At Belmont, American Pharoah Faces Serious Challenges in Quest for Triple Crown

American Pharoah looks a likely winner in the Belmont Stakes on Saturday, but he’s impossible to bet flat at 3-to-5 odds.

Main challenges come from a trio of horses he has met and defeated in the past. The Baffert trainee will be hard-pressed and jockey Victor Espinosa will have to use all the guile and skills of his exceptional riding career to win the first triple crown of American racing in 37 years.

The eight-horse field consists of six who contended in the Kentucky Derby, won by American Pharoah with a stalking trip and furious stretch run to defeat Firing Line, whose handlers chose to pass on the Belmont after being thoroughly thrashed in the washed-out slop that was the Preakness, finishing half the stretch back, seventh in the eight-horse field.

Of Saturday’s contending field, only Tale of Verve (a deep-closing second in the Preakness, but never a threat to front-running Pharoah) and Madefromlucky were not in the Derby. Tale of Verve’s stunning second was likely doe to the sloppy track and the futile running styles of the other entrants. He should not be close in the Belmont and is not considered a strong contender. Fourth place could be in the cards for him, but no better. Tale of Verve is also the only horse other than American Pharaoh to emerge from the Preakness, suggesting that the connections of the other ponies from that race feel overmatched here.

The other non-Derby entrant, Madefromlucky, has a shot at defeating American Pharoah, though the latter bettered him twice at Oaklawn Park. Pharaoh won the Rebel Stakes and Arkansas Derby in succession. Madefromlucky was a close second in the Rebel, and followed with a fourth-place finish in the Arkansas Derby.

However, Madefromlucky skipped the first two legs of the Triple Crown races, opting for the Peter Pan on May 9th. He won that race in a five-horse field, sitting off the pace and finishing in a gallop to win by a driving length. Incidentally, Madefromlucky earned a Beyer speed figure of 94, the sixth-straight improving Beyer in his racing campaign. The horse needs a good pace scenario, but is maturing gradually, and should be at the top of his game with nearly a month off since his last encounter on the track. Additionally, he owns a win over the surface (the Peter Pan), which suggests that trainer Todd Pletcher has had him pointed for just this upset scenario.

Another horse that should be of concern to American Pharaoh’s quest for the Triple Crown is Frosted, the Kiaran McLaughlin trained stallion that finished fourth in the Derby, but was closing with a flourish. Frosted skipped the Preakness, giving him extra time off to relish the extra distance of the 1 1/2 mile Belmont Stakes. His breeding - by Tapit from Fast Cookie - suggests he will devour the distance and pose a major threat to American Pharoah, himself no slouch in the breeding department, especially with the presence of the grand sire, Pioneer of the Nile on the stud side.

Another possibility arises in Materiality, who will break from the outermost post, often an advantage to an early speed type such as he is. Materiality finished a disappointing sixth in the Derby, skipped the Preakness and shows up here as a main pace threat. Considering that he too is trained by Pletcher, expect jockey John Velazquez to press Pharoah early, setting up a hard stretch rally from Madefromlucky.

Pletcher, who is about as consistent a winner as can be found in the training ranks on the New York circuit. has his two main riders in Velazquez and Javier Castellano, who will be aboard Madeforlucky. Considering that Castellano has been Pletcher’s go-to guy the past few seasons, the tactics are about as obvious as they can get. Press Pharoah early and beat him late with a perfectly-coordinated pair that might as well be racing as an entry. Seeing both of them in the top three would be a fantastic finish, but Madefromlucky finishing a nose, a head, or even a few lengths ahead of American Pharaoh is a distinct possibility.

Of course, man’s best-laid plans after result in surprises from other sources, which is why Frosted looms a large threat here.

The 147th running of the Belmont Stakes should be an exciting event, whether American Pharoah ends the Triple Crown drought (last achieved by the great Affirmed in 1978 - I was there) or another hopeful fails in the ultimate test for three-year-olds.

The play is pretty straightforward, using American Pharoah on all exotic tickets except for radical savers in the unlikely event he is thoroughly trashed by a wicked pace or some other riding misfortune.

Here are the suggestions with running numbers:

Madefromlucky (3)

American Pharoah (5)

Frosted (6)

Materiality (8)

Exacta:

5 over 3, 6, 8

3, 6, 8 over 5

3, 6, 8 boxed.

Trifecta:

Wheel

5 / 3, 6, 8 / 3, 6, 8

3, 6, 8 / 5 / 3, 6, 8

3, 6, 8 / 3, 6, 8 / 5

Box

3, 6, 8

I don’t like to spread it out too far in small fields and a few of those in the field, notably (1) Mubtaahij, (4) Frammento, and (7) Keen Ice appear outclassed by the remainder of the field.

My advice, as always, is, win or lose, live it up. Spend more on booze and fun than you bet on the race. At least that way you’ve got something to remember (or forget… or regret) other than a handful of torn up tickets and a hole indoor wallet.

