Transcript of Question & Answer Session Low Interest Rate Environments and Risk

I’m not sure if this is scenario [inaudible] but one that keeps saying there’s a few ex-treasury it’s trying to [inaudible] and I was reading yesterday about a very big run down the level of Chinese reserves in the last quarter or so. Is that something that the bank sort of, is sort of worried about and what that means and what’s driving that?

It’s not something that I’ve been focusing on so, best not to comment.

Yeah, leverage.

Yeah.

That does the damage, I agree with that. The question is, is there anywhere in the world there isn’t a [inaudible] at the moment and would you just relying on this, prices staying higher? First thing you look at is household debt effect [inaudible], that’s one thing. And the other one’s, the government effect is quite high in [inaudible] China and so on and Hong Kong. Do you have any [inaudible]? Can you identify anywhere where you’re worried about leverage?

I mean I, so not leverage per se but this is the dynamic of the secular stagnation argument which is when you look at, for example Europe, you’d see that they’ve got low interest rates and high government debt and it really feels like, you know, what, what is the solution? It’s very hard to think of what the solution is there. They don’t have leverage. I think kind of the leverage was prior to the crisis, or if you were to be concerned, what would you be concerned about leverage in an emerging economies who haven’t, you know, you have escaped most of the effects of the financial crisis which was mostly advanced economies. So I think, you know, you’ve got the secular stagnation argument which gives you reason to be concerned about what might be going on in say Europe and then to the extent that there are leverage concerns they’re more in the countries that escaped the worst effects of the financial crisis.

Did you expect a lot of your business [inaudible], would you expect them to be reducing their expense options and their capital options [inaudible] in a much [inaudible] interest rate environment because that doesn’t seem to be the case at the moment [inaudible]?

That would certainly seem to be, you know, the evidence that shows the real interest rates have been declining for 25 years, would suggest that. Now, they need to make an allowance for risk but I do think that the expectations that’ve been built up in high inflation periods and to the extent that people have kind of got these nominal bench marks in there, people should be kind of re-evaluating that and thinking about. I mean, I think investment managers should be doing this all the time. Obviously, you don’t change it all the time but hanging on to bench marks that were set 10 or 20 years ago is also inappropriate. That would potentially help to stimulate investment if people reassessed that and decided that the low interest rates that are currently set are, were easily overcome. I mean that’s many of the arguments which is that we do have very low interest rates and the yield curves suggests that they’re expected to be low for quite some time which means that there should be a lot more productive projects out there.

Any more? Okay. Thank you for chiming in. Thank you very much.

Thank you.