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 7, 2010

When do old news move the market?

This is my first post after a short vacation... first of all some feedback on places I visited:

1. Why Grasse is called the world's capital of perfumes if lavender fields are not there? in fact I did not find any fields and we drive more then 300km around Grasse. Wiki says that since 18th century perfume ingredients were cultivated in Grasse, so where are they?
2. The coolness of Cannes is over exaggerated
3. Overall at Cote d'Azur, local food is called pizza.

4. Yet, you can find lots of small, nice and quiet harbours west of Cannes (towards Saint Raphael). The most common food there is still pizza.

Going back to the markets... I cannot get rid of the feeling that this is not yet the end of the world as I expected it. Yes, we still have the same old skeletons in the closet, but there is nothing new. I said before that people are used to huge swings in the market and I doubt that recent news on European banks are the reason for market collapse. Having said that I obviously have to discuss the risks to this statement... There is a possibility that market decides to test banks balance sheets. So one need to watch developments in the sovereign debt markets... There had been no economic news otherwise so far this week, so at the moment we're digesting these bank problems...

No charts today as I am still sorting out staff while I was away.
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