Over the past couple years, a variety of new hedge funds have hit the market to capitalize on the bull market in commodities. However, things have not been so good lately. After all, it was a bad bet on natural gas that sunk the $9 billion hedge fund, Amaranth Advisors.
Well, according to a report from the Wall Street Journal [a paid service], there may be some more carnage. That is, the high-flier fund, Red Kite, is apparently trying to delay investor redemptions.
The problem? The fund lost a whopping 20% in January. Basically, there a terrible bet on copper.
But, with an delay on redemptions, Red Kite can take time to unwind its positions and hopefully get better value. The issue is that investors realize there is "blood in the water" and will no doubt try to profit from the misery. Actually, this was the case with the Amaranth implosion, which turned out to be a nice payday for JP Morgan Chase & Co. (NYSE: JPM).
Actually, I wrote about this in a recent piece for BloggingStocks.com.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
Closing Bell: Dubai sends jitters throughout the market (S, BBY)
Heinz looking good after the second quarter?
Why isn't Bank of America updating its shareholders on CEO situation?
Reader Comments (Page 1 of 1)
2-05-2007 @ 3:10PM
doc said...
So copper markets look bad short term then...it seems likely that copper prices have been inflated not just by e.g china demand, but also to a significant degree by hedgie games. Supposedly, Red Kite were going short in gold though. Hard to say if this blow up will have any real significance.
2-05-2007 @ 4:33AM
Sunny said...
This is one more confirmation that the copper, nigh the base metals complex, has been witness to record high prices over the last three years on the back of fund money absolutely removed from fundamentals. The resultant volatility, with entry and exit of fund money at uncertain time frames, has been a lethal blow to the manufacturers particularly the semis producers who would look forward to a more stable price scenario in the long term. Hopefully the recent cap outs at a few major funds will drive the opportunistic ïnvestors"out of the metals and let the market work on the basis of fundamentals.
2-13-2007 @ 5:04PM
rgr said...
Nobody cares about copper anymore. Take a look at open intrest in both London and NY. Both are down a large amount. Right now even small orders move the market 5 cents at a time.