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What I Think I Learned Last Week #11

« Neither a borrower nor a lender be » – Hamlet Act 1, scene 3, 75–77

I attended the IMF/World Bank meetings last week. One of the consistent themes of the week is the amount of leverage in the global system.

And speaking of leverage: Goldman Sachs bought a house-flipping financier. 35% of house-flippers are using leverage, the highest since the financial crisis.

More on leverage risks: Wolfgang Schäuble warned that spiraling levels of global debt and liquidity present a big risk to the world economy. He said there was a danger of “new bubbles” forming due to the trillions of dollars that central banks have pumped into markets. Schäuble also warned of risks to stability in the eurozone, particularly from bank balance sheets burdened by the post-crisis legacy of non-performing loans.

The International Monetary Fund said nine of the world’s biggest financial institutions deserve heightened attention from regulators. The nine banks on the list of shame are: Citigroup (of course), Société Générale, UniCredit, Deutsche Bank, Barclays, Standard Chartered, Sumitomo Mitsui Financial Group, Mizuho Financial Group, and Mitsubishi UFJ Financial Group. The IMF noted that these banks have “both thin capital buffers relative to future regulatory requirements and relatively weak profitability to build those buffers over the next few years.” The IMF also said the European investment banks, “still face the problem of defining and executing profitable business models.”

The International Monetary Fund raised its global economic forecast to 3.6% for 2017 and 3.7% for 2018. The IMF left its growth forecast for the US unchanged at 2.2% in 2017 and 2.3% in 2018, and warned that long-term growth likely will be slow in response to minimal improvement in productivity and significant demographic changes.

Industrial production in Germany surged to its best month in six years in August with a 2.6% jump, well ahead of the 0.7% forecasted.

Amazon Effect (1): According to consulting group OC&C, organic sales growth of the 50 largest consumer companies has fallen from 7.3% in 2011 to -0.7% last year. Scale no longer is a benefit as e-commerce sites allow smaller local brands equivalent reach.

Amazon Effect (2): If you can’t beat them, then join them. IKEA will assemble some third party e-commerce sites, likely including Amazon, to sell its furniture.

The MSCI World Index joined other indices in closing the week on a record high.

French bank BNP Paribas said it will no longer finance shale and oil sands projects because of investors wanting firms to lower their carbon footprint. French shale oil drillers are mighty upset by this move.

Turkish lira plummeted during the week as tension between the US and Turkey grows. Both countries Sunday stopped issuing nonimmigrant visas to each other.

Scandal-prone corporate Japan is at it again. This time, it is Kobe Steel, Japan’s third largest steelmaker, which saw its stock dive on admitting to falsifying product quality data, forcing global industrial customers, including Boeing, Toyota, and Nissan to check their product safety. In addition to steel, copper and aluminum shipments are also affected, and the company said the problems could go back for ten years.

Finally, childhood obesity has risen ten-fold over the last 40 years, proof that the American way of life still has appeal around the world.

And that’s what I think I learned last week…