What We’re Reading (Week Ending 30 August 2026) - 30 Aug 2026
Reading helps us learn about the world and it is a really important aspect of investing. The late Charlie Munger even went so far as to say that “I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading.” We (the co-founders of Compounder Fund) read widely across a range of topics, including investing, business, technology, and the world in general. We want to regularly share the best articles we’ve come across recently. Here they are (for the week ending 23 August 2026):
1. How Countries Go Broke: The Dynamic Behind What is Happening Now – Ray Dalio
To me, the credit/market system is like the human circulatory system, bringing nutrients to all parts of the body that make up the markets and economy. If credit is used effectively, it creates productivity and income that can pay back the debt and interest on the debt, which is healthy. However, if it isn’t used well so it doesn’t produce enough income to pay back the debt and the interest on the debt, debt service will build up like plaque that squeezes out other spending. When debt service payments become very large, that creates a debt service problem and eventually a debt rollover problem as holders of the debt don’t want to roll it over and want to sell it. Naturally, that creates a shortage of demand for debt instruments like bonds and the selling of them, and when there is a shortage of demand relative to supply that either leads to a) interest rates rising, which drives markets and the economy lower, or b) the central bank “printing money” and buying debt, which lowers the value of money, which raises inflation from what it would have been. Printing money also artificially lowers interest rates, which hurts the lenders’ returns. Neither approach is good. When interest rates rise because the selling of debt becomes too large to curtail and the central bank has bought a lot of bonds, the central bank loses money, which hurts its cash flow. If this continues, it leads to the central bank having a negative net worth.
When this becomes severe, both the central government and the central bank borrow to make debt service payments, the central bank prints money to provide the lending because the free-market demand is inadequate, and a self-reinforcing debt/money printing/inflation spiral ensues.
In summary, the classic things to watch are as follows:
1) The amount of government debt service there is relative to government revenue (which is like the amount of plaque in the circulatory system),
2) The amount of selling of government debt there is relative to the amount of demand for government debt (which is like the plaque breaking off and causing a heart attack), and
3) The amount of central bank printing of money to purchase government debt to make up the shortfall in demand for government debt relative to the supply of government debt that needs to be sold (which is like the central bank administering a heavy dose of liquidity/credit to ease the liquidity shortage, producing more debt, which the central bank has an exposure to)…
…Now, imagine that you are running a big business called the US government. That will give you a perspective that will help you understand the US government’s finances and its leadership’s choices.
The total revenue this year will be about $5.5 trillion while the total expenses will be about $7.5 trillion, so there will be a budget shortfall of about $2 trillion. So, this year, your organization’s spending will be about 40% more than it is taking in. And there is very little ability to cut expenses because almost all the expenses are previously committed to or are essential expenses. Because your organization borrowed a lot over a long time, it has accumulated a big debt—approximately six times the amount that it is bringing in each year (about $32 trillion[1]), which equals about $240,000 per household that you have to take care of. And the interest bill on the debt will be about $1 trillion, which is about 20% of your enterprise’s revenue and half this year’s budget shortfall (deficit) that you will have to borrow to fund. But that $1 trillion is not all that you have to give your creditors because, in addition to the interest you have to pay on your debt, you have to pay back the principal that is coming due, which is around $10 trillion. You hope that your creditors will either relend or lend it to you. So, the debt service payments—in other words, the paying back of principal and interest that you have to do to not default—is about $11 trillion, which is about 200% of the money coming in.
That is the current situation…
…I believe that this situation needs to be dealt with via what I call my 3% 3-part solution. That would be to get the budget deficit down to 3% of GDP in a way that balances the three ways of reducing the deficit, which are 1) cutting spending, 2) increasing tax revenue, and 3) lowering interest rates. All three need to happen concurrently so as to prevent any one from being too large because, if any one is too large, the adjustment will be traumatic. And these things need to come about through good fundamental adjustments rather than by force (e.g., it would be very bad if the Federal Reserve unnaturally forced interest rates down)…
…Throughout history these debt cycles have occurred in virtually every country, typically several times, so there are literally hundreds of historical cases to look at. They go back as far as there is recorded history. Said differently, all monetary orders have broken down and the debt cycle process I’m describing is behind these breakdowns. This is the process that led to the breakdowns of all reserve currencies, like the British pound and the Dutch guilder before the pound. In my book, I show the 35 most recent cases.
