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James Aitken

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117
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2018-06-25
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2018-06-25
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  1. “And then we get to Bear Stearns in May 2008. No, no, it was entirely mechanical. It was almost preordained as soon as US house prices stopped going up. And I'll just make a broader observation that when you falsify, the key assumption underpinning any liquidity or credit cycle, you get mean reversion and then some. And it's the lesson of subprime in 0678. It's the lesson of the Eurozone crisis, which guess what? We might have to talk about as well. And if I think about the present day, the key assumption underpinning the constellation of asset prices on my Bloomberg is that long-term interest rates can never go up, which means that discount rates can never go up much, which means the net present value of cash flow-producing assets today is quite high.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “So by Merrill Lynch calling for margin for Bearstern's asset management who didn't have it, the emperor had no clothes. And then in july two thousand seven the raiding agencies downgraded the tranches of the CDOs, and I know this sounds might sound a bit complicated, but the CDOs were non-mark to market vehicles unless and until they were downgraded. And once they were downgraded it was price discovery free for all, and that was the end of it. That was the point of no return, and we can talk about August, we can talk about how central banks even at that point had no clue what was happening.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “And then, just to remind another tangible example of what was happening and how important it was to understand how things work. The summer of two thousand seven, there's this mythology around august two thousand seven is when it all booted off, which is, I think, just not correct. You think about the end of the first quarter start of the second quarter of seven. Merrill Lynch tries to make a margin call on Bear Stearn's asset management. Now, as we may find out in the next couple, we're starting to find out here in twenty eighteen, price discovery at the end of a tremendous liquidity and credit cycle can be an awkward moment.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “BB minus and boy did it turn out to be BBB. And for a long time that index traded at PA, and then one day, I think it was the second week of two thousand six, there was a tremendous seller in here in New York, the B minus, all the way through until september sixth I was trading at 100, and then one day it cracked and it closed below one hundred. And that was the first hint that the CDO machine was somewhat satiated in terms of their subprime bid.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “No, because as a merge subsequently, AIG financial products was not the culture where you question things too intensively. That was most sternly discouraged. But I did dig, and I knew enough, and then to be fair to my wonderful colleagues at UBS, most of whom I'm friends with to this day, I was able to connect dots that I was unable to connect at AIG financial products by getting to know the repo guy who's now my long suffering golf partner, or the guy who was making managing counterparty risk or collateral or all these kinds of things. And it all started to fit together. And to give a tangible example, I mean, I think we've, look, we're talking about events of 12 years ago, Ted, but these subprime indices, remember this ABX HER.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “And how lucky was I, and I keep saying it, but it's true. I worked at the institution that was at the epicenter of so much that was going wrong or did go wrong in zero seven oh eight, and that was AIG Financial Products. It's a miracle.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “Go. There's a great book to be written on incentives, isn't there? CLDENI did us all a favor with influence, but I want someone to write a book on incentives because everything will become so clear. So there I am sitting in this catbird seat with a front row seat at the circus. Now I think that's actually mixing metaphors. Let's just say I had a front row seat at the circus, right?”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “But Ted, I started giving presentations from september two thousand six onwards to various institutional investors around the world on what would happen if house prices stopped going up and how everything what was happening under the surface, or as people know it now, the plumbing, how things work, how balance sheet works, liquidity puts, counterparty risk collateral, all the moving parts of the financial system. And of course the premise was if house prices stopped going up, we got a problem because the whole structured credit machine could grind to a halt. And if there's ever a mark to market event, look out'cause the whole system could grind to a halt, because of all the connectivity. And suffice to say it was a bit of an uphill battle to explain to clients, and I should add, policymakers around the world starting from late two thousand six onwards, what was happening. And I know this will sound uncharitable, but it's true. It's very difficult to get a man to understand something if his salary or management fees.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “I was hired by UBS, and again how lucky was I to be employed by UBS on a foreign exchange sales desk in London, and they were kind enough to say look, you have this expertise about other stuff from AIG financial products, you're not just an FX guy, youBS has this enormous toolkit. If you want to transact other products on behalf of your clients who advise your clients about guess what, ABX, subprime indices, and all these other things subject to compliance approval, you're free to do so. Wow and off we went. Of course the irony was that UBS had an awful lot of exposure to this kind of kit as well.