FOMC (in)Action Does Nothing for Wall Street; 1Q GDP Weak

Apologies again for the brevity of this missive. We are currently under severe time restraints, though the thought of a more regular schedule appears for next week. -Editor

The week can be summed up as "much ado about nothing," as the FOMC again held the federal fund rate at near-zero and stocks were more or less unresponsive over the course of the week.

A preliminary reading of first quarter GDP showed the economy nearly slipping into recession, growing at a rate of just 0.2% for the first three months of 2015. The outlier was a three percent inventory build, without which the number would have been negative. Naturally, naysayers on the economy contend that the recession for the US economy never ended after 2009, and that the United States has been mired in a deep depression since the implosion of the financial system back in the fall of 2008 and that only extreme dosages of liquidity supplied by the central bankers of the world have saves us all from misery.

Wall Street continues to hum along with record amounts of stock buybacks buoying share prices for many firms, with growth and capital expenditures now becoming things of the past.

The first three days of trading were somewhat lackluster, followed by a huge downdraft on Thursday and a dead-cat monster bounce-back on Friday, which kept the major indices from outright implosion. Analysts are keeping a keen eye on the German DAX, which is coming close to correction territory.

The NASDAQ was the worst-performer, dropping nearly two percent as biotechs imploded and speculative money was coming off the table at a rapid rate.

For the week ending May 1:

Dow: 18.024.06, -56.08 (-0.31)
S&P 500: 2,108.29, -9.40 (-0.44)
NASDAQ: 5,005.39, -86.69 (-1.70)

NASDAQ Breaks Out in w/e April 24, 2015

Not much to report in terms of market activity, except that all the major averages were higher for the week, though remaining in a very tight range that has persisted since the first week of February.

The Dow Jones Industrials have vacillated between roughly 17,600 and the high of 18,288 (about a 700-point spread) for 11 weeks running, generating plenty of noise, but nothing substantial upon which to base future market-turning events.

Thus, the ongoing view is rather cool and contained, the bulls mostly winning the war, what with the Fed's continued blabbering over interest rates. Current outlook is for the Fed to keep rates at the zero-bound for as far as the eye can see, which would be until next year, maybe.

Sustained weakness in the US and global economies has kept a lid on any proposed rate hikes. Meanwhile, most of the stronger economies of Europe (an oxymoron if ever there was one) have fallen prey to negative rates and renewed fears of either a Greek exit from the EU (Grexit) and/or fears and outright signs of deflation.

Oil prices ramped back up to their highest levels in four months, dragging fuel prices at the gas pump higher, all occurring amid a record growth of reserves. The oil market is not - like most markets around the world - free from price-fixing and mauling by major manipulators.

For the week, the Dow gained 253.84 (1.42%); the S&P added 36.51 (1.75%); and, the NASDAQ popped 160.27 points (3.25%), breaking through to new closing highs not seen in 15 years (5092.08). Clearly, the real money is being made in momentum plays and the NAZ is where they are.

Irrational? We give you exuberance and euphoria.

Financial Recap for w/e 4/17/15: Friday's China Fears Stun Markets

The week can be summarized succinctly as four normal days followed by a bummer of a Friday, which took back all of the week's gains and then some when it became obvious to anyone and everyone that China might not be the raging dynamo of capitalism once thought.

With a drop on the Dow of nearly 300 points, Friday's whiplash took the DJIA back to break-even for the year and ended the week with the Industrials off 231.35 (1.28%). The remainder of the week was mostly mundane, with the average down Monday, up Tuesday and finally into positive territory on Wednesday. Thursday was flat.

Following a pattern similar to that of the Dow, the S&P 500 also lost steam, down 20.88 (0.99) for the week, a loss not nearly as dramatic as the Blue Chips. However, the S&P ended up less than one percent on the year, a condition which central planners and fund managers are finding unpleasant and unprofitable.

Nearly four full months into the new year, investors are still searching for a catalyst beyond the usual dramatics from the Federal Reserve to move markets higher. Considering the poor performance out of China and the rest of the EM, the catastrophic condition that is the European Union, and the general negative tone of US macro data, in deference to the usual "recovery" noise, a very good argument for profit-taking has appeared.

The NASDAQ suffered a similar fate, gapping lower on Friday to post a massive 76-point decline for the day. On the week, the NASDAQ was lower by 64.25 points (1.28%), equaling the DJIA as the worst percentage performer.

Beyond the aforementioned wall of worries, what has markets particularly off-balance are comments from a variety of Federal Reserve officials, some which are for a rate increase ASAP, while others seem to have reversed course and favor the wait-and-see approach, which is wearing thin on all fronts. Clarity does not serve the Federal Reserve well at this juncture - indeed, maybe not at any time - as market reaction is exceedingly swift to judge.

