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.

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Thursday, May 6, 2010

Trading note for today

Everything is going just wrong... all asset classes that a week ago were the best performers are the worst ones today. Feels like this is the end of the world.

But, there is a way out of this, a temporary solution though. I do not believe things will get better in Greece, Portugal and Spain. I actually think that France, UK and US will have troubles servicing its debts as well. Higher taxes, no economic growth will bring deflation and nobody will be able to hide from it. But my opinions never mattered for the markets.

Over the short term I am willing to give Mr. Trichet a chance to talk us out of this. I even consider the possibility ECB will cut interest rates. Why not? This is the last ace we have in the sleeve to temporary support the economy and hopefully it will buy us some time for this recovery to be sustainable. Most of the currencies and commodities are overstretched so there are some nice entry points with tight stop losses out there. I like buying commodity currencies and oil as technical picture there is not so bad as it is for base metals. Have a good trading day!
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