'Volatility of Volatility' Is Major Threat To Financial Markets - Beschloss
(Kitco News) -While markets continue to enjoy an unprecedented period of lowvolatility, the chief executive officer of one global investment managementfirm warns that investors cannot be complacent.
Speaking to Kitco News on the sidelines of the 24th annual InternationalEconomic Forum of the Americas in Montreal, Canada, Afsaneh Beschloss, founderand CEO of Rock Creek, said that the growing threat to financial markets is the“volatility of volatility.”
She explained that the rate of change in volatility has jumped, notingthat on Feb. 5, the CBOE Volatility Index ($VIX) saw its most significantone-day jump in history as the index went from 18.44 points at the open and to 38.80points at the close.
“This type of volatile tells us that there is a lot of uncertainty inthe market,” she said.
Beschloss said that these unexpected spikes in volatility are a risk tofinancial markets because they can be challenging to manage.
“The increasing rate of change in volatility is too fast. It makesplanning for the future very difficult,” she said. “Because of an uncertainfuture, households are not going to spend and businesses are not going toinvest in future growth.”
To protect themselves from the extraordinary bouts volatility, Beschlosssaid that more and more companies are increasing their cash reserves. Insteadof investing in future production, companies are using the extra cash tosupport their share prices, which she added could lead to to unsustainablegrowth.
While moving into cash is one way to protect against this environment ofuncertainty, Beschloss said that investors should also create a portfolio thatlooks at the long term.
While Rock Creek is not heavily invested in the commodity sector,Beschloss said that there is a case to be made to include commodities in abalanced, diversified portfolio.
However, she added that the difficulty comes in finding the rightcommodity.
“Do you invest in gold, platinum, or maybe even cobalt as that is verypopular right now? Copper is also having a fantastic year,” she said. “Unlessyou are an expert in commodities, it can be difficult to find what is going tobe a store of value in the future.”
For investors who want to include commodities in their portfolio,Beschloss has one piece of advice: “only hold what you know about.”
As for gold, Beschloss said that she doesn’t see a lot of value in theprecious metal. Her one experience with the yellow metal dates back to the1980s when she was in an investment training program.
“One day we had a high-net-worth group come in and talk to us. They toldus that they were telling their clients that gold was a great investment,” shesaid.
After the seminar, Beschloss spent about half her monthly salary andbought a gold certificate for $1,000. Today that certificate is worth $1,300 anounce, a 30% increase in 30 years.
“Three-hundred dollars in 30 years is a high amount,” she said.
Beschloss still has that gold certificate, only because she can’t getrid of it.
“I can’t find a way to sell it. Nobody knows anything about thiscertificate from 30 years ago, so I’m just stuck with it,” she said.
Looking ahead, Beschloss said that the one commodity that is currentlyundervalued is fresh water.
“I don’t know in how many years, but fresh water is going to be a lotmore important than oil and gold,” she said.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.