The bloodstock boom of the 1990s is different from the '80s, but the same rules apply

For the vast majority of people, history is something they would rather forget. All those Civil War battles, land rushes, and dead Presidents are quickly relegated to the back pages of their memories-if retained at all-as soon as they pass that American History 101 final.

American baby boomers in particular have always been far more inclined to look forward to tomorrow than backward toward yesterday. Thus, it was easy for much of the American middle class to convince itself that the "new economy" Wall Street sold them over the last five years was in fact new and operated on different principles than the economy they studied in those dusty, boring classes.

Those who bought the fervor of the dot-com revolution-and stock in many of the revolutionaries' companies-are now in the process of learning that in a capitalist economy, profit remains the object of the exercise. With the value of the NASDAQ index less than half what it was nine months ago, many of those who quit their day jobs to become day traders are beginning to understand that perhaps their fathers were not so dumb after all.

That, of course, is a lesson most learn in their 20s, when the hormone storm of adolescence finally subsides and the real-world realities of workplace and responsibility suddenly make it acceptable once again to be seen in public with one's parents.

The author has come to the conclusion that the majority of participants in the Thoroughbred industry must be perpetual adolescents and blind to the lessons of history.

"It's not like the '80s"

The Thoroughbred industry went through its own extremely painful-and expensive-boom and bust cycle in the 1970s and '80s but seems to have learned little from the those vivid red pages of history. The mantra of industry participants over the last five years of the bloodstock boom of the 1990s has been "it's not like the '80s."

Well, of course it's not like the '80s. It is like the '90s. That does not mean, however, that the same laws of supply and demand that led to the market crash of the late 1980s will not lead to a market crash in the 2000s. If supply of Thoroughbred racing prospects exceeds the number of horses demanded by those who want to own racehorses, prices will go down. It is as simple as that.

The industry's answer to that objection is that there are now more buyers than there were in the '80s and that foal production has not risen excessively as it did then. Both observations are true but incomplete.

Unfortunately, many of those new buyers who have perhaps doubled the number of people willing to pay $1-million for a racehorse got their money from the dot-com bubble on Wall Street. Those folks do not feel quite so rich today as they did 12 months ago.

At the height of the bloodstock boom in 1984, 49,247 foals were born in North America, according to the 2000 Jockey Club Fact Book. Of those 49,247, a total of 8,420, or 17.1%, were sold as yearlings in 1985, including world-record yearling Seattle Dancer at $13.1-million.

The estimated number of North American foals of 1999 is 36,500, or 25.9% less than in 1984. It is that difference that makes industry insiders feel confident that supply of potential racehorses is not excessive.

Unfortunately, 9,424 of those 36,500, or 25.8%, were listed as sold at public auction in North America in 2000. That amounts to a 50.1% increase in the percentage of the total annual supply of yearlings sold to racehorse owners as yearlings. And the situation is actually worse than that. Of the total crop of 36,500 1999 foals, 12,499-34.2%-were offered for sale in 2000.

The point is that a far higher percentage of Thoroughbred breeders produce horses intended for the commercial market in the 2000s than was the case in the 1980s. Thus, despite the much smaller number of foals bred, there are actually more potential racehorses on the market now than there were then.

That means that the buyers are now completely in charge of the market. That is why buy-back rates have soared over the last four years.

And that is why any decrease in the number of people feeling rich will almost certainly lead to lower prices in the Thoroughbred marketplace.