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.

Search This Blog

Friday, September 17, 2010

If only everything looked ok


The 1 million dollar question today is whether equity markets will break higher out of recent ranges. While trends are intact, there is one potential threat in the short term that can derail the rally. and the name of it "Poortugal"

I think there were comments made today that bank of Portugal was effectively shut off from long term financing sources. 10 year bond yield is rising above 6 as a result. Time to get defensive? Not sure if it is the case I spoke earlier that market decided to tests other banks balance sheet by actually brining another country on the verge of default. Here is a Reuters graph for your info:



 

Well, good news is that markets other then credit and financial equities. Amazingly, I do not see any news covering Portugal on the front page of Bloomberg/Reuters/CNBC... Ireland is not new, but Portugal is... 

Resilience in equities and commodities can also be attributed to the weekend effect and that everyone is heavily long these assets... This week's Euro move also cleared lots of shorts in the market. So there is not enough selling power. I start to believe that Portugal might actually be a catalyst for new crisis... 






Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)