The Greek government has won enough backing for a debt swap deal that will enable the country to avoid bankruptcy and stay in the euro.
Officials in Athens say 95% of bondholders have reportedly agreed to the plan to reduce the country's debt by more than 100bn euros (£85bn).
That is well above the minimum 75% threshold required.
A formal announcement will be posted on the Greek Finance Ministry website later.
Greece needs to secure an agreement on its debts before it can get a second bailout from the eurozone.
Athens had said it wanted 90% of banks and others to agree to a 53.5% cut in the 206bn euros (£172bn) of Greek bonds they hold.
German reinsurance group Munich Re, French banks Societe Generale and BNP Paribas, and some pension funds, are among those who have reportedly agreed to sign up.
Some small pension funds had apparently refused to back the swap, while others said they would wait to see what hedge funds decided.
The European Union (EU) and International Monetary Fund (IMF) have said without a debt swap Greece will not get its latest bailout of 130bn euros.
The head of the Institute of International Finance (IIF), the body which has been leading the debt talks for large private creditors, said on Thursday he was expecting a "very high" take-up.
Speaking from Rio de Janeiro, Charles Dallara, IIF managing director, said: "The investors must know that there is no other alternative to this process, there is no more money to save Greece.
"It's a positive deal that will allow Greece to move into the next phase of rebuilding its economy."
Had the deal had not been agreed, Greece would not have the money to meet a big bond repayment due on March 20.
The IIF says this would have cost the European economy up to a trillion euros.
The hope now is that by slashing its overall debts, Greece, which is in its fifth year of recession, can gradually return to growth.
Figures released on Thursday showed the number of people out of work in the country shot up to a record 21% in December.
Youth unemployment has also exceeded 50% for the first time, with 51.1% of Greeks aged between 15 and 24 now out of work.
The next bailout will be on top of the 109bn euros (£91m) loaned to Athens by the EU and IMF in 2010.
" The World's population will grow from 7 billion to 8.3 billion people over the next decade. Meanwhile, arable land across the world will shrink and living standards will continue to rise, with the OECD projecting 3 billion new middle class consumers over the next 20 years. Many of these people will change their diets in favour of more animal protein. Livestock is quite inefficient in terms of converting grain to energy, so the pressure on farmers to deliver more produce will be immense.
We conclude that agriculture should be represented in every long-term portfolio, but farm land has already risen a lot in value. Are there other and better ways to be exposed to agriculture? These and other questions are addressed in this month's Absolute Return Letter. "
We conclude that agriculture should be represented in every long-term portfolio, but farm land has already risen a lot in value. Are there other and better ways to be exposed to agriculture? These and other questions are addressed in this month's Absolute Return Letter. "
10 lessons for Investing:
1 of 1 File(s)
-1. Believe in History: History repeats and ignore it at your peril – "all bubbles break and all investment frenzies pass away". The market is inefficient, tends to move far away from fair value but eventually gets back to fair value – and the aim for investors is to survive until that happens.
-2.Neither a lender or borrower be: Investing with borrowed money tests a critical asset of the investor-patience,as leveraged portfolios can get stopped out, and it encourages financial aggressiveness, recklessness and greed.
3. Don't put all your treasure in one boat: A well diversified portfolio will give a portfolio resilience and the ability to withstand shocks thereby increasing the ability to ride out adverse market movements on big bets.
4. Be patient and focus on the long term: Wait for the "right pitch" when making investments and have the ability to withstand the pain when a good investment made becomes even cheaper. Individual stocks usually recover and broader markets always do – so by following the previous rules one can outlast the bad news.
5. Recognize your advantage over the professionals: Professional managers are subject to the dual curses of career risk (by bucking the trend) and a tendency to over-manage (to justify their job). Individual investors can be patient and not care about what others are doing.
6. Try to contain natural optimism: While optimism has probably been necessary for survival over the ages and successful people are generally optimistic – its downside for investing is the tendency to ignore the bad news.
7. But on rare occasions, try hard to be brave: Individual investors can be more aggressive than professionals when extreme situations present themselves, by being able to withstand temporary adverse market moves. When the numbers indicate a very cheap market go for it.
8. Resist the crowd: cherish the numbers only: This is the hardest advice to take as the enthusiasm of the crowd is hard to resist. Focus on the numbers and ignore all else and keep it simple – professionals will, on average, lose money trying to decipher the complexities.
9. In the end its quite simple. Really: GMO has had a successful track record on forecasting asset class returns over a 7-year period , one every quarter since 1994 by ignoring the crowd, working out simple ratios and being patient.
10. "This above all: to thine own self be true": It is imperative that you know your limitations and your strengths and weaknesses – if you cannot resist temptation (of following the crowd) you must not manage your money – "there are no Investors Anonymous meetings". In which case, either hire a manager who has the skills (which can be hard to do) or put your money in well diversified global portfolio of stock and bond indices.
