Gold Emerges As Safer Option In Highly Volatile Trading Environment; Gold Options Also A Play On High VIX
January 11, 2012 - The Wall Street Transcript has just published SRI Investing and Other Investing Strategies Report offering a timely review of the General Investing sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Charles K. Ortel serves as Managing Partner of Newport Value Partners, L.L.C. Newport, established in 2007, provides value-added research to executives and to investment firms. From 1994 to 2002, Mr. Ortel was President of The Chart Group, L.P., a private investment and advisory firm, which he founded with another partner. While at Chart, Mr. Ortel helped create and manage an Irish corporate buyout fund, a small-cap U.S. buyout fund, a French petroleum development company, a U.S. natural gas distribution company and an offshore fund of hedge funds. He served as Chairman, President and Director of numerous Chart-sponsored companies and as an outside Director of Tedcastle Holdings Ltd. and Ariel Corporation. From 1991 to 1994, Mr. Ortel was Senior Managing Director and Member of the management committee at The Bridgeford Group, Inc. From 1980 to 1991, Mr. Ortel worked for Dillon, Read & Co. Inc. Trained in corporate finance, Mr. Ortel eventually served in a senior capacity within Dillon Read's corporate buyout department before leading Dillon Read's worldwide merger and acquisition group as a Managing Director. Mr. Ortel graduated from Harvard Business School with an MBA, and from Yale University with a B.A., cum laude.
TWST: So what should investors do now given the current atmosphere?
Mr. Ortel: The first question is establishing whether you really are an investor. Some people call themselves investors, but they're really not investors. If you are somebody who is managing a lot of money for not your personal needs or even your family's personal needs but for the next generation, I think the first question you have got to ask yourself is: How much of your wealth should be in fiat currencies? Because my answer to that question is not much at all. That's the first question.
The next question is if you are going to invest, how much should be in bonds, how much should be in stocks, how much should be in other items. Starting with bonds, the risk-free rate for fiat currency debt in advanced economies has been suppressed. People talk about what a tragedy it is that the Italian recent auction 10-year was around 7%. But they fail to go back into time and notice that in the United States, I believe the 10-year maturity data goes back to, I think, 1965, and if you go from 1965 to 1999, I believe the average rate of American 10-year debt during that period was 7%. If you believe that interest rates are going to have to go back up, you don't really want to own any debt, any fiat currency first world or what we call gray-zone country debt. You, obviously, believe if interest rates are going up, that's going to have a depressing impact on many stocks.
So in actual fact, if you are just going to be a traditional two-dimensional investor, you are brought to a short bias, and you begin to ask yourself where are the most compelling shorts. There is going to be a lot of value destruction. The short side seems to have been much more fertile ground especially in the United States, Europe and Japan.
If you're going to be a three-dimensional investor, it strikes me that a very safe place to play is volatility. If you go back and you do any kind of table together that looks at the level of risk-free interest rates and then the price action of major indices and also the change in the VIX, the volatility indices, 2011 stands out as a very interesting year. Interest rates all along the year have been low. Volatility has been gargantuan and you can make and move a lot of money trading options on the VIX. That's going to be a lot more robust area, different types of the VIX, S&P and there is gold VIX and there are all kinds of different volatility. It's going to be both good and bad news for people depending on how they trade it, whether they can trade it, whether they can stand top of that on a 24/7 basis, and you're going to have to.
I am an advocate of buying gold. The reality is gold is a referendum among fiat currencies, and temporarily, gold is a good buying opportunity now, and I would be asking myself how much of my portfolio do I want to have in gold. I recommend in the most recent research report, a third. Physical gold, and by that I mean physical gold like bars, ideally, that you keep in a warehouse not a bank.
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