Boys Will Be Boys

The horror stories continue to mount around the globe as fund managers continue to fess up. We will spare you some of the grisly details, but will point out some of the spin emanating from the fast money crowd.

New York or London, its all the same. Cheyne Capital’s Queen’s Walk hit the skids but will soldier on after getting spanked. The fund earned 9.7 million euros in 2005, the first full year under its belt. Unfortunately those profits pale in comparison to their losses in the first quarter of this year. They lost 7x that in the first quarter of 2007.

``We are disappointed with the performance,’’ Stuart Fiertz, a founder of hedge-fund manager Cheyne Capital, said in a phone interview. ``We don’t wish to excuse it by pointing to the broader market changes that have occurred, but we are pleased with how we have restructured the portfolio so far and look forward to the future.’’
Bloomberg
Of course that is chump change compared to the losses at Amaranth. The post-mortem is nearly complete the corpse ain’t getting any prettier.  Bear might have leveraged one of their funds up 17x, but they did communicate this strategy to the investment community. Perhaps investors did not care to listen. And now the folks that got burned are pointing fingers.

But Amaranth offered little in the way of transparency. And when they got too big for the NYMEX they just set up shop down the street…

Amaranth at various times controlled more than 100,000 contracts for a single month, a bet so large that a price swing of one cent would cause a profit or loss of $10 million, the report said. The January 2007 contract moved an average of almost 16 cents a day in August of 2006, as Amaranth’s strategy unraveled.

Amaranth was told by Nymex officials on August 8 to reduce its positions because they were too large and conflicted with the exchange’s position limits. The fund moved its trading to Intercontinental in response, according to the report. Bloomberg

Brace yourself for more horror stories.

As U.S. home-loan defaults rise, bondholders stand to lose as much as $75 billion on subprime mortgage securities, according to an April estimate from Pacific Investment Management Co., manager of the world’s largest bond fund. Investors in all mortgage bonds will probably take about $100 billion in losses, according to a March report from Citigroup Inc. bond analysts. Bloomberg

The big question is, at least for the stock market, is has it all been priced in?

But the Street might have bigger problems than red screens. Regulators are now jumping into the fray.

Now that could get painful.

Cheyne Capital Fund Posts Loss on Subprime Slump
Bloomberg

Amaranth Distorted Natural-Gas Market, Senate Finds
Bloomberg

ICE Statement of Senate Report on Natural Gas Markets
Press Release
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position in securities mentioned

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