Crude is screwed, man.

[Gotcha]

In 2010, Centaurus suffered its first annual loss. In 2012, amid a rapidly changing market and regulatory environment, Arnold announced he was closing his flagship Centaurus Energy Master Fund.

Hmm.. I wonder what happened. Actually, he answers later, and although you need focus of course, was it that he was losing money that made him lose focus? If he was still raking it in, could he still have been enjoying it?

The real advantage is when one can pair fundamentals with a deep understanding of market psychology and flows.
At Enron and Centaurus, there was little use of technical analysis. I view technicals as a crude proxy for market psychology. If one is trying to follow many distinct markets at a given time, technical analysis is a reasonable strategy. My view was that by focusing on only one market, watching every tick, being the most active market-maker and having active market discussions, I could understand the flows and psychology infinitely better than looking at trend lines and moving averages on a graph.

This part is a bit confusing to me. He says he only views technicals as a proxy for market psychology, but I would think the price, and how it moves, is all psychology. He says using technicals is only good if you want to follow multiple markets, as if its not good enough for just following one market. He wants to follow one market tick by tick, but hello, you can follow it tick by tick with a view of technical analysis. The fact that he distills technical analysis down to trend lines and MA's certainly shows this wasn't his thing as I don't use either of these myself. Clearly he had a desire to understand every nuance of every molecule of natural gas being extracted, so this was the path he chose.

I do wonder why he lost money in 2010 and then closed up shop 2 years later. Perhaps the computers started to steal his edge... I have no idea.

 

[Buy1Sell2]

Crude is actually one of the easiest markets to day trade and swing trade. Lots of back and forth movement and you really don't need fundamental analysis to be successful.

 

[bone]

In terms of Centaurus, around the 2010 timeframe or so US Nat Gas underwent an astonishing trend of oversupply and suppressed volatility. North America was emerging as the preeminent hydrocarbon supplier to the world - so much so that OPEC tried but failed to break it.

Being a focused specialist is a double-edged sword in that respect. John Arnold made his bones at Enron then Centaurus under a much different market environment than the past several years.

The circumstances under which John Arnold literally broke Brian Hunter and Ameranth in 2005/06 were much headier times for Nat Gas.

All trades change over time. Markets always have been and always will be changing - that's the irony of "the good ole days".

And disjointed, complex markets and subsets of markets that in many ways defy modern informational transparency will indeed offer unique opportunities. But hey, the ET Member is not going to have a squawk box and turret lines to ICAP, Amerex, Tradition, etc. etc.. So develop a good price action model - if flat price is too tricky and inconsistent for you then the forward intramarket curve is an EXCELLENT Alternative.

 

[Gotcha]

that's the irony of "the good ole days".

Actually, I would say the irony is even though he had the best resources and info, he still couldn't make money. I don't want to looking too deeply into this, but your clue about suppressed volatility is a huge clue. Many traders today I read are suffering because of the lack of volatility. (expect these past few days of course) To me this say that most of their setups aren't working. They are banking om breakouts working and continuations not failing, in my humble opinion. If you're trading a consolidated and sideways market and losing money, you're obviously doing it in the opposite way that a range trader would be doing it.

The ironic part is that he either didn't see this in his fundamental analysis, or he couldn't make money from this. Of course its speculation on my part, but it would be different if it was said that profits shurnk and investors wanted higher returns. You obviously can't squeeze out too much profit if price isn't moving, but if its going sideways and you're losing money, its obvious to me you are banking on continuation and are always on the wrong side.

 

[bone]

If you are a market or particular commodity specialist and your bread and butter trade went from double digit to low single digit vol and you were smart enough to know that the supply paradigm was seismic enough (fracking pun) and would not change in your foreseeable future then it makes sense to pack it in.

John Arnold is a legend and a very wealthy man. If anything, his decision to quit reflects his astounding fundamental acumen of the US Natural Gas market.

The other piece is that it's very expensive to run a HF. The legal, accounting, and staff OH is rich. Again, he was smart enough to realize the change and make the call to get out like the stud trader he was.

 

[Gotcha]

Again, he was smart enough to realize the change and make the call to get out like the stud trader he was.

