Ok, over the past few weeks our weekly “Quotes” summary has had more than its fair share of Olympics’ items; everything from the controversial Opening Ceremony and the Royals, to sex among athletes, to heart-warming stories of great athletic success, the flap over Ralph Lauren’s official U.S. uniforms and mentions of the “cheating and tweeting” scandals.

And we are sure some of you have wondered why these items should make it into a weekly stock market recap.

Well, first of all, we always like to throw in some items from the worlds of sports, entertainment and the media to spice things up.

And second, despite some of the more fun items about the Olympics, it is serious business for athletes, countries, media outlets (especially the TV rights holder in the U.S., NBC Universal), the host country local economy, major sponsors, and any number of other affiliated groups.

It is so important, in fact, that Goldman Sachs issues a pre-Olympics economics analysis every four years before the games and we thought it might be of interest to look at some of their findings.

As GS says in the introduction to The Olympics and Economics 2012, “Helped by our team around the world, we look here at some of the ways in which Olympic performance and economic outcomes might be linked.”

Let’s just take a look at a just a few of their statements paraphrased from the report, which was issued in July:

- “Hosting the Olympics results in a number of economic effects that could have an impact on stock markets… raising the international profile of the host country as both a tourism and investment destination… and a major investment in infrastructure, including stadiums, accommodations and transport to prepare for the Games.

How might this be reflected in markets? If markets were forward-looking, we would expect the benefits of the Olympics to be priced into local equity markets at the time of the announcement. But studies have shown mixed performance in the run-up to the Games, but interestingly, all recent Olympic hosts have outperformed the MSCI World index in the 12 months following the Olympics.”

- “Gold Goes Where Growth Environment Is Best—Using Our GES (Growth Environment Scores) to Predict Olympic Medals shows ‘Higher GDP per Capita Has Historically Meant More Medals’”

- “Emerging Markets Now Win Half of All Olympic Medals, Reflecting their Growing Influence”

-“On average, the host nation has won 54% more medals than when it was not the host nation. If medals are your preferred currency, this represents a high return on investment.”

- On Economic Benefits: “The short-term effects derive from the expenditure on goods and services related to the hosting of the Olympics, which are recorded as output when the expenditure occurs.

The long-term benefits include the promotion of London and the UK as tourist venues and as a potential location for foreign investment, as well as the lasting impact on the local community from regenerating a previously run-down part of London.”

There is much more in the report, but frankly, very little that a bit of common sense would not tell you. (i.e., more global participation, more female representation, new and different sports being introduced, growth of participation of disabled athletes, etc.)

However, Goldman has received a tremendous amount of press attention for their pre-Olympics call on the medals count for various nations, where they did a generally excellent job predicting the leading nations and the exact medal number for Great Britain.

Now this comes back to the most interesting factoid in the whole GS report, from where we sit.

The fact that host nations improve their average medal count in the Olympics by 50% or so just boggles the mind. And we can’t help but wonder why that is?

-Is it something in the local water?

-Familiarity with the sports venues and a home field advantage of more practice time there?

-The frenzied support of the hometown fans?

-Increased budgets and better training facilities and coaches in the run-up to the Olympics, knowing the world’s eyes would be on them? Along with more athlete interest and therefore harder training than ever?

-More events which tilt toward the home country’s strength?

-Some extraordinary X-factor of performing at home for your country?

We suspect it is some combination of the above but it is still something of a mystery. The case of Andy Murray’s tennis Gold Medal win over Roger Federer is a case in point. Even though Murray has had more success than most against Federer, he chooses this time to finally break through with a “major” win? (And after losing Wimbledon to Federer just earlier this summer on the same courts).

And his victory came in straight sets, no less. Just amazing.

Good Trading!
David W. (aka The Underground Trader)

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