Mobs, Messiahs, and Markets

Hedge, I Win; Fails, You Lose

Am·a·ranth: Pronunciation: ‘a‐ma‐”ran(t)th

Function: noun

Etymology: Latin amarantus, a flower, from neuter of amarantos unfading, from a‐ + marainein to waste away

1. any of a large genus (Amaranthus of the family Amaranthaceae, the amaranth family) of coarse annual herbs. Also called pigweed.

2. An imaginary flower that never fades.

Recently, investors found to their chagrin that the Greenwich, Connecticut, genus of the pigweed is not only not imaginary, it can fade out at lightning speed. Hedge fund Amaranth Advisors managed to lose $4.6 billion—about half its entire value—in a matter of just a few days, through a miscalculation of the price of natural gas futures in the spring of 2007.

The figure soon grew to over $6 billion. It seems that Amaranth's star trader, the aforementioned Brian Hunter, bet the farm on the idea that the gap between the March 2007 price of natural gas and the April 2007 price would widen. Instead, it narrowed from about $2.00 per 1,000 cubic feet to about 63 cents, transforming Amaranth's 20‐plus percent yearly returns, in one fell swoop, to a 35 per‐ cent loss.⁸

Hunter, a Canadian, had made millions for the firm after natural gas prices exploded in the wake of Hurricane Katrina. He was thought to be so savvy about gas futures that his bosses at Amaranth let him work out of his home in Calgary, where he drove a Ferrari in the summer and a Bentley in the winter. The jazzy wheels matched the snazzy wheeling and dealing at the American ...