Tales of juvenile duels and demise of amaranth
Hedge Hogs By Barbara Dreyfuss
In September 2006, Greenwich, Connecticut-based hedge fund Amaranth Advisors collapsed after losing more than $6bn (€4.6bn) in the natural-gas futures market.
In 'Hedge Hogs', Barbara Dreyfuss tells the story of the maths-whiz traders whose risky dance with deregulation led to the collapse.
The star is Brian Hunter, the Amaranth celebrity described as a top dog among a crop of "red-hot traders".
Dreyfuss rehashes a lot that we know about Hunter. And despite admirable efforts to explain the arcana of futures trading, she may lose the lay reader with details of trading spreads.
But she does a great job of putting Amaranth's out-of-control trader into historical context.
Dreyfuss also captures the juvenile culture of trading luminaries as Hunter and John Arnold fight each other in trading duels more suited to a video game than real life.
"If you want to succeed and make money, you want to destroy someone else," a trader tells Dreyfuss.
"That's how it works. If I want to be successful in this industry, I'm going to want to destroy five guys."
Hunter started trading at TransCanada in his native Calgary in 1998. He left for Deutsche Bank's New York headquarters in 2001.
By the time he left for Amaranth two-and-a-half years later, he'd been demoted by a supervisor who would say later that Hunter couldn't be trusted to "do the right thing for the bank". Hunter, however, was "scooped up" by Amaranth.
A year later, he parlayed a rival offer and agreed a sweetened deal to stay at Amaranth. Hunter demanded that he be allowed to move to Calgary, free from the oversight of Harry Arora. The star got what he wanted.
Arora later quit, warning on his way out that Hunter "could blow up the entire firm".
By spring 2006, clients were seeing red flags in the sudden massive gains in Amaranth's energy portfolio – up $1bn in April. What goes up in a dramatic spike, those clients figured, must come down.
BlackRock paid a penalty to bail out. After that, Hunter's bosses made unheeded calls that he cut back on his positions. In May, Amaranth lost more than $1.1bn, and a death spiral was in full force.
In June 2006, Hunter observed that other people in the markets "were getting out of control". In another exchange, a trader who works with Hunter refers to the "fricken deviant market".
It becomes clear to the reader who the deviants are here. Hint: They do not include "the market".
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