In fact, as early as the second quarter of 2005, the U.S. real estate market had already shown unusual performance. In this quarter, the originally hot real estate market began to cool down. The most direct manifestation was the stagnation of housing prices. In some states, housing prices have even shown a subtle trend of correction.
Once house prices really start to fall, it will be difficult for homebuyers to sell their houses or obtain financing through mortgages. If this phenomenon continues