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, November 26, 2010

Ireland is not big enough

Despite the fact that I am a medium term bear it feels like European problems in this form is not enough to derail global equity markets and who cares about Irish, Portugese or Spanish equties that continue to slump. So turn the page but fold the corner just in case as I am sure we will revisit it in the nearest future, probably as early as next week.

The mounting social and monetary cost of bailing the US and Europe does not bode well with long term growth prospects and GDP growth for next year is likely to be zero for these countries. Coupled with monetary policy imbalances the risk remain on to downside.

I tend to lean towards deflationary environment in the coming quarters. Strangely enough recent US inflation data showed that in majority only the prices of products with developed futures markets rose... developing world and weak dollar is keeping the US on the edge. thank you, global trade...
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