Again, the article states he lost money in 2010 and packed up in 2012. Not sure how bad the losses were, and if 2011 and 2012 were also bad, but it seems to me that first he lost money, and then decided to pack it up, and even worse, he talks about how his heart wasn't in it any more. Well, neither is mine if I'm losing money!

As for running a HF, isn't all that expense what the whole point is? Charging an upfront percentage and then a share of profits, and if there are no profits, you still get your management fees. So I'm not sure if any of the fixed costs you can really add up like this.

I have no idea about the guy, and he clearly was smart, but it seems like the market changed, and he didn't see it until his profits suffered, and couldn't adapt and so packed it in. I would too if I already had a billion, but it seems like something is missing from his fundamental analysis picture.

 

[Maverick74]

Again, the article states he lost money in 2010 and packed up in 2012. Not sure how bad the losses were, and if 2011 and 2012 were also bad, but it seems to me that first he lost money, and then decided to pack it up, and even worse, he talks about how his heart wasn't in it any more. Well, neither is mine if I'm losing money!

As for running a HF, isn't all that expense what the whole point is? Charging an upfront percentage and then a share of profits, and if there are no profits, you still get your management fees. So I'm not sure if any of the fixed costs you can really add up like this.

I have no idea about the guy, and he clearly was smart, but it seems like the market changed, and he didn't see it until his profits suffered, and couldn't adapt and so packed it in. I would too if I already had a billion, but it seems like something is missing from his fundamental analysis picture.

Hold on here. I know the numbers. He ran his fund for 9 years. He had and still has to this very day the highest return of any man, women or child EVER for a hedge fund. He had one down year that was around 3%. His up years were over 100%. And the dude was not doing on that with a 5 million dollar fund. At his peak this texas kid was managing 10 billion in a single market (natural gas) that at the time was no where near as liquid as it is today.

Second point. He was NOT a directional trader. He traded long term fundamental spreads that mostly were in the basis market. They were spreading different hubs against Henry Hub over different points in time. It had nothing to do with range bound markets or momentum. In many of these markets he was the only liquidity provider. His performance numbers won't be touched again in my lifetime over a 10 year period.

 

[marketsurfer]

Again, the article states he lost money in 2010 and packed up in 2012. Not sure how bad the losses were, and if 2011 and 2012 were also bad, but it seems to me that first he lost money, and then decided to pack it up, and even worse, he talks about how his heart wasn't in it any more. Well, neither is mine if I'm losing money!

As for running a HF, isn't all that expense what the whole point is? Charging an upfront percentage and then a share of profits, and if there are no profits, you still get your management fees. So I'm not sure if any of the fixed costs you can really add up like this.

I have no idea about the guy, and he clearly was smart, but it seems like the market changed, and he didn't see it until his profits suffered, and couldn't adapt and so packed it in. I would too if I already had a billion, but it seems like something is missing from his fundamental analysis pictu're.

You are out of your mind. running a hedge fund isn't expensive'??--- why do you post when you have no clue what you are talking about ?

 

[bone]

John Arnold's staff traders were also spreaders. I know for a fact (counterparties to me) that their power desk were heat rate spreaders and forward term intra-hub spreaders.

In fact, the big boys in energy are pretty much all spread traders. Even commercial production and consumption hedging is a de facto spread. Market makers - they're spreaders also by definition of their portfolio hedging.

 

[marketsurfer]

Hold on here. I know the numbers. He ran his fund for 9 years. He had and still has to this very day the highest return of any man, women or child EVER for a hedge fund. He had one down year that was around 3%. His up years were over 100%. And the dude was not doing on that with a 5 million dollar fund. At his peak this texas kid was managing 10 billion in a single market (natural gas) that at the time was no where near as liquid as it is today.

Second point. He was NOT a directional trader. He traded long term fundamental spreads that mostly were in the basis market. They were spreading different hubs against Henry Hub over different points in time. It had nothing to do with range bound markets or momentum. In many of these markets he was the only liquidity provider. His performance numbers won't be touched again in my lifetime over a 10 year period.

The guy is a troll-- not worth engaging.

surf