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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Wednesday, August 11, 2010

Going to "Kububrum"

Going to "Kububrum". This is the new word in the English dictionary that probably describes best my feeling about today's markets. Feel free to ask me for proper pronunciation. Anyway...

There is no such thing as "market went to far to fast" or "market is cheap or expensive". There is only direction or no direction... have a look at currencies today. EURUSD lost 300 pips... something we have seen only in time of crisis or when we had a big surprise... I doubt yesterday's FOMC statement was a surprise, we all knew Chinese economy was slowing, but not falling off the cliff. So where did surprise come from? I don't have an answer to this question. Read my posts instead. Market can bite you hard if you are unprepared...

Where to from here? While Asia still has to absorb European and US mood, which is clearly turning grim, I will take evening off and will not make any suggestions as it feel like this week's move is done.
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