If you have patience, a decent pain threshold, an ability to be contrarian, basic mathematical skills and some common sense you can beat most professional managers.
Investment Outlook
-The majority of global equity markets are close to fair value – with only the S&P 500 being materially overpriced to deliver an expected real return of 1% over the next 7 years. The rest of the world's equities are slightly cheap to deliver an expected real return of 7% over the next 7 years. Developed country debt markets (ex the European PIGS) are very overpriced and investors in longer term bonds can be "murdered by inflation".
-The big risk factor out there is inflation – and equities are a dependable hedge against inflation over a several-year time horizon as the underlying companies have real assets. In the short-term rising inflation can hurt stocks badly, as it raises uncertainty levels, but earnings catch-up fairly quickly and stocks normalise.
-Resources in the ground like oil , copper, forestry and farmland almost always provide a good hedge against inflation, and gold may as well.
-Resources continue to be all great long-term investments, but possibly dangerous in the short-term as commodities have attracted momentum players and speculators. The advisable strategy is to average-in rather than trying to predict its short-term moves.
-The European debt problem has no asset bubble at its centre (unlike the US housing bubble) but arises from a flaw in the original construct of the euro currency and has worsened due to the incompetence and delay on part of their political leaders.
-This makes the European problem almost impossible to analyse within an asset bubble framework , and the default assumption is to assume that it will muddle through okay.
Summary of recommendations:
-Heavily underweight non-quality US equities and maintain overweight in quality equities.
-Slightly overweight global equities as potential negatives are already priced in.
-Longer maturity developed market bonds (especially sovereign) are dangerously over-priced, as engineered by the Fed.
-Resources in the ground, forestry and agricultural land are attractive and should be averaged-in.
"Value is a very mild but very determined influence, it gets you there in the end but an break you and your clients' hearts along the way".
Grantham's quarterlies are usually replete with brilliant insights and helpful investment tips- but his 10 lessons on investment are the best I have come across in the context of an investor (rather than a trader). His point about the main advantage of an individual investor (over a professional money manager) being that of patience and the ability to be contrarian is so true but also something which is too often squandered by panic driven buying (or selling) and following the herd. Following one's investment methodology (i.e. diversity, no leverage) in a disciplined manner, going against the crowd (with a calculator in hand!), and being patient is very likely to pay dividends over the long run – remember "stocks usually recover, and markets always do" and the key is to survive until that happens! Good luck!
Eurozone members have delayed the approval of more than half of the €130bn loan for Greece, raising fears the troubled economy will officially default.
At a Brussels-based meeting yesterday eurozone finance ministers signed off funding for a €206bn restructuring of privately held Greek debt, but said they would need further reassurance from Athens before handing over the remaining €71bn in bail-out funds, the Financial Times has reported.
News of the delay has crushed hopes that the full bail-out would be completed next week and that a Greek default on a €14.5bn bond due on March 20 would be avoided.
According to reports, the decision to split the bail-out into two parts comes amid concerns from member states that Athens is not doing enough to implement austerity cuts and reforms.
Finance ministers raised several concerns over the way Greece is tackling austerity cuts, including a €300m gap that re-emerged when the Greek government changed the way unemployment benefits were paid.
As part of the signed off deal, €35.5bn will be allocated to private bondholders as part of the complex debt swap arrangement.
Another €23bn was approved to recapitalise Greek banks, which will see their reserves cut back when their Greek bonds are cut in value as part of the swap. In addition, another €35bn was approved to ensure Greek banks can access liquidity from the European Central Bank.
Yesterday a ruling by the International Swaps and Derivatives Association said the debt deal would not trigger so-called "credit default swaps" – insurance-like policies that must be paid out in the event of a default.
The ruling eased concerns that a CDS payout could reignite financial contagion because financial markets do not know which institutions would be hit by losses.
Eurozone members will meet again on March 9 to give a final sign-off on the deal.
Greece has already been downgraded to a selective default rating by S&P's.
The three reasons people buy insurance is:
a) To save tax.
b) As an investment, to make a good return on their money.
c) To feel good that one has some insurance or to get rid of that pesky uncle who keeps mentioning it.
The fourth — and perhaps most important — reason to buy insurance is to let your family be financially secure if you die. This is the only reason anything should be insured. Car insurance gives you money if your car has an accident, and covers costs for people you might injure. Home Fire insurance covers the damages in case there's a fire. You pay every year, and you're happy to not have to claim (because it means you've not had an accident or a fire!); and at the end, you don't get your money back.
