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Risks Of The Modern Market Structure (w/ James Aitken) | Jim Grant | Real Vision™

4,436 views · Published 15 June 2018 · 3:32 · Indexed 27 October 2026

Channel: Real Vision Presents · 2018 · News & Politics

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The esteemed Australian hedge fund advisor James Aitken sits down with legendary financial writer Jim Grant for an insightful conversation about central bank stimulus, the European financial system, China’s future, short selling, and more. Aitken, the founder of Aitken Advisors, compares recent European crises to the current state of the European economy and markets. He also shares his philosophy about how to properly navigate fully valued markets. 

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The Risks Of The Modern Market Structure The Jim Grant Series (w/ James Aitken) | Grant Williams in Conversation | Real Vision™
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Transcript: Isn't it interesting not just over the past couple of days with BTPs or Italian government bonds-- but so many other markets are starting to move in new and interesting ways since the start of 2018. Now, Italy might be a special situation. Certainly it's come out a little bit of left field-- particularly Motorola's intervention. But what intrigues me is not that there's been a risk premium suddenly injected back into Italian credit or alternative tier one paper bail in debt, Italian ec, all those kind of-- It's not that it's suddenly happened. It’s the speed and the ferocity of the move. But how can anyone be surprised that when you get some kind of regime shift, that markets in this day and age move much more quickly than what we've become accustomed to over the past, say, 10 years or more, or even previous cycles? When you've got the best bid or offer in nearly every liquid asset around the world today provided by non-bank financial intermediaries such as algorithms or algorithmic trading or program trading, whose sole objective is to go home at 5:00 PM New York time every day flat with no market exposure, who are monitoring correlations and spillovers by the millisecond because they're running the order books that we all take for granted. And if their systems spot something they don't like-- it could be heavy volume in Deutsche Bank put options. It could be someone's buying a lot of puts all of a sudden in euros or someone is trying to short Santander. They're monitoring all of this for instantaneous correlations. That's the game. So of course, if they see something they don't like, the first thing they do is oh-- we'll widen the bid off a spread, or we'll try to lay off risk in a correlated market. Or, hang on a second. That's now widening. And all of the sudden you get this instantaneous repricing across a range of asset classes. And all it took, as best I understand it having checked, is one committed seller. One seller of BTPs on their primary dealing platform, which is called MTS in Italy, saw every bid evaporate across the entire term structure of the world's second-- I think it's third or second biggest government bond market-- like that. So Italy has just had its flash crash.
It's extraordinary to watch the speed that these changes occur. But if you imagine what could have happened when the ECB stepped back, is this just the warm up act for when the ECB stops buying assets? Or more the point, how could they ever stop buying assets? So I see what's happening to BTPs as a metaphor for how market structure has changed, and how rapidly it will continue to change. 

Filmed on May 30, 2018 in New York.

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