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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Tuesday, September 28, 2010

Do not underestimate weak dollar... last part

This is my final note that has to do with weak dollar. From now on I will focus on strength of other currencies rather then dollar weakness for a change. Just get the feeling that QE-2 will not end up good.

As mentioned earlier FED wants to have both inflation and lower bond yields. Correct me if I wrong but this does not work. Either you have inflation and high yields or deflation and low yields. Something has to give. But I have to admit until now it worked well. There is no indication of higher Bond yields yet as my favourite 10year maturity is still in the down trend:



Euro has posted another outside bullish day and is rising exponentially higher (dollar falling). Sign of a bubble, yes, but I would not try to catch falling knife. Portugal and Ireland are still a concern, but there is a greater evil out there. There is a resistance at March highs at 1.3770. Euro chart:



Oil is a boring market, base metals mainly follow weak dollar, so nothing interesting there. Still do not believe in higher equities, but cannot do much until we see some sort of top or fall under 1130:



To my mind while dollar weakness is substantiated, but risk on mode based just on that is a sign of bubble that will eventually burst. yet it is still not yet time to become a contrarian.
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