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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Friday, August 27, 2010

Who is right, the bulls or the bears? PART2

Bull's do not get excited too much, but for the time being I am with you...

FED did not say anything meaningful today and, to my mind, markets took it ok... such statements as "we will do anything we can" always have two ends and it really is a gamble how markets will treat them .. there are basically two options:

1. we believe you and everything should be ok if you say you are prepared to do anything and
2. hmm, let's see what you are made of and we will test your ability to do what you have promised.

Clearly the collective mind of financial community decided to go with the first option... I hope we won't have a need to test FED's abilities in the nearest future.

Especially as I am packing to go for vacation, so there will be no posts for 1 week.

Have a good weekend!
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