Wednesday, September 20, 2006

The Amaranth Fiasco

Looks like the Amaranth hedge fund is in deeper than it looks. Yesterday their losses were less than 3 billion. Now with their sale to J P Morgan Chase & Co and the hedge fund Citadel Investments, it looks closer to SIX BILLION!

As quoted from the Wall Street Journal:

As part of the deal, J.P. Morgan and Citadel could receive in the neighborhood of $2 billion of collateral that Amaranth had posted as margin on its various trades,

It gets stranger as you dig deeper.

As quoted from the San Diego Union Tribune:

Amaranth severely restricts investors' ability to cash in their holdings. Investors only can withdraw money on the anniversary of their investment and then only with 90 days' notice. If they try to withdraw at any point outside that time frame, they face a 2.5 percent penalty.

Even more Draconian, if investors redeem more than 7.5 percent of the fund's assets, Amaranth can refuse further withdrawals.

Then an article on the same page of the Tribune:

County pension may have lost millions in fund

The crash of the Amaranth hedge fund could have sizable repercussions for San Diego County's retirement system, which invested $175 million with Anaranth just last year.

The county retirement fund's losses could be as much as $45 million . . .

The retirement association already has terminated its agreement with Amaranth and is recalling its investment.

Here is a link to a previous post of mine on derivatives
Invisible Derivatives Market

The thing that I have been stressing, is that a lot of the money chasing the big returns could be retirement funds. That's where the big money is. If I'm right, its truly a sad time for a lot of people, this could get worse real fast.

A thirty two year old guy at Amaranth in a span of one week lost over 3 to 5 billion dollars.

Do you know who your retirement fund is sleeping with?

Final score: Amaranth ruined, San Diego County retirement caught in a compromising position

Truly an Ex-Lax moment!


Anonymous said...

people are trying to make this into much more than it is. the loss really is a just a tiny piss in the vast ocean of financial markets. amaranth's investors are likely well-diversified among other funds. i really doubt if any of the fund of funds that invest in them have any more than 5% of their total assets with amaranth.

bubble_watcher said...

Actually, it's the 'domino effect' that's of interest as one large bankruptcy can end up triggering another..

Jim in San Marcos said...

Also investors vote with their feet. Amaranth is toast.

Bubble Watcher mentioned that there could be a domino effect, and I agree, a European bank collapsed in 1928 started the ball rolling for 1929.

The thing that really impresses me, was how sudden Amaranth went from a gunslinger to a deadbeat.

Anonymous is right in stating that probably no one really got burnt, but (IMHO) the amount of money in play was mind boggling.