I assume?Nicholas M. Maounis named his fund Amaranth after the flowers of the same name that represent immortality in several literary and cultural traditions.? Pride goes before the fall.? Isn’t it ironic? Don’t you think?? It’s like Amaranth on your wedding day…ohhh, crap.? I hate getting caught singing cheesy songs while I blog.? So embarassing.

Anyway, I looked up the plant on Wikipedia and found out that he might have wanted to check a few more associations before picking this name.? For example,

  • “Bloom, O ye Amaranths! bloom for whom ye may, for me ye bloom not!”, Samuel Taylor Coleridge.
  • Amaranth is also the name of the otherworldly pantheon that amuses itself by toying with individuals’ luck in Tim Lebbon’s novella “The Unfortunate”.
  • In Orson Scott Card’s novel Speaker for the Dead, amaranth?is the only grass in the limited ecosystem of the planet Lusitania.? Lusitania is the name of?the infamous British oceanliner sunk in World War I.
  • The flowers of the Hopi Red Dye amaranth?were used by the Hopi Indians as the source of a deep red dye.? Hello!
  • Amaranth means a process in which a vampire drains (steals) the power and soul of another, killing him.
  • In Garth Nix’s novel Abhorsen, the third chapter is entitled “Amaranth, Rosemary and Tears”.? That just sounds sad, dude.

So are we to conclude that the success of a hedge fund is linked to the negative connotations overlooked by the founder in naming the fund?? Perhaps.? What?? Don’t look at me that way!? So I said “perhaps”.? That’s what you are supposed to say in the financial world.? I say “perhaps” to everything.? Q: “Will the Dow go up?” A: “Perhaps.”? Q: “Will we have a recession in the US next year?” A: “Perhaps.”? Q: “Will I be reincarnated as Kiera Knightley’s panties?” A: “Step off, punk!? That’s my destiny!? Find your own celebrity crotch!”? Ok, so it’s not my answer to every question.

Speaking of crotches, I went sniffing around to find out if the COT report and the kind of analysis I did on gold had any light to shed on the Amaranth vampire soul-suck.? First, I needed to know?how Amaranth was trading:

The Amaranth?trade idea was to be long the winter months (Nov-Mar) and short the summer months (Apr-Oct). In the winter, natural gas is totally inelastic if there is cold weather and the psychology of inadequate supplies for the remainder of the heating season [sic].? If cold weather comes early then the doomsdayers say there won?t be enough storage and prices are bid up. Last winter was an example. If there is a series of cold string, prices rise and at the end of the winter storage could be completely depleted. An example is Feb/Mar 2003. Prices moved up $5.00/MMBtu one day, but settled only $2.50 higher. That?s why Amaranth?wanted to be long the winter. As a weak hedge they short the summer (Apr-Oct). Demand for injection gas is spread throughout the summer and peak usage for electricity demand occurs in July/Aug. This part of the curve doesn?t rise as fast as the winter in a upward moving market. This was their hedge. They also put on Mar/Apr spread trades. In Feb 2003 this spread absolutely skyrocketed over $3.00 in one day. The NWS issued a El nino forecast for this winter, gas storage is at an all-time record, the spreads were out of whack and combination of this and the market knowing Amaranth?had this hand led to their downfall. The complete downfall was a result of their total lack of risk control. NO ONE has ever has a position of this size in such a volatile and illiquid market. My guess is they had on 250,000+ spread contracts. A big swinger would have maybe a 10th of the size.

250,000 spread contracts?? Well it just so happens that the COT tracks large spec spread positions.? What we can see?

Amaranth COTamaranth_2.png

So spreads went to over 40% of the open interest to around 400,000 total when historic levels are < 10% or 50,000.? Meanwhile, directional large spec positions didn't get caught in the same frenzy.? Also, the big traders, normally leaning net short (commercials most likely) where suddenly spread traders (did Amaranth muscle their way into the big dog club, skewing the report)?? How much warning did we need that something big was going on?? I realize that these are only my amateur musings after the fact but something about this flower stinks.? Can anyone think of any other possible explanation for this knowing the explosion that happened at the end?? If it's true that 250,000+ contracts were all Amaranth's, then they certainly made up the bulk of that rise.