Capital Allocators – Inside the Institutional Investment Industry James Aitken – Systemic Risk in a Crisis (Capital Allocators, EP.126)
Mar 18, 2020
James Aitken, a leading macro strategist, dives deep into the systemic risks facing the financial system, especially during crises. He discusses vulnerabilities from past bubbles and the added pressures of health crises and geopolitical tensions. Aitken emphasizes the complex interplay of central bank actions and market dynamics in navigating these challenges. He also sheds light on the liquidity issues in credit markets, urging a cautious yet strategic approach for investors while offering a hopeful outlook on financial recovery.
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Initial Market Conditions
- Current market instability stems from a monumental risk asset bubble.
- Low interest rates and unregulated leverage created this vulnerability.
Speed of Market Drawdown
- Market drawdown speed is linked to over-reliance on short-term financing and changing correlations.
- Volatility scaling and the "slower fool theory" contributed to the disruption.
Central Bank Response
- Central bank actions aim to bridge the gap to medical and fiscal responses, not to save the financial system.
- Their goal is to buy time, not prop up asset prices.