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, June 3, 2010

The good, the bad, the ugly... and uncertainty

Right now I have more questions then answers on direction of the market. Also some readers advised that the messages are just too long to read... well here is a short version.

The good: There are two days already I have not heard any news on "European debt crisis". Is it time to turn the page and move on? Yes, until someone else makes a comment. And my NYMEX gas - the only asset I like right now - has broken through the upper channel line and is testing 200 days moving average. and momentum is not even close to the extremes. The good.




The bad: I remember some equity trader once said that he did not believe in triple tops and bottoms. Dollar index is trying to close above 87 and Euro is trading back under 1.22. Invalidated double top? Ugly set up going into NFP number on Friday. the Bad.





The ugly: Momentum is unwind in metals equities and oil (metals are already making new lows for the year). Given the set up we have in currencies, are we ready to make another move down? Still any directional move in the above markets is a mess unless you stayed short metals from the beginning of the move...

Uncertainty: I am not sure whether broken correlations are the new normal. I still like NYMEX gas - everything else is a mess...

good luck tomorrow and sorry I couldn't make the post shorter then it is.
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