Q2: If this process happens repeatedly, why are the dynamics behind it not well-understood?
You’re right that the process is not well-understood. Interestingly, I couldn’t find any studies about how this happens. I theorize that it is not well-understood because the breakdown of monetary orders typically happens only about once a lifetime in reserve currency countries and when it happens in nonreserve currency countries this process is presumed to be a problem that reserve currency countries are immune to. The only reason I discovered this process is that I saw it happening in my sovereign bond market investing, which led me to study many cases of it happening throughout history so that I could navigate them well (such as navigating the 2008 global financial crisis and the subsequent European debt crisis…
…Q5: Do you know of any analogous cases of the budget deficit being cut so much in the way you describe and good outcomes happening?
Yes. I know of several. My plan would lead to a cut in the budget deficit of about 4% of GDP. The most analogous case of that happening with a good outcome was in the United States from 1991 to 1998 when the budget deficit was cut by 5% of GDP. In my book, I list several similar cases that happened in other countries…
…Q7: Japan—whose 215% debt-to-GDP ratio is the highest of any advanced economy—has often served as the poster child for the argument that a country can live with consistently high debt levels without experiencing a debt crisis. Why don’t you take much comfort from Japan’s experience?
The Japanese case exemplifies and will continue to exemplify the problem I describe, and it demonstrates my theory in practice. More specifically, because of the high level of the Japanese government’s over indebtedness, Japanese bonds and debt have been terrible investments. To make up for a shortage of demand for Japanese debt assets at low enough interest rates to be good for the country, the BoJ printed a lot of money and bought a lot of Japanese government debt, which has led to holders of Japanese bonds having losses of 51% relative to holding US dollar debt since 2013 and losses of 76% relative to holding gold since 2013. The typical wages of a Japanese worker have fallen 55% since 2013 in common currency terms relative to the wages of an American worker.
2. AI Jitters Have Suppliers Preparing for Data Center Boom to Go Bust – Brooke Sutherland
Manufacturers say they still have more orders from data center customers than they can handle. With no near-term end in sight for the demand surge, they’re racing to add factory capacity for electrical, power generation and cooling equipment. Siemens AG, for example, is investing more than $200 million in new electrical and power distribution products facilities in Georgia and Texas, the latest in a string of expansion projects for the industrial giant and its peers meant to support the data center buildout. But with the market getting increasingly jittery about sky-high valuations and the ultimate payoff from this massive debt-fueled spending bonanza, industrial companies are also taking precautions to make sure they don’t get stuck holding the bag…
…Even as it adds factory space, Siemens is tapping third-party manufacturers to fulfill some of its equipment orders, both to help it meet high demand and to give it some flexibility if that demand falters, Powell said. “If we were to get to a situation where the market dropped 15%, we’d have the opportunity to lower some of those third-party orders and not hit our own factories as hard,” he said. “They understand that we’re not necessarily giving them stuff forever.”
The German industrial giant is also trying to stay diversified in its electrical products business, even as data centers make up an increasing percentage of the market. The data center construction boom is now so huge that private spending has surpassed that for both the general office and healthcare markets…
…Suffolk Construction, one of the largest contractors in the US, is similarly seeking to make sure it doesn’t become “intoxicated” with data centers, says Charles McCarthy, president of mission critical projects. “We’re bringing on a lot of people, bringing on a lot of resources,” he said. “We want to make sure that there’s a backup plan. And when the market does turn, when some of these things do happen, there’s an avenue for us to keep our growth moving forward.”…
…Siemens similarly sees more risk with so-called neocloud data center companies that rent out access to leading AI chips amid concerns about circular financing. “There might be one or two really big winners out of these neoclouds, and you don’t want to miss out on that,” Powell said. “But if something goes bad in the data center market, it’s probably not going to start with the big cloud providers. It’s probably going to start with one of these big neoclouds.”
