Weekend Reads: Summer Olympics Edition

Rio de Janeiro kicked off the Summer Olympics last Friday, and, if history is any guide, a temporary boost to Brazil’s stock market could follow. The country’s economy, however, remains in a slide. In the spirit of the Games, this edition of Weekend Reads takes a look at the state of global markets.

Those 306 gold medals, by the way, are worth about $500 each, though that could change as gold demand hits a new record. Meanwhile, bitcoin’s potential as an uncorrelated asset was shaken by a recent cyber heist.

Investing

• Berkshire Hathaway paid $195 million to exit its last bond derivatives contract. Perhaps Buffett, who has called derivatives “financial WMDs,” doesn’t want them weighing down Berkshire’s balance sheet during the next downturn. Or maybe, with $72.7 billion on hand for a big acquisition, he simply doesn’t need the investable money from a derivatives book. (Bloomberg, Wall Street Journal)
• Passive investing has been more popular and more successful lately, but it requires active management to bid away inefficiency. In a sense, passive investors are free riding off their active counterparts, and not everyone can do that. (Financial Times)
• Sometimes it’s best to ignore warnings, like predictions of a double dip recession in 2010 and 2011 that cost investors 115%. (The Irrelevant Investor)
• Though no one has been able to hack bitcoin’s blockchain yet, a popular exchange, Bitfinex, lost over $70 million in bitcoins in a hack last week. The company announced that it will reduce all users’ balances by 36%, even those whose wallets weren’t hacked or who held other currencies. Bitfinex likened this move to a bankruptcy liquidation. (TechCrunch)

Global Markets

• The Bank of England (BOE)’s quantitative easing (QE) plan is off to a rocky start, as a lack of sellers left the central bank £52 million short of its goal to buy £1.17 billion long-dated gilts. The bond buying caused a rally that pushed yields on some near-term debt below zero. (Financial Times)
• Brazil’s sovereign debt crisis in charts. (Economist)
• Abenomics hasn’t fixed Japan’s sluggish economy despite racking up the highest debt-to-GDP ratio of any country. Now public confidence could be eroded by Emperor Akihito’s desire to abdicate the throne. (The New York Times)
• Environmental, social, and governance (ESG) investors should take note of a recent report that found an “extreme risk” of forced labor in India and China. (Verisk Maplecroft)

Stocks

• To compete with Amazon, Walmart acquired Jet.com and, perhaps more importantly, CEO Marc Lore for $3.3 billion. (The New York Times)
• Despite beating earnings expectations, Macy’s is closing 100 stores to double down on its e-commerce business. Macy’s real estate holdings might be worth more than its enterprise value even though only online sales are growing, so this could be a step in the right direction. (CNBC, Bloomberg)
• Delta cancelled more than 1600 flights as it struggled to get its computer systems up and running. Is it a fundamental problem or a one-time glitch, and an opportunity to buy a quality stock at a discounted price? (The Street)
• Disney is hoping its new 33% stake in a sports streaming service will offset the decline of its cash cow, ESPN. (Wall Street Journal)

The US Macro Outlook

• What will we be worrying about in 2046? Labor force participation rate and debt. (FiveThirtyEight)
• Economists say productivity growth drives increases in real income, but productivity growth in the developed world has ground to a halt. Could this be a statistical aberration, a holdover from the Great Recession, or a sign that technological progress has peaked? (The New Yorker)
• Despite all the talk of making college free, a return to pre-recession levels of workforce participation and productivity among low-skilled workers could be what fuels GDP growth going forward. (The Atlantic)
• We’ve all heard that wealth inequality is increasing, but do Americans know just how unequal the wealth distribution is? Participants in one study estimated that the two bottom quintiles held about 10% of all wealth, but the actual figure is 0.3%. (Perspectives on Psychological Science)
• The Congressional Budget Office’s (CBO) updated budget outlook from last month predicts that the debt-to-GDP ratio will rise to 141% in 2046 — a more pessimistic view than last year. That doesn’t necessarily mean interest payments will become historically onerous, but the report suggests that something’s got to give. (CBO)

Just for Fun, Olympics Edition

• Not sure which Olympic events to watch? This chart identifies the most watchable (hint: not equestrian). (The Ringer)
• The Centers for Disease Control (CDC) says the number of people travelling to Rio is small relative to the total number of people travelling to countries with Zika outbreaks. So the Olympics is unlikely to spread Zika, except to Chad, Djibouti, Eritrea, and Yemen. (FiveThirtyEight)
• You’d think one of the benefits of being an Olympian would be getting to eat whatever you want, but apparently that’s no longer the case. (Vox)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©iStockphoto.com/Barichivich