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “started to hear whispers for more seasoned long term employees of AIG financial products along the lines of oh gosh, if we'd downgraded another couple of notches there's not enough collateral in the world to make us work and Ted, I had no idea what that meant, but I thought right I'd better find out. So look, I managed to stay out of trouble until the summer of two thousand six, by which time as it emerged Jokosano had been informed that, you know, look, Joe, there's some things we're doing here that are turning out not quite as we expected we need to be careful.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “And the irony and perhaps tragedy were the benefit of hindsight of AIG financial products was that it was obviously opaque to the rest of the world because no one quite knew what was happening in the firm, but internally I could walk ten feet across the room, all sweet and innocent, and say, can you please explain to me what you're doing with that subprime insurance and how that CDO works, and what do you mean by collateral and what's this counterparty risk, and how come you're underwriting twenty nine point seven billion euros of Dutch mortgages at ten basis points I don't quite understand that? So I kept my head down for four years, didn't understand much, in fact anything of what I was picking up, but I started to keep a notebook to write things down that I heard and I felt right, I've got to try and understand what that means. And of course one, I mean there's many examples, but I think one key one was when AIG was first downgraded, I think it was two thousand five.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “Jocasano, who obviously we know was running AIG financial products. He took over AIG trading, and as luck would have it, I was one of the employees of AIG trading that Joe kept on, and I found myself working in that quite extraordinary dealing room in Curzon Street in Mayfair. Still get the tremors when I walked past it to this day. But it was again a humbling experience.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “And I realized, Ted, that far from being well read and knowledgeable at the bright old age of thirty one, that as I was hanging out with these two extraordinary men I knew nothing about everything that mattered. And that's quite a humbling recognition. Was there a moment early on where that aha moment came? Oh, I think it was in about the second meeting I took with Bernard and Sir Allen at all these references to philosophy and psychology and history and economic in history and not just road to serfdom type stuff or canes, but all these other references and historical perspectives that frankly I knew nothing about. And that's when I've always been a very keen reader, but that's when I said right, I've got to ramp this up, and my objective over the next couple of decades is to try to catch up to where these men are today. So there's a whole series of epiphanies, if you will. And then things got a bit lively in two thousand three because.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “But I as you do when you're thirty one years old, you think you're well read and you know a bit about the world, and I started working for believe it or not the very vanilla trading business of AIG, which was commodities and foreign exchange in early two thousand two. And obviously this is in London. And if anyone listening is in doubt, yes, I'm Australian. And I started hanging out with these two extraordinary men who were working at AIG trading. One was the late Sir Allan Walters, who was Margaret Thatcher's economic advisor, and the other was a very dear friend of mine, Bernard Connolly. Well, he's still a dear friend.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “Running my own business for the past nine years and rather lucky than smart. And unfortunately we have to get into my experiences as an employee of AIG financial products. Yeah, the infamous AIG financial products. Thanks, Ted. That's very good. Very kind of you to remind everybody of that.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  16. “How you got started in this? I think it was almost an accident. I never had any inclination to get into financial markets, but my father was and actually still is at the age of 81 a very good Australian value investor. So there was a little bit of financial markets and investing DNA there somewhere, but it wasn't until I was a university that I thought, okay, I'll make a go of that and work from a quarry bank in Sydney and foreign exchange and so forth, but I'll spare you the sad tale of my lamentable sell site career. I think we're cutting to the chase is how did I end up?”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “My guest on today's show is Australian-born James Aitken, the founder and managing partner of Aitken Advisors, a one-man macroeconomic consultancy based in Wimbledon, England that works with approximately one hundred of the most influential pools of capital in the world. James started his career in 1992 as a foreign exchange trader, moved to London in May of 1999, and in March 2002 joined the infamous AIG financial products team in London. In August of 2006, two years before the crisis hit, he joined UBS, where he deployed his knowledge of the inner workings of the financial system to help his institutional investor clients successfully navigate their portfolios through 2007 and 2008. At the urging of those clients, James established his own firm in June 2009. Our conversation covers James's perspective on the global financial crisis.”

    2018-06-25 · Capital Allocators · James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) · IDENTIFIED FROM THE TRANSCRIPT · source