The constant din of jawboning from current and former Fed officials has provided market participants with a kind of backstop mechanism, one which has successfully prevented an outright bubble in stocks (a debatable point) and, at the same time, limiting any downside action to less-than-correction levels.

As stocks have not seen a significant retreat since the summer of 2011 - and even that was mild and short-lived - the argument for a correction of ten percent or more has its followers, though bearish thoughts have been effectively eviscerated by the Fed and its hyperactive role in the market.

With a June rate increase now seen as nearly off the table, the view is that September will be the most opportune time for the Fed to act to raise the federal fund rate off the zero bound, though many voices are already saying that 2016 or beyond will be the date at which the "renormalization" process takes flight.

With central banks and, especially, the Fed, so deeply ingrained in equity and bond markets, it has become difficult, if not entirely impossible, to accurately predict future market movements.

Perhaps this is a condition with which markets should be desirous. Complacency and indecision might turn out to be the best weapons against deflation and outright recession. Lessons learned from past experience are no longer helpful as the global economy has never been so utterly and consistently commanded, contrived and controlled. Eventually, one would suspect a shakeout. As usual, getting the timing right is a paramount consideration, though the recent activities of markets and central banks has left all participants scratching for solutions.

Weekly Recap for W/E April 10, 2015: Economy Weak, Stocks Leap

Stocks and bonds have gotten to a point which indicate there won't be a rate increase to the Federal Reserve's most basic federal funds rate until at least September of this year and quite probably, beyond that.

Dependent upon data flows to determine whether the economy (or more specifically, the stock market and the 1% of the population that owns them) is strong and durable enough to withstand raising rates from the zero-bound to something higher, say, 0.25 percent or, as some have cynically put forth, 0.125 percent.

Data has been daunting to the Fed. Industrial production, durable goods and advance figures on first quarter GDP have all been short of expectations, adding to the pain which last week's March non-farm payroll figures presented. Of course, stocks, which have become the only game in town, loved the weak numbers, because it puts any thought of a rate increase on a semi-permanent hold, meaning free-or-nearly-free money and credit, with which it is an easy task to invest and make money.

So, we have the twisted dynamic of bad news on the economy being nothing but champagne and rose for players of stocks, and that was well reflected in this week's trading, with all the indices heading back toward all-time highs. This followed a brief respite in March, as speculators nervously sold out of equities, thinking that the Fed might increase rates in June.

The NFP data crushed that line of thinking, and sent stocks off like rockets this week, concluding with Friday's nifty rise, sending the Dow back over 18,000 once again and the NASDAQ within shouting distance of the magical 5,000 mark. The final day of trading for the week was bolstered by an announcement from General Electric (GE), stating that the company would sell nearly all of its GE Capital financing unit and real estate holdings (about $23 billion) to Blackstone and Wells-Fargo, two companies, which over the past seven years since the housing bust, have become the nation's new landlords. GE put forward a plan to repurchase some $50 billion worth of its own shares over the next three years.

Timing of the deal isn't very curious at all. GE has been stock in a range for the past fifteen years, and, with interest rates such a challenge by which to make profits, CEO Jeff Imelt and his executive team probably felt it was due time to return to its industrial roots. It does set precedent, however, by selling such a large chunk of real estate and real estate financing assets to companies that are already heavily entrenched in the sector, putting an exclamation point at the end of the boom-gone-bust that is damning to capitalism and competition.

GE's buyback provisions will not be put to scrutiny. Wall Street loves dilution, making shares more valuable to the fewer who hold them. With a market cap of nearly $298 billion, GE had room to maneuver, but the key question remains, by lopping off more than a quarter of its asset base, is the company going to generate better returns?

It's already at nosebleed levels, with a P/E of 19 and an annual divided of 0.92, meaning it will take the plunger who invests in the stock today nearly 31 years to double his/her money on the dividend alone. That's a long time, and, with arduous risk implanted.

Nonetheless, stock junkies loved the deal, boosting shares of GE by nearly 11% on the day and making the Dow the percentage winner among major indices.

For the week the Dow Industrials jumped 294.41 points (1.66%); the S&P added 35.10 (1.70%) and the NASDAQ was the big winner for the week, gaining 109.04 points (2.23%).

On the day:
Dow 18,057.65, +98.92 (0.55%)
S&P 500 2,102.06, +10.88 (0.52%)
NASDAQ 4,995.98, +21.41 (0.43%)

Editor's note: Due to unforeseen circumstances and largely, common sense, Money Daily will soon be converting to a weekly format - with the occasional daily post thrown in on major news developments - to present a more robust and well-reasoned approach to our readers. The daily noise and rigid schedule has made it difficult to offer a cogent, thought-provoking view, which is our purpose. In coming weeks, readers should be advised to seek out the weekly recaps, published on Friday evenings, or, more likely, Saturday afternoons.