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, August 9, 2010

Don't you worry, FED is there to save us again! Or not?

Have I missed much last Friday by taking a day off? Well, not really, but at least I spent a day out of the markets out in the air... Fresh look at the markets and looks like we have new dogma: "Fed is going to save us again!" Tomorrow is the FOMC decision and looks like this idea is on the mind of people. At least it is keeping the market supported ahead of it. That's good news. The bad news is...


Must be frustrating for US officials to acknowledge their economy is doing worse then Europe. Especially when Europe is undergoing budget cuts that could eventually limit growth. In the US this looks like happening even without forced budget cuts. Well, some states have understood that the cannot borrow more and decided to cut on employees expenses as it can be seen from the latest NFP report.

Where do we go from here... I doubt FED has enough bullets  to meet expectations of the market. Downgrading economic outlook is damaging by itself. Acknowledgement of this has to be followed by certain promises, but as I said it would be difficult for me to imagine something that markets does not know already. And not meeting expectations might just the last shoe to drop...

I think we might be even better of if FED does not say anything about worsening economic outlook. We'll see tomorrow.

Meanwhile on some ideas I follow:

- NYMEX gas has broken through long term support channel discussed last week so I don't see any good  upside potential from here for the time beeing.
- Oil looks to be a good sell as it was the most vulnerable following NFP release last week. CFTC report showed increase in the long positions - surely it might be a disappointment for oil bulls.
- S&P remains vulnerable under 1130-1135. see last week graphs for more
- It looks like calling a top in EURUSD proved to be a difficult exercise, but its fall today following some very good European data might be just it. Tomorrows US data and German GDP numbers will give more clarity on the direction.

No graphs today as I am out of time.
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1 comment:

  1. Sergiy PavlyukAugust 10, 2010 at 3:02 PM

    Now consider this, going into today's FOMC decision, the worse data we are to get the more market will be convinced that FED is to do something... Intra day bounce?

    ReplyDelete

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