3. There are ~180 net nets in Korea, and I’m writing up all of them – Oliver Sung
Chaebols themselves are old (Samsung dates to 1938 and both Hyundai and LG go back to 1947) but the system that made them what they are was built in the 1960s and 70s. Park Chung-hee took power in a coup in 1961, and after he gained power, he put the commercial banks under government control and decided to point cheap credit at a handful of families he’d picked to industrialize the country. If these families hit their export target, well then more loans would follow at rates that were negative in real terms. The money that built corporate Korea came from the state and then from the banks, never really from shareholders, so the shareholder was never the constituency that mattered. That conflict between controllers and minority holders has been running ever since, and it’s been incredibly difficult to resolve.
Each one of the companies under a chaebol, some listed and some not, is called an “affiliate.” Samsung, Hyundai, and LG each run dozens of affiliates, and the largest 81 chaebols in the country count >3k affiliates under their umbrella. Why this is an issue when it comes to governance is that the families keep a tight grip on their affiliates through a spaghetti-fashion of cross-holdings between them. It’s not abnormal for a family to own, say, just 3.7% of a company but control 62.4% of the votes through a block of affiliates, meaning you could buy as much of the company as you’d like and still be the minority next to a family that owns <4% of it. If you wonder why I picked such odd percentages for illustration, you’ve probably already guessed that those aren’t illustrative but are the real numbers. 3.7% ownership vs 62.4% control represents the average across the country’s chaebol affiliates…
…Underlying that issue is a bunch of things that have traditionally been wrong with the machinery and have caused the chaebols to not only treat minorities unfairly but also hoard cash and create a jumble of corporate pyramids. Even worse, this machinery incentivized the controllers to in fact keep their own share prices down, and there have been at least four moving parts to it:
- Dividend taxation. In Korea, once an individual’s financial income passes KRW20mn/year, dividends get folded into progressive rates that approach 50%, so the rational move for controllers has been to hoard the cash and pile it into low-return assets and further cross-holdings.
- Inheritance taxation. Korea taxes inheritance at up to 50%, with a surcharge on controlling stakes that takes the bill toward 60%. And because the taxable value of listed shares is the average market price over the four months around the transfer, a family planning succession has a large and entirely legal incentive to keep their share price down for years.
- Merger rules. A Korean merger ratio is typically set by averaging recent market prices rather than by any fair-value opinion. If the merger ratio is decided by the marginal buyer in the market rather than negotiated in the boardrooms, then that’s been good enough for the regulators. In 2015, the Samsung chairman was dying and his son, Lee Jae-yong, needed to end up controlling Samsung Electronics, which he barely owned any of, without triggering the inheritance bill. What he did own was a large slice of Cheil Industries, a small company in the group. Samsung C&T, a separate one, held a block of Samsung Electronics shares. So Samsung decided to merge C&T into Cheil right when C&T was trading at historic lows and Cheil at historic highs. The national pension fund, C&T’s biggest shareholder, swung the vote. People went to prison over that vote (including Lee Jae-yong, but he was later acquitted of all charges related to the merger), and the deal stood anyway.
