Weighty Matters

Self- flagellation is something I indulge heavily in and though I have a great many grouses, one that unfailingly perseveres to break my heart and shatter it into a million pieces, is my weight.

Yeah suuure, I’ve heard all the lines –”it’s the inner beauty that counts” and “you are beautiful as long as you feel beautiful” and all that crap.  Whoever said that, I’d like to see.

But really, it should be the other way round. You feel beautiful when you look beautiful!

I think my weight is the bane of my existence. I am a first born and my mother’s relatives all told her to eat as much as she could so that the baby would be “healthy”. Oh, how I hate that word with a vehemence that even baffles me sometimes! Anyway, the doctor proclaimed the baby to be “very” healthy and such was she to remain always K My mother probably learnt her lesson the first time because a year and a half later, my brother was born and weighed less than a turkey towel, is what they all said.

Getting back to why my weight bothers me so much, I have a whole list that could and probably will fill a book.

 Well,I hate having to go to a shop and look for  the larger size. I hate not able to buy clothes because they don’t fit me well. I hate having to put down a gorgeous dress because it makes me look huge in all the wrong places. I hate….well, I hate a lot of things about being fat but let’s devote an entire entry to that later,shall we?

I mean, I bet if I became heavily pregnant now, nobody would even be able to tell the difference K

On an extremely dysfunctional level,I tend to associate weight with self-confidence. People who are thin and have spidery long legs, can saunter into a room and own it. They don’t need to worry about tucking away any excessive flab while walking around and even if they threw their weight around, nobody would notice( obviously because they’re so thin.Still.).

But I’m not that far gone that I’d actually get a doctor cut some of my “flabby fat” away( what, do I look like pork to you-cut and chopped into perfect pieces?)

But the silver lining, if any, to being fat is the insane number of “ Yo Mamma” fat jokes you can crack without looking like a skinny weirdo that’s had too much to drink!

My favourite ones are- “ Yo Mamma so fat she jumped in the air and got stuck”’

                                     “Yo Mamma so fat she’s on BOTH sides of the family”

                                     “Yo Mamma so fat she fell in love and broke it”..etc

Point is, they are hilarious and actually help you laugh at yourself.

I have these bouts of introspection and on one such day, I realized how shallow my perspective was and how being “chubby” didn’t have to mean being ‘ugly’ and you didn’t have to be self-conscious and constantly keep wondering what people are saying about your weight.

Just being comfortable in your own skin will automatically translate into an increase in your self –confidence and it’s only when you love yourself that others will love you.

Because, “it’s the inner beauty that counts and you are beautiful as long as you feel beautiful and all that crap”.

Oh, who am I kidding?!

Shruthi Lr

The Value of Human Capital

Raghu Mandagolathur, President of CFA Kuwait together with Robert R. Johnson, senior managing director, and Stephen M. Horan, head of professional education content, at CFA Institute review the value of Human capital in the Middle East market.
Diversification is one of the most basic principles of investing. Our common understanding of it, however, typically overlooks an investors' largest asset – the value derived from one's profession, commonly known as "human capital".
Economists define human capital as the actuarial present value of our earnings or wages over a lifetime. For most individual investors, human capital dwarfs financial capital. In the United States, for example, it represents 90% of total assets (including home equity and private businesses) for investors under 30 years of age (see Figure 1). As an investor’s career progresses, human capital transforms into financial capital through savings. Even for investors in their 50s, human capital still oftentimes represents at least half of total wealth.

Figure 1: Magnitude of Human Capital

Source: Kyrychenko, Vladyslav, 2008, “Optimal Asset Allocation in the Presence of Nonfinancial Assets”. Financial Services Review, vol. 17, no.1 (Spring): 69-86.

Because the importance of human capital increases with schooling, per capita GDP, and life spans, countries with high human development in these areas have relatively large reserves of human capital. In the Middle East, for example, countries like the United Arab Emirates, Qatar, Bahrain, and Kuwait have a higher population-weighted average human development index than Europe, according to the United Nation’s 2010 Human Development Report. They rank particularly high in educational development (e.g., adult literacy, years of schooling), which has expanded more quickly in the Middle East than in Europe.
Human capital is fundamentally different from financial capital. For one thing, it is not easily converted to cash. One cannot immediately sell these cash flows in the marketplace. They must be realized over time. Second, earnings derived from one’s employment prospects or entrepreneurial endeavors are often tied to the fortunes of a particular sector or industry, which creates a concentrated comprehensive portfolio that is not always easily diversified.
The Nature of Human Capital
Estimating the magnitude of an individual’s human capital requires identifying the cash flows derived from one’s profession and estimating a growth rate. It also requires one to determine whether the volatility of those cash flows is more bond-like or more stock-like. For a tenured university professor, human capital is more bond-like. For an investment banker, it is more like a volatile stock.
To understand its influence on portfolio management, we also need to understand how our human capital is correlated with the overall market. The investment banker’s human capital, for example, is likely to be impaired at exactly the same time that market values of other assets decline. A high correlation with the overall market provides little diversification risk-reducing benefit for the larger comprehensive portfolio.
An industry-specific or firm-specific skills set is also riskier than a transferrable one. An investment banker, for example, may have more difficulty replacing his income stream in an industry downturn than a human-resources professional who can transcend industry or sector boundaries.
Finally, the ease or flexibility with which one can leave and re-enter the work force is important. Human capital is relatively less valuable if external factors, such as political instability, health concerns, market performance, or employer whims determine retirement timing.

