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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Saturday, June 12, 2010

Taking a break...

There will be no updates for several days as I am getting used to new way of life - being a father...
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Wednesday, June 9, 2010

Let's get bold on gold today shall we?

I never considered gold in the portfolio, but looking at spot chart few ideas come out:

First, gold has low correlation play with macro story. here is the most recent correlation matrix I use:


Second, gold has a tendency to reverse off extreme highs on weekly charts:



Third, we tested and failed to close at new all time high yesterday creating something that looks like double top:



Moreover momentum reverses from oversold levels on both, daily and weekly charts. Bottom line, if markets turn the page and forget the debt problems and equity prices stabilize, we might see some good profit taking in gold... Fearless speculators would sell now with a stop just above recent high, targeting 1165. Conservative technical players would wait for double top to be confirmed (break of 1165) for a final target of 1100.

I admit selling gold now is like going against a train at full speed, but risk reward ratio of such a trade looks very good.

Other asset classes continue to consolidate with little direction to my mind. I will post any emerging trends once they appear.
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Monday, June 7, 2010

Nous avons un problème, Monsieur le Président!!!

So how does a European bailout work? Countries in need of funds are being rescued by countries in need of funds. Then the cycle continues...

I personally had been watching sovereign CDS markets (Credit Default Swaps) for quite some time now, ever since Iceland went bust. At the moment my current list of CDS consists of Germany, the UK, the USA and PIIGS... The insurance cost for the latter ones obviously went through the roof. The UK had problems of its own and Germany and the US continue to shine. What I did not notice was the problem right in front of my nose as we say. Look at the following:



French 5year CDS rallied since mid March exceeding the one of the UK! Guess which developed country is in trouble next? at the moment everyone, but the debt markets, is ignoring the possibility of France getting into some sort of trouble. But wait until French officials start making more comments on this issue.

Thanks Business Insider and Vincent Fernando, CFA for the tip.
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