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 22, 2010

Why I think Portugal will go bust or get bailed out...

I mean first of all simply because it will not be able to afford debt repayments... There are also dangerous signs in equity index, which to my mind is about to break down, whether it is because people are to realise above debt problems or economic data to get worse. But this descending triangle does not look good:


And momentum is not yet in oversold territory. So it is another bailout?
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Tuesday, September 21, 2010

Is this a start of something big? PART2

Put it simply, I got it wrong. Last Friday's bearish reversals in European Equity indices did not materialise as we posted new highs.

As I said the problems will not come out of Ireland, but Portugal instead. And Portugal did not come off from the table. While 10 year yield has put a new high at 6.45% the chart looks concerning as we continue exponential rise. Only a move under 5.5% would stop the rise:

Now, this is a long term chart and effect while we can be taking clues from this market on active days rather then trying to anticipate the moves. bottom line this is a market to watch and risks remain for further yield rises.

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