Not so with Life insurance. The most policies bought are for the purpose of saving or investing, not for insurance. And that, further, is because Life Insurance is hardly ever bought, it's sold. The sellers get a fatter commission when they sell you a "saving" product, so you don't ever get to see the real insurance. "Pure Term" insurance is the only real deal: where your family gets paid if you die, and your premium is lost when you don't). Anything else, usually called ULIPs, Money-back, Endowment or Savings policies, involve a small amount of insurance and a higher degree of saving.
Even if it sounds like killing two birds with one cheque, you shouldn't mix investment and insurance — because you don't get enough of either. Take a 35 year old with a monthly salary of Rs. 50,000 and expenses of, say, Rs. 30,000. The minimum insurance expected would be about Rs. 1 crore; the idea is that you need your family to live another 40 years off the money, at a current return of around 8% risk-free and expenses rising at an inflation of 6%.
The cost of a "term" policy of Rs. 1 crore could be between Rs. 15,000 and Rs. 30,000 per year — or Rs. 1,500 to Rs. 2,500 per month, easily affordable. But agents find such policies unlikely to give them enough commissions, and they know that if they try, they can get the customer to pay Rs. 10,000 per month. A "ULIP" or an endowment plan with Rs. 10,000 per month as premium might give the buyer just Rs. 10-15 lakhs as insurance cover (typically 10x to 15x annual premium); a vastly inadequate sum compared to the 1 crore the person needs! But the seller persists and gets his way, largely because the customer has no idea how to work the metrics, and gets a feeling of happiness that there is some insurance and investment, when there really isn't.
In the longer term, I expect the tax-benefits of insurance to go away. There are two areas to this — first, insurance proceeds of any sort are tax free, even where the insurance cover is next to nothing and the product was primarily a product to save money. The second is a tax deduction on the amount invested every year, subject to an upper overall limit. Both are under threat in the longer term, as the government tries to find other means of raising revenue to meet increasing deficits. Additionally, it's untenable that long term savings of one nature — insurance or PF — are non-taxable, but buying long dated government bonds or (non-equity) mutual funds makes you pay tax on the gains. Lastly, if the government introduces a tax for inheritance (a proposal under discussion) then life insurance with a large one-time payment becomes an easy way to avoid such a tax; it is quite likely that the government will then plug the loophole by making "insurance as an investment" liable to tax.
In a decade, we are likely to see the tax-free exit status of many schemes vanish or dwindle, or at least force you to invest in low-yielding-annuities if you want to retain a tax advantage. Put another way: To assume that if I buy, I will not be charged a tax on exit even after 20 years is fraught with risk.
The last problem is that of complexity. Insurance products are incredibly complex, despite their heavy regulation. Financial products are typically of two types —high-risk, where the returns cannot be predicted in any reasonable manner, and low-risk, where the return is either guaranteed or specified (the risk is in whether the seller will go bust). Equity is a high-risk proposition, while fixed deposit and other debt options are the second. Insurance products provide a mix-and-match, with some products giving a vague guarantee with an additional potential upside (like 50% minimum guaranteed return or highest NAV in 10 years). Then they give you weird terms — you pay for five years, you can exit only after 10 years, the guarantee applies on the first seven years' NAV, and so on. And then, if you die, the insurance might pay out the guaranteed amount, the "sum assured", the amount that your investment has grown, or the lowest of all three. By the time you understand the terms and are able to calculate your real return, you might find it ridiculously low (if your brain hasn't turned to jelly). A case in point: the real return on that "50% in 10 years guaranteed" cases is just short of 5% per year, which is unacceptably low, even if you consider your taxes saved.
Most people give up before they reach the "real return" calculation — which is why insurers can easily stuff charges into such policies, knowing that if someone is silly enough to invest with a 5% real return, he won't even know that they can take a significant chunk of money as commissions. While we have seen charges that added up to 50% to 60% of the first few years of premium, even the lower 10% charges we see today are massive compared to the 1% to 3% that are charged by, say, mutual funds.
With the problem being that such products are sold — and sold hard — to customers, what we see in the Life insurance industry is more of industry and less of insurance. And as it increasingly sucks the blood out of unwary buyers, less of Life as well.
The government wanted to sell 12,000 cr. worth shares of ONGC (42.77 cr. shares at a floor price of Rs. 290) today, and the auction – a special scheme that SEBI allows for promoter entities to offload shares in a market parallel to the stock market – seems to have been rescued by the public insurer, LIC.
Only about 9 cr shares were sold until the end of the auction, which means just 4,000 crores were collected. The rest (nearly 4,000 cr.) was pushed through by LIC just before 5 mins of the end of auction.
ONGC shares ended at Rs. 287 for the day, lower than the floor price of Rs. 290. The auction by itself has been a flop – the LIC rescue is what the government does when things don't go its way; after all, who's to question the public insurer what it will do with its money?
