savvy to this fact as well. Just look at the post position odds chart above.

If a Derby win from the god-awful 20th position spells bad news for the stock market, 2012 promises to be an outright catastrophe. That’s because last month, I’ll Have Another became the first horse ever to win the Kentucky Derby from the 19th post position. In besting the achievements of the 1929 and 2008 Derby winners, I’ll Have Another snapped a losing streak that was 137 years old.

Think about that. The Kentucky Derby dates back to 1875. That damn near pre-dates baseball itself, much less the Chicago Cubs’ World Series losing streak, which, at over a 100 years old, is easily the worst in all of major professional sports.

In any event, I'll Have Another's victory lap in Louisville spells unprecedented trouble for the stock market this year, which promises to eclipse the Depressions set off in 1929 and 2008.

In this sick age of doping, cheating, law-breaking, moral hazard, high-frequency quote-stuffing and front-running, the Fourth Estate's only response has been to defile our very language to conceal the stench of systemic graft: stolen loot is called "profit," and bailed out Wall Street welfare whores call themselves "capitalists" without bags over their heads. Meanwhile, honest traders are losing their asses in a hopeless search for correlations measured in milliseconds.

Undoubtedly, they’d have been better off taking the longer view, declining to compete with Goldman Sachs’ co-located toll booths, er, stock exchange computer servers.

Strangely, one antidote to Wall Street's stacked deck is the Kentucky Derby, in all of its decadent and depraved glory.