- Misuse of treasury shares. Because treasury shares haven’t traditionally been cancelled in Korea, in many cases they’ve been used to abuse shareholder value. There have been numerous cases of controllers swapping treasury shares with friendly parties, which is precisely what happened last year when Muhak, a local brewer, executed two treasury stock cross-swaps with its main glass bottle supplier and Samsung Gongjo, an auto parts company in the same region. This has meant that a Korean buyback is less a return of capital than a block of dormant votes bought with shareholders’ money and parked until the controller needs them…
…But the government is taking much deeper stabs at it from multiple fronts:
- In July 2025, amendments to the Commercial Act were approved to require directors to balance corporate and shareholder interests. This is similar to what Japan enacted in its Stewardship Code around 2014. Before this amendment, a director’s duty ran to the company, which in a family-controlled company meant the family. This amendment is likely to mean more fairness in mergers, spins, splits, delistings, and other corporate transactions going forward.
- Then in December 2025, the National Assembly approved a massive reduction in the dividend tax rate to a range of 14-30% for “high-dividend payers.” A “high-dividend payer” is one that has a payout ratio of >40% or has a payout ratio of >25% and increases it by 10% from the prior year. Crucially, to qualify, the company must also have a Value-up plan disclosed on the KRX. This is the first reform that really rewires the incentives for return of capital.
- Finally, in February this year, the National Assembly passed another amendment requiring mandatory cancellation of treasury shares. Companies must now cancel newly acquired treasury shares within one year, and existing treasury stock got an 18-month grace period. This is a big deal…
…It’s important to mention that regulators have also decided that Korea has too many listed zombiecos, and so the exchange has started clearing out from the bottom. The minimum market cap for staying on KOSDAQ went to KRW20bn in July and will reach KRW30bn in January 2027. 30 trading days under the line brings a warning, then 90 more days to climb back above it, or the company gets delisted. The first company went out in June, another 36 were flagged just a week ago on August 12, and something like 1/10 of KOSDAQ could be gone by the end of the year.
4. We Bought a $500 Counterfeit Rolex So Good, Even Rolex Didn’t Spot It – Alistair Charlton and Jeremy White
I’m sitting upstairs in Rolex’s flagship London store on Old Bond Street. I’ve just handed over a fake Rolex to the staff and requested that its bracelet be adjusted, a simple bit of maintenance that requires removing a few links. I haven’t volunteered that the watch is a phony, but I haven’t said it’s legit, either…
…After what feels like far too long, the salesperson returns. He, like his colleagues downstairs did when I arrived, congratulates me on a beautiful watch and hands me back the counterfeit timepiece, now perfectly sized. The removed links have been placed reverently in a delicate, tiny paper bag, marked with the Rolex logo in cadmium green. Heart still pounding, I walk out…
…Mass-produced in huge quantities by Chinese factories, these watches are sold through dealers who advertise on TikTok and Instagram, broker through WhatsApp, and arrange discreet delivery to your door. Since reputation by word-of-mouth is paramount (these businesses can’t exactly show their wares in a digital shop window), they even claim to offer customer service channels, warranties, repair centers, and guarantees to send a replacement if your purchase is seized by customs…
…Quality control, or QC, is at the heart of this community. The subreddit r/RepTime has 269,000 weekly visitors and over 18,000 weekly contributions, according to Reddit’s own statistics. Posts about new counterfeit watch purchases pile up by the hour, both in r/RepTime and r/RepTimeQC, the offshoot subreddit focused on quality control. The posts contain photographs sent from the dealer to the customer, who then seeks advice from the RepTime community on whether they should “GL” (green-light) or “RL” (red-light) their purchase…
…Even a Reddit community with more than a quarter of a million weekly visitors represents a mere fraction of the global fake-watch industry. The Federation of the Swiss Watch Agency has estimated that tens of millions of fake watches are produced every year, dwarfing the number legitimately manufactured by Swiss brands. And, while many super clones sell for between $500 and $700, there are cases of ultra counterfeits posing as watches worth millions.
“There’s a very well-known Patek,” says counterfeit watch expert Adrian Hailwood, referring to an automatic model with the reference number 3448. It was the first serially produced automatic perpetual calendar wristwatch, and there have long been rumors that two examples were made in rose gold for a South American retailer. Only one is publicly known, a 1968 example first sold in Uruguay. In 2011 it was sold at auction by Christie’s for CHF 2,099,000 (about $2.3 million at the time), then sold again in 2025 for CHF 2.7 million (about $3.3 million).