Earlier, State Bank of India (SBI) said it will bid for shares, which doesn't make any sense – SBI has huge problems with capital, with a really low capital adequacy ratio; any money it has will have to be used to shore up its capital base. It really has no business buying equity – if it loses, say, 100 cr. when the price of ONGC falls, that further hurts its capital ratios!
This stake sale comes a few days after a huge number of bids flooded Citibank's stake sale for nearly 10% of HDFC. Perhaps the government thought they'd pull through, but there was one big difference: the price. Citi sold HDFC stake at the 660 levels when it had ended the previous day at 700+. ONGC's floor price was ABOVE market price – very strange for a large stake sale. (That said, HDFC's P/E is like 25 versus ONGC's 10)
But the main issue is: Oil under-recoveries by the likes of HPCL, BPCL and IOC are over 125,000 cr. for this year. Some of this is usually thulped on ONGC; we don't know how much, and it's decided at the whims and fancies of the government. Sure, ONGC is quoting at only 10x the profit of FY12, but if these profits can be eroded by a simple random statement that assigns ONGC the bulk of the refiners' losses, then the uncertainty in earnings makes the share a shaky buy.
The government of course does not want clarity because they need to stuff as much loss to ONGC as possible. They simply cannot subsidize the losses on their own balance sheet, where the fiscal deficit is already at 5.5% of GDP or more. So the profitable public sector oil entities (read; Oil India and ONGC) will have to take big hits through "upstream sharing". If they do reveal how much, no one will buy the ONGC shares. And I suppose because they didn't, not many were interested either. The LIC deal may have saved the day: we'll know soon when the mandatory disclosures come in (LIC already owns 5% of ONGC, they have to disclose further purchases). LIC supposedly rescued the NTPC IPO earlier!
Subsequent auctions are going to be tough. The government needs to relook pricing. It sold NHPC at Rs. 36 – a ridiculously overpriced share – and it sits at Rs. 21 today after more than a year. Too many public sector stake sales are at unreasonable prices, and LIC can't rescue them every single time.
U.S. Secretary of State Hillary Clinton has threatened Pakistan with sanctions if the country continues with plans to build a natural gas pipeline to Iran.
The U.S. is moving to squeeze Iran financially in a bid to force it to drop its nuclear program. But Pakistan has been unwilling to line up behind the U.S., saying it needs Iran, a neighbor, to help it meet a massive energy shortage.
Mrs. Clinton told a U.S. House of Representatives subcommittee Wednesday that sanctions could be triggered if Islamabad presses ahead. As Pakistan's economy already is in dire straits, the sanctions could be "particularly damaging" and "further undermine their economic status," Mrs. Clinton said.
Pakistan's top bureaucrat in the Petroleum and Natural Resources Ministry, Muhammad Ejaz Chaudhry, said the pipeline was crucial for Pakistan's energy security – the longstanding Pakistan position. But he added that Pakistan was "committed not to create any problems." A spokesman for the Foreign Ministry was not immediately available to comment.
The pressure on Pakistan comes as the U.S. is calling on India, China and Turkey to reduce their imports of Iranian crude oil. Mrs. Clinton said earlier this week the U.S. was having "very intense and very blunt" conversations with the three countries on the issue.
The U.S. also has been disrupting financial networks that Tehran relies on to get foreign currency for its oil sales.
The pressure appears to be having some success. The European Union agreed in January to ban Iranian oil imports from July 1. India has stood firm in public, saying it needs Iranian oil. But Indian news reports say the country has quietly been seeking increased oil supplies from Saudi Arabia and Iraq in a bid to wean itself off Iranian supply.
The threat to Pakistan comes amid very poor relations between Islamabad and Washington. The two nations are ostensibly allies in the war against the Taliban. But the U.S. blames Pakistan for continuing to support some elements of the Taliban, a charge Pakistan denies. Military and civilian officials in Pakistan were vexed by the U.S. decision in 2005 to enhance civilian nuclear cooperation with India, while denying a similar deal to them.
Pakistan is building civilian nuclear reactors with China's help but says it needs to do more to ensure its energy security.
Work on the Pakistan-Iran pipeline, which is to link Iran's South Pars gas field with Pakistan's Baluchistan and Sindh provinces, has not yet begun. An earlier plan to extend the pipeline through to India, at a total cost of $7 billion, was dropped after New Delhi pulled out under pressure from the U.S.
The current project is valued at $1.5 billion and is scheduled for completion by 2014, Mr. Chaudhry said. Once operations begin, Iran has committed to supply 750 million cubic feet of gas per day for 25 years.
Pakistan relies on gas for half its energy needs but domestic supplies are declining, forcing the country to rely on imports. The gas shortages have contributed to an energy shortfall which means most parts of the country suffer lengthy blackouts on a daily basis.
