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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Monday, July 5, 2010

Safe heaven positions unwind, but no evidence of full risk on rally

It looks more and more convincing to me that markets will go through a period of safe-heaven position unwind.  I would not argue yet that we will have "risk - on" rally. It will probably look more like choppy advance of risk assets within greater bear trend. And at the moment there is no evidence of recovery in equities and commodities. FX markets look different however... 

Chart 1: EURUSD posted head and shoulders pattern targeting 1.30 at least if neckline support holds




Chart 2: Safe heaven of them all JPY has bounced off long term channel support.


Chart 3: CHF is holding onto 200 days moving average:


Whether commodities and equities are to follow remains to be seen. Downtrend for these assets remains in place while major moving averages hold. We had a nice one way move in these markets, so time to take a breath and consolidate before we move down.
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