“Allegedly there’s another one,” Hailwood says. “But I’ve seen three—all pretending to be that one, and all of them with faults. So somebody is churning out rose gold 3448s. And if it’s potentially got a list price of a million pounds, there’s a lot of incentive to put them together.”
Hailwood says that because such a piece would have real Patek innards and a totally fake outside, requiring a lot of work and resources and access to parts, each would cost between £20,000 to £30,000 to create. “You can imagine someone going, ‘Look, we can’t put this through public auction, it would be a million pounds. But, say, £400,000 and ask me no more questions.’ People with more money than sense would potentially go for that,” he says.
Million-dollar Pateks tend not to crop up on r/RepTime. Instead, the vast majority of watches subjected to quality control checks are replica Rolexes. Posts scrutinizing the fine details of Submariners, Datejusts, and Daytonas are especially frequent, along with a smattering of Tudor, Omega, IWC, and Cartier replicas. Most tend to be stainless steel, since their low manufacturing cost means these clone watches cannot be made from real precious metal…
…For a thorough expert evaluation of our cloned watches, WIRED met Adrian Hailwood at the UK offices of Watch Collecting, an online watch auction platform he helped launch in 2021, and for which he now provides authentication services. Since much of the production cost of super clones goes on the dial, Hailwood suggested inspecting other parts of the watch.
Under the jeweler’s loupe, he spotted bracelet screws that “really aren’t very round,” and the underside of a clasp that “is very much raw metal” and “not particularly nice.” These imperfections were followed by a Rolex logo on the bracelet which had been “milled out quite amateurishly … Almost looks like someone has done it with a Dremel.”
Hailwood plowed on. “The luminous material looks like it’s not set particularly nicely … The pip is not centered in the triangle, and it’s slightly too yellow for a modern watch.”
One startling piece of accuracy, however, is the coronet (Rolex’s crown-like logo), which since the early 2000s has been laser-etched discreetly into the 6 o’clock position of the sapphire crystal. A couple of millimeters wide and only visible under bright light, the supposed anti-counterfeit measure was present in our replica Submariner. On some fakes the coronet is fudged with a sticker or crudely scratched into the back of the sapphire. Other times it seems genuine, but fails to match the original, which is made up of tiny stars of varying sizes, not just the etched dots of the counterfeit.
Opening the watch revealed a replica movement that looked, at first glance, very much like the real deal. It appeared to be “reasonably good,” but then Hailwood pointed out how there’s a balance regulating arm to help fine-tune how quickly the watch runs—a type of movement that Rolex hasn’t used since 1957. Rolex now uses movements with free-sprung balances, so, in a bid to fool authenticators, counterfeiters have been known to swap the whole assembly around, obscuring the balance components. “That caught a lot of people out,” Hailwood says.
Since WIRED’s watches were examined, however, the counterfeiters have already upped their game. Hailwood claims free-sprung balances have now been introduced across clone movements imitating those by Rolex, Patek Philippe, Richard Mille, and Audemars Piguet. Once a relatively small-volume upgrade, these are now “industrialized features” that eliminate one of the tells he identified in our replica Submariner.
“The investment to produce this kind of clone movement … this is not back-alley sweatshop stuff,” says Hailwood, “this is big factories investing millions to produce full-on clones. It’s said by some watchmakers that these are now close enough that they can be serviced with Rolex parts, which does raise the specter of someone taking a genuine Rolex balance out and swapping it in [to a fake].”…
…According to a May 2025 report from the Organization for Economic Cooperation and Development, the global fake goods trade was worth $467 billion in 2021—the most recent data available—and accounts for 2.3 percent of all global trade, rising to 4.7 percent in the European Union. Clothing, footwear, and leather goods are the most commonly seized counterfeit goods, while watches rank fifth by quantity, and first, comfortably, by value.
