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 23, 2010

Time to get contrarian

going back to my question whether the glass is half full or half empty... well, we're slowing down, but its not dramatic (except for housing in the US of course). It just does not feel right now as the end of the world as I imagined it... I do believe we will see negative growth due to either
a) sovereign problems or one of other pillars of financial system is to collapse or
b) consumers retreat and we will see deflation as the result


but I don't see it yet in the system... even deflationary fears I spoke about earlier retreated to give space to food inflation.

So I think we will see another swing up in the markets, however I don't feel there is anything worth trading now. The picture neither looks complete for a move up nor for a significant move down. This statement however is a step away from technical picture I see in the markets which is calling for more losses in equities, oil and gas, consolidation in base metals and FX. Again I would not chase any scenario yet... not until September when most of the people come back from vacation.
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