Crude is screwed, man.

Maverick74 said:
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.
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Fair enough, and I did specifically say that I wasn't familiar enough with his stats. 3% down is certainly not bad at all, and you're absolutely right that managing 10 billion while making 100% is a whole different ball of wax than a 5 million dollar fund.

I do wonder about this though. The article talked about how the other fund was on the other side of the trade. Assuming they were also using fundamentals, they obviously got things very wrong. So I'm still back at my original point. If fundamental analysis gives you shit loads of numbers to work though, and you still have to put it all into context and use judgement to evaluate the trade, its not all that fundamental to me.
 
marketsurfer said:
running a hedge fund isn't expensive'??
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I've had 26 clients who are CTA's - they would fanatically agree. Even the introducing agents who bring them clients take a very steep multi-year cut of the management and performance fee. It's a very tough business. And if you want to hire a good trader for staff at fair market value, you as a principle might be eating hot dogs and macaroni for a while to see if he or she pans out.
 
Gotcha said:
Fair enough, and I did specifically say that I wasn't familiar enough with his stats. 3% down is certainly not bad at all, and you're absolutely right that managing 10 billion while making 100% is a whole different ball of wax than a 5 million dollar fund.

I do wonder about this though. The article talked about how the other fund was on the other side of the trade. Assuming they were also using fundamentals, they obviously got things very wrong. So I'm still back at my original point. If fundamental analysis gives you shit loads of numbers to work though, and you still have to put it all into context and use judgement to evaluate the trade, its not all that fundamental to me.
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Let me help you out here. Read this book:

Hedge Hogs: The Cowboy Traders Behind Wall Street's Largest Hedge Fund Disaster
May 21, 2013
by Barbara T. Dreyfuss

It goes into details about the rivalry between John Arnold and Brian Hunter. Brian was a quant, Arnold was a fundamental guy. Hunter was attempting to squeeze Arnold in the widow maker trader (Mar/Apr) which is one of the most volatile spreads in the energy markets hence its name. Brian miscalculated Arnold's exposure thinking he was all in and Hunter bought the fuck out of it to squeeze him. He was wrong and Hunter blew out. It was not a case of two fundamental traders disagreeing. Read the book. It's an outstanding read and fun as well.
 
Gotcha said:
Fair enough, and I did specifically say that I wasn't familiar enough with his stats. 3% down is certainly not bad at all, and you're absolutely right that managing 10 billion while making 100% is a whole different ball of wax than a 5 million dollar fund.

I do wonder about this though. The article talked about how the other fund was on the other side of the trade. Assuming they were also using fundamentals, they obviously got things very wrong. So I'm still back at my original point. If fundamental analysis gives you shit loads of numbers to work though, and you still have to put it all into context and use judgement to evaluate the trade, its not all that fundamental to me.
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There are several very serious articles/theses published by some scholars/PhDs that can be found/searched on the Internet. Whether fundamentals or speculations or both drive crude oil futures markets.

AFAIK, there has been no clear and uniform conclusions yet! A very complicate/complex commodity market structure. Especially when a major player can be both commercial and speculating concurrently.

My 2 cents! :D
 
Maverick74 said:
Let me help you out here. Read this book:

Hedge Hogs: The Cowboy Traders Behind Wall Street's Largest Hedge Fund Disaster
May 21, 2013
by Barbara T. Dreyfuss

It goes into details about the rivalry between John Arnold and Brian Hunter. Brian was a quant, Arnold was a fundamental guy. Hunter was attempting to squeeze Arnold in the widow maker trader (Mar/Apr) which is one of the most volatile spreads in the energy markets hence its name. Brian miscalculated Arnold's exposure thinking he was all in and Hunter bought the fuck out of it to squeeze him. He was wrong and Hunter blew out. It was not a case of two fundamental traders disagreeing. Read the book. It's an outstanding read and fun as well.
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Aren't you just proving my point? If these spreads were doing what they were doing because 2 guys were battling eachother, then what the heck does this have to do with fundamentals? As a trader on the outside, would it make sense to stick with the fundamentals, or would it make sense to use price action/technical analysis and see how its being either bought up or pushed down and either get out of the way, or get on the correct side?

I've been down my own road of thinking something has gone too far, etc. Elections are a perfect example. Everyone was screaming about how Trump will crash the economy, and as it was looking more and more like he would win, the market did nothing but drop. And when he was voted in, it soared like crazy. The common reason is that he would be more favorable to businesses by removing regulations and making it more tax favorable. But if this was the case, why didn't this cause a run up in the markets when it looked more and more like it would be him?

Fundamentals eventually win out, but trading them is a whole different matter because you can't will the market in the direction it should be going.

Thanks for referencing this book and your synopsis because in my opinion, it provides a perfect example to counter fundamental analysis. I would have loved to read what all the fundamental guys were saying during the oil slide of 2014. I'm sure initially they were preaching that oil is too cheap, its too expensive to produce, etc. Did the fundamental guys see that Saudi Arabia was going to play a game in order to squeeze everyone else, but that it backfired on them?
 
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I think the Hedge Hogs book is more and mainly about gas market.


secret.jpg



http://www.msnbc.com/morning-joe/excerpt-kate-kellys-new-book


An excerpt from Kate Kelly’s ‘The Secret Club That Runs the World’

06/04/14 01:28 PM
By Morning Joe staff

Pierre Andurand was so comfortable with his $8 billion crude oil position that he spent the first half of his day doing a hard core workout with his personal trainer, casually reading the news on a Bloomberg computer terminal, and munching on lean protein and toast at his London town house. It was May 5, 2011, Osama bin Laden had just been killed, and political instability in the Middle East seemed guaranteed to raise energy prices.

