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, February 18, 2011

IBEX 35 daily reversal at year highs.... tuf luv with IR shocks

Selling GBP and EUR...

put your money where your mouth is...

this is just my view and not necessarily view of my company. Although I do not trade FX, but follow it closely, the developments over the last weeks in Europe, such as increasing talk of interest rates hikes, continuing political uncertainty on how the future would look like should expose the dark side of the "recovery". Simply betting that any further IR hike speculations for the economies that just plugged the wholes in their sinking ships and not solved them (keyword debt) would scare markets going further and $ will benefit from this (despite I don't like Ben's policies either). Out of two evil you choose the smallest one. Technically I like short GBP more then Euro, but European periphery will be devastated by IR shock...

I will be working on hypothetical portfolio, rationale and charts, but for the time being:

short EURUSD @ 1.3630 stop 1.3760 target under 1.30
short GBPUSD @ 1.6230 stop 1.6330 target under 1.58

time to be contrarian... looking for a good entry in the equity indices and commodities....

Wednesday, February 16, 2011

is the UK falling into stgfltn

Over a month, correction, over three months, I didn't want to write anything I did not believe in.

the above line was in drafts of this blog waiting to be published since end of November. If I kept everything I wrote which then was  deleted it would make for a good sized book.

I have been reading a lot other people's thoughts though and it appears to be I belong to a small group of people called "permabears". And while we continue talking how bearish we are, making money if you were a permabear would have been difficult in this environment. Yet there were ideas during last year that that fit both bear and bull camps, e.g. rising bond yields - some said it was a sign of economic recovery, others meant inflation and in case of some countries increased risk of default or outright punishment for irresponsible spending. A reminder for myself - know your "enemy".

I think it would make sense to brand the ideas that fits all camps as "one size fits all"...

since I am just warming up for the year, I will talk about some very country specific observations rather then macro view..

The striking evidence of things getting out of control is not in Egypt or other Middle East countries, but rather in the UK. Is it obvious, that negative growth with high inflation means "...." - the word we have not heard for a while. well, not so negative growth and not so high inflation, but it feels like the trend is there. watch employment numbers today...

Once this "word we do not pronounce" gets into mainstream media, like morning newspaper, expect things to uncover quickly... will George Soros be on the short pound trade again?

Historically, interest rate differential between the UK and other countries had been very high. Sentiment is this is to stay. sorry, but I am not buying it.

Patience is a virtue