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, September 15, 2010

Respect the lines. Continuation

some weeks ago I speculated on possible head and shoulders formation in Shanghai composite. The break above 2700 would have opened 15% potential for this index. This assumption (that formation is to materialise) was also a part of my hypotheses on higher commodities prices. Well I think I got it wrong (not higher commodities, but h&s formation). In turn the price got squeezed under rising support line, which indicates at least further stabilisation if not further losses:


So why Chinese growth does not translate into higher equity prices? Still do not know. Chinese equities have rarely been the driver of global markets, but if the importance of the US is fading (see yesterday's post) who is going to lead the pack?

There are more questions  then answers in this post. I will be happy to hear some ideas on this.
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