Andurand made the short walk to his hedge-fund office at midday. Brent crude-oil futures, the commodity market based on petroleum drilled in Europe’s North Sea that he followed most closely, had been hovering in the low $120s that morning, which annoyed him. He’d been betting for weeks that oil would trade higher, but prices had not obliged. Still, with the U.S. markets having only recently opened for the day and the amount of trad ing still a bit light, he kept a previously scheduled meeting with the author of a book series called Market Wizards in a conference room downstairs from his trading desk.

...
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Maverick74 said:
Let me help you out here. Read this book:

Hedge Hogs: The Cowboy Traders Behind Wall Street's Largest Hedge Fund Disaster
May 21, 2013
by Barbara T. Dreyfuss

It goes into details about the rivalry between John Arnold and Brian Hunter. Brian was a quant, Arnold was a fundamental guy.
More...

Amaranth is a great example of how NOT to manage a "star" hedge fund trader.

Brian Hunter gives quants a very bad name. IMO, he's not a quant - he's a spoiled juvenile Great White Shark who didn't foresee a fucking mature bull Orca Killer Whale killing him just to eat his tongue. In front of a tour boat sightseeing the whale migration. With a Nat Geo film crew.

Any grounded clear-thinking technician would not have dared push that Spread to the extremes Hunter did. Given a relatively static production and basis profile and without the HDD weather to back him up, Hunter pushed that particular Spread WELL beyond both technical and fundamental fair value - and John Arnold did the appropriate thing. John Arnold ate Amaranth's liver. All $2B of it.

As a side note, regulators blamed the mysterious swaps market. ICE and Nymex started publishing data. The bilateral physical market told everyone to bugger off.

But you see, John Arnold busted his cherry at Enron trading against utilities and commercials. Like a proper ambush predator, he waited for Hunter to over-extend the market both fundamentally AND technically - then he crushed it back into the trading range where he knew utilities and commercials would start piling on WITH him. Utilities and Commercials are all about trading ranges. They like "normal". The market as a collective determines fair value.

So, here's why this is Amaranth's fault. Brian Hunter had a fantastic previous year. At years end they paid him a huge windfall bonus. Serious FU $$$. Something like $40M net net net his personally free and clear fuck everybody. Come new year, Brian is set for life and has no "skin in the game" in terms of his risk. Guess what. He just bets huge. Pushes the market where he expects the most pain inflicted. Big mistake.

You see, EVERYBODY uses natural gas. Electricity generators, utilities, ethanol processors, fertilizer companies, steel and iron ore processors, metal recyclers, heat treaters, smelters, pumping stations... on and on. If your business requires clean BTU's in massive quantities devoid of the radioactive afterglow then Nat Gas is for you.

Turns out that $2B levered ain't shit.
 
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bone said:
Amaranth is a great example of how NOT to manage a "star" hedge fund trader.

Brian Hunter gives quants a very bad name. IMO, he's not a quant - he's a spoiled juvenile Great White Shark who didn't foresee a fucking mature bull Orca Killer Whale killing him just to eat his tongue. In front of a tour boat sightseeing the whale migration. With a Nat Geo film crew.

Any grounded clear-thinking technician would not have dared push that Spread to the extremes Hunter did. Given a relatively static production and basis profile and without the HDD weather to back him up, Hunter pushed that particular Spread WELL beyond both technical and fundamental fair value - and John Arnold did the appropriate thing. John Arnold ate Amaranth's liver. All $2B of it.

As a side note, regulators blamed the mysterious swaps market. ICE and Nymex started publishing data. The bilateral physical market told everyone to bugger off.

But you see, John Arnold busted his cherry at Enron trading against utilities and commercials. Like a proper ambush predator, he waited for Hunter to over-extend the market both fundamentally AND technically - then he crushed it back into the trading range where he knew utilities and commercials would start piling on WITH him. Utilities and Commercials are all about trading ranges. They like "normal". The market as a collective determines fair value.

So, here's why this is Amaranth's fault. Brian Hunter had a fantastic previous year. At years end they paid him a huge windfall bonus. Serious FU $$$. Something like $40M net net net his personally free and clear fuck everybody. Come new year, Brian is set for life and has no "skin in the game" in terms of his risk. Guess what. He just bets huge. Pushes the market where he expects the most pain inflicted. Big mistake.

You see, EVERYBODY uses natural gas. Electricity generators, utilities, ethanol processors, fertilizer companies, steel and iron ore processors, metal recyclers, heat treaters, smelters, pumping stations... on and on. If your business requires clean BTU's in massive quantities devoid of the radioactive afterglow then Nat Gas is for you.

Turns out that $2B levered ain't shit.
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From Wikipedia, this is kind of funny:

Hunter grew up near Calgary and earned a master's degree in mathematics from the University of Alberta. Hunter gained experience at Calgary based TransCanada Corp. before moving to New York to join Deutsche Bank in May 2001. There, he made $69 million for the bank in his first two years. By 2003, Hunter was promoted to head of the bank's natural gas desk.[1] In December 2003 Hunter's trading group lost $400 million in a single week in an excessively risky trade.[2] In a New York state court lawsuit, Hunter ascribed the loss to "an unprecedented and unforeseeable run-up in gas prices," meaning Hunter's failure to foresee the risk of his own trade rendered him blameless for its consequences.[2] Hunter also blamed Deutsche's trading software for allowing him to take large gambles.[2] Finally Hunter said he had earned $40 million for the bank during 2003, and therefore not only was he not responsible for the loss, he actually deserved a bonus.[2] Deutsche Bank denied the allegations and he subsequently was let go from the firm.[2]

On a side note, this could make for an interesting film ala Michael Lewis. Brian Hunter vs John Arnold. Two very interesting characters. Hunter was more the flashy type and Arnold the quiet nerdy guy.
 
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