Implications for Portfolio Management
Perhaps the most obvious and profound portfolio management insight is that a portfolio that appears diversified in relation to one’s financial assets may be highly concentrated in the context of one’s life balance sheet, which incorporates human capital. Suppose, for example, the income and employment prospects of the young executive are derived from petrochemical manufacturing in Saudi Arabia. The value of that net employment capital depends heavily on the state of the price of petroleum products. A traditionally diversified or indexed “market” portfolio that includes additional exposure to oil-sensitive stocks exacerbates this already-concentrated position.

Figure 2: Hypothetical Example of a Young Executive’s Life Balance Sheet

Executives of Saudi Arabian petrochemical manufacturers might ameliorate this situation by excluding petroleum–sensitive assets from their portfolios or over-weight assets that are uncorrelated or negatively correlated with petroleum prices. Investors who are particularly concerned about their human capital risks might even use sector or industry ETFs to hedge their human capital. By shorting an ETF that tracks returns to companies in the industry in which they work or investing in an inverse ETF that tracks the same industry, investors can hedge some or all of their human capital exposure.

Conclusion
By their very nature, Middle Eastern corporate executives have concentrated positions in the companies they manage. By recognizing that a large part of their “portfolio” is human capital, they can identify, diversify, and even hedge some of these risks. Analyzing this broader portfolio is likely to suggest that a domestically or even an internationally indexed portfolio will not provide maximum diversification benefits. Rather, a diversified portfolio is unique to each individual.

Click here to read the article as published in Arab Times

Gold prices set to hit $2,500/oz as buying season kicks in

Beginning with Eid, gold buying to heat up with Indian wedding season, Diwali, Christmas and Chinese New Year

The price of gold, the ‘safe haven’ commodity, is expected to continue its new rally in the forthcoming months as the gold buying season kicked in on Tuesday with the first day of Eid – a traditionally strong period of gold sale in the Middle East.
Closing at $1,791 per ounce on Monday, the first day of Eid saw gold price jumping more than 2 per cent, or $38, to $1,827on Tuesday, followed by another rise on Wdnesday, and was trading at $1,837/oz at 12 noon UAE time. Spot gold held steady on Thursday with little change at $1,824.39 an ounce.

This rise is despite a massive increase in margin requirements to trade gold announced last week by the CME Group Inc., the parent company of the main metals and energy exchanges in the US. It raised the amount of money needed to trade gold contracts by 27 per cent to $9,450 per100-ounce contract.

Experts believe that this latest rally will defy the hike in margin requirements and propel gold prices beyond the$2,000-mark in the coming months. In fact, some experts are calling for double of that level.

According to Steen Jakobsen, Chief Economist from Saxo Bank, gold still has a long run ahead. “Looking at how precious metals will react to a new QE (quantitative easing), the answer is simple. I think we will see $3,000 if not $4,000 for gold, and other metals should follow suit.”

Gold’s latest upward journey has already begun with Eid, and gold buffs maintain that it will continue until the Chinese New Year with significant gold buying happening during Diwali, Christmas, and the Indian wedding season.

However, downward risks remain, say experts. “As with the dollar, if this is the ‘end game’ then the spike will be followed by risk-aversion which could overall curtail the highs. At all times, one has to realise this is close to the end of the trend, and for every $100gold rises, the risk increases disproportionately as there is more and more speculative hangover involved,” added Jakobsen.

M.R. Raghu, Senior Vice-President-Research at Kuwait Financial Centre (Markaz), believes that some moderation is likely. “Gold has performed 33 per cent for the year out of which 13 per cent was post the US downgrade (August 5). Obviously, the run up is too fast and hence some moderation is bound to happen at this level,” he told Emirates 24/7.

“For investors that entered the party early on, it may be a good idea to cash out partly at these levels. From here, the price may correct, say 5 to 10 per cent, before resuming another go. Hence, I would not advise investors a total exit from gold since the macro picture is negative, which is kind of positive for gold at least for some time to come. It may find it difficult to hit $2,000 [per ounce], but once it does, you can see more buying coming in,” he said.

Advocates of gold affirm that gold remains the world’s go-to currency. Commodities analysts at Standard Bank said recently that after touching record levels, gold came off its highs a few days back, as risk aversion subsided. “Equities across the globe rebounded as investors shrugged off the pessimism of the past few days and moved into riskier assets, amid growing concern that the bullion rally was overdone and hopes of further Fed monetary stimulus. However, this was short-lived, as risk aversion was soon apparent, as Asian markets opened. Moody’s downgrade of Japan’s sovereign credit rating reignited concerns over the developed world’s fiscal problems, sending Asian equities into the red, to the benefit of safe-haven precious metals,” said a recent report released by the bank.

“[A] drop in prices has attracted an element of bargain hunting, which should provide support across the precious metals complex in today’s trade. However, with European stocks currently trading up it appears as if risk appetite is not completely absent, which could limit the upside for precious metals,” it added.
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