hedge fund doing 6bil

Mere Mortals, and 100,000 Positions in a Single Futures Contract

By Robert Folsom

Tuesday, it was "more than $3..."
Wednesday, it "could exceed $4..."

Thursday, it was "roughly $5..."

And so today, it was "about $6…", with the "it" defined as "billions lost this month" by 32 year-old Brian Hunter, the natural-gas trader for the Amaranth Advisors hedge fund.

I freely confess my ignorance about how it feels to put on a $3 b-b-b-billion trade, not that any mere mortal SHOULD know how that feels. But a mere mortal did -- and then some. Published reports say that "Mr. Hunter sometimes held 100,000 positions in a single contract," which in the scheme of things may help explain why it took four days to total up the true loss estimates: continually entering all those 10-digit numbers is bound to burn out a couple of calculators along the way.

Not that the losses can get much higher -- Amaranth had "only" $9 billion at the start of the month, and two-thirds of it is gone.

Now, if I told you that a former Enron trader was the head of energy investing at Amaranth -- and had hired Brian Hunter -- you'd understandably think, "That explains everything!"

But the truth is that the former Enron trader had actually resigned from Amaranth this past spring, and "had told the firm that while he liked some of Mr. Hunter's bets, he was uncomfortable with their size and concentration."

Other details of this story make it all too depressingly familiar. The founder and CEO for Amaranth would make marketing presentations that stressed "the 20 Ph.D. graduates he had working for him as well as the 25 languages that his employees spoke." As recently as August 29, this CEO told the Wall Street Journal "that the perception that Mr. Hunter was taking recklessly large bets was 'greatly exaggerated' because he designed his trading strategies to limit big simultaneous losses."

He may as well have been reading from the pages of "When Genius Failed," the superb book that chronicled the Long Term Capital Management debacle.

There's nothing new under the sun, though each day does manage to prove again that "the market can stay irrational longer than you can stay liquid."

It's too bad that J.M. Keynes -- who uttered that quote -- and R.N. Elliott -- who discovered so much about patterned behavior -- never had the pleasure of meeting each other: they'd have had much to discuss.