Tuesday, September 19, 2006

Never bet on the weather if you never go outside

Fund Flameout:
Hedge fund giant Amaranth Advisors was clinging to life yesterday as its traders scrambled to sell holdings after a harebrained wager on natural gas cost the firm roughly half of its $9.5 billion portfolio - the second hedge fund disaster this month caused by the volatile energy markets.
After studying weather patterns and other data, Amaranth made an enormous wrong-way bet that a Katrina-like hurricane would cause the difference between summer and winter natural gas prices to widen dramatically.

Instead, a mild hurricane season caused that spread to collapse, wiping out about $5 billion in value.

"I can't believe they bet the whole fund on a hurricane," said one energy trader.

Looks like the city folks' computer told 'em it was going to be a really hot year. I wonder if ole Al Gore was helping 'em out?