A second OECD report focused on Switzerland found that, also in 2021, around $4.7 billion worth of counterfeit goods infringed Swiss trademarks, leading to a $3 billion loss in domestic sales. More than 40 percent of those goods, by value, are watches, with roughly 65 percent of seizures originating in China and Hong Kong. Overall, the global fake Swiss watch market equates to about 7.7 percent of the value of Switzerland’s legitimate watch exports, but with far lower production costs and sales prices per unit.
But remember, these figures are based on seized goods, not those that slip through the postal system unnoticed…
…Ultimately, what’s most striking isn’t merely the scale of this barely hiding counterfeit industry, but the misplaced enthusiasm driving it. These are real watch lovers who have built a genuine online community—people who are fluent in reference numbers, obsessing over index alignment and lume color. They are thrilled to share their knowledge and time, for free, with curious newcomers. It’s very much a genuine passion for watchmaking, but like the crooked hands of a red-lighted replica, it’s pointing the wrong way.
5. Let the Bond Market Speak – Stanley Druckenmiller
The Treasury Department announced on Aug. 19 that it would double the size of its long-dated bond buybacks, from $2 billion to at least $4 billion per operation, aimed at the 10- to 30-year sector and running from Sept. 9 through Nov. 4. The announcement came after the 30-year yield touched a 19-year high. Yields fell within minutes. By the next afternoon they had round-tripped to levels above where they started. The market’s verdict was swift and correct: This wasn’t liquidity management, it was price management—and a mistake far larger than $4 billion suggests…
… Inflation is 3% to 4% and has been above the Fed’s target since 2021. Unemployment is 4.1%, full employment by any definition. The deficit is running near 6% of gross domestic product, a number America has never before produced in peacetime at full employment. The national debt crossed $40 trillion the same week Treasury intervened. Net interest will exceed $1.1 trillion this fiscal year, more than the defense budget. The 10-year yield, even after the summer selloff, sits at or below the economy’s nominal growth rate. That means a borrower (federal government) running 6% deficits at full employment, with above-target inflation, still funds itself at roughly the rate its economy grows….
…The long-term Treasury yield is the most important price in the world. It is also the only fiscal disciplinarian the U.S. has left. Neither party will run on entitlement reform. Both have spent the past decade expanding commitments while ignoring arithmetic. Democracies don’t repair their finances because a budget office publishes a table. They repair them only when the cost of inaction becomes visible and immediate, when mortgage rates bite, when auctions tail, when the political price of a rising long bond finally exceeds the political price of touching spending…
…Every basis point of artificial yield suppression is a subsidy to procrastination. Suppressed long rates sugarcoat the interest-cost projections, shrink the apparent urgency, and let incumbents assure voters the debt is someone else’s problem. If Congress and the administration are unlikely to touch entitlements even with the market’s signal, they are certain not to touch them without one. Whatever this operation saves in basis points, it will cost multiples in delay…
…The defense of the buybacks writes itself: It is a routine tool, introduced in 2024 for liquidity and cash management, trivial against a marketable debt stock approaching $30 trillion. All true but beside the point. Routine operations aren’t announced off-cycle, at double size, on the heels of the long bond’s hitting a two-decade high, with a signal that they can grow without limit…
…What should happen instead is straightforward. Return buybacks to their stated purpose: small, scheduled, off-the-run liquidity operations announced at quarterly refundings, never off-cycle responses to yield levels. Term out the debt honestly and pay the price the market sets. If the 30-year must trade at 5.5% to clear, that isn’t a crisis. It is an invoice. Then do the only thing that durably lowers long-term yields: address the primary deficit. Reform entitlements gradually and honestly, through means testing, indexing changes, eligibility adjustments phased in over decades—so that the burden is shared across generations instead of dumped on the youngest…
…Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding.
Disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation. We currently have no vested interest in any companies mentioned. Holdings are subject to change at any time.
