Fri 12 Aug 2011 14:41

Report forecasts volatile prices ahead


Companies are urged to consider using the 'expected volatility' to enter hedging agreements.



In light of recent market events, Danish firm A/S Global Risk Management has published its latest financial update for the month of August.

In the document, Global Risk forecasts volatile oil prices ahead and makes the following key points in its executive summary:

* Downgrade of US will not mean default – however higher interest is to be expected.

* Higher rates means lower growth – and thus lower oil consumption.

* ECB to copy-paste FED on QE – dangerous waters.

* German sovereign debt – flight to quality.

* Debt to GDP – not always a ratio to control a country’s leverage.

* Long term – watch those cash holdings.

In the financial update Global Risk also says: "Market memory is often very short, and especially where a huge number of speculators and computer trading are involved. We therefore expect oil prices to increase in volatility over the coming months. As September and October are months where equities and oil usually move upwards, we recommend clients to consider using the expected volatility to enter hedging agreements."

Looking in the long-term, the company commented: "In a longer timeframe we urge clients to consider the rather large cash holdings laying around in hedge funds and banks. At the first sign of the slightest turn in the underling economy, they will jump into oil once again, sparking volatility. The final remarks in this financial Update goes to John Maynard Keynes (1883-1946): 'The market can stay irrational longer than you can stay solvent'."

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