I am a part of the team which is responsible for management and hedging of commodities exposures. Some say corporates are good only in following advice from banks or brokerages. I do agree corporates do not have market insight of a bank. But here is a problem. It is not bank or broker or a hedge fund that has biggest risk that markets will go against them. These guys always have an option to do nothing and wait for a better trading opportunity where as we don't. We have to continue to purchase commodities, spend currencies for daily business. Such company is always exposed to changes to market price even if it decides not to hedge. In fact my company has probably one of the biggest short commodities portfolio in the world. Managing such risk effectively is a challenge. It is like being between a rock and a hard place. You get your behind kicked all the time be senior management, whether it was a missed opportunity to hedge or hedge that turned to be out of the money. Critics will say if you lost money on your hedge then you probably bought it cheaper on physical market. let's face it, nobody wants to loose money, full-stop.

So I do not have an option to do nothing as I am always in the position (short in this case). I think people like me have higher motivation to earn positive return on their portfolio then other players. In fact my intention is to bring hedging to a performance benchmark of proprietary trading.

Search This Blog

Monday, May 31, 2010

Markets, Elliot, K-wave and some scary stuff

Ever since I started writing this blog roughly a month ago , I couldn't get rid of the feeling that we needed something very big then rebounding economy to propel equities markets higher. Well, yesterday my pessimism could have been described as "one step from panic". I feel better now thank you. Here is what happened...

I am a fan of socionomics and Elliott theory in particular. I normally let other people do proper Elliot wave analysis and here is what I found. Looks like in 2007 we have finished Grand Cycle Wave III and entered Wave IV which is a correction of big run up in equities that started in 1933. Downside target for Dow Jones index is rougly around 1000 (yes, somewhere above one thousand). Scary, right? Ok, I agree Grand Cycle waves last for years and can have big swings within, but this confirms that recent rally is no more then bear market rally.

B****it you say! Well, here is another one called Kondratiev wave or K-wave. Read Wikipedia carefully - this theory has very good economic predictability. And, guess what is says... Contemporary era that started in 1971 should peak around 2010's... Implications? we need a technological breakthrough to propel this market post 2007 highs or we need a catalyst to bring asset values down so they become attractive from very long term perspective. Well, I don't see any significant technological breakthroughs coming in any time soon. To my mind, in 10 years it will be either new energy source or nanotechnology that will mark a start of new era. But right now I see some risks to further assets depreciation until they again become attractive for long term... Which risks exactly? I don't know, but watch what is going on in the markets.

Now the following is very scary and while I am sceptical about reliability of this information, it fits well into the picture. Web Bot Project was created in 1997 to examine collective unconscious of internet and predict the future. Remember my idea on measuring the sentiment on CNBC website or Blogger Sentiment Poll? Same staff but more sophisticated and less understandable. Anyway apparently this WebBot was able to predict some catastrophic event few months in advance. And the next catastrophe will possible be World War III. Not so unlikely given rising tensions in Middle East and Asia. And, if you ask, I do not believe into end of the world in 2012. Why? Simply because, while you can be in fact prepared to weather the war, there's not much you can do about the end of the world. And, like one friend of mine said recently: "Definitely the end of the world will come in a way you would never imagined". So why bother? ;-)

One more thing, is it just my feeling or there's nothing good happening on the global scale? When I read the news, watch the TV or surf internet, there's just bad news. Drop me a link to a good staff please if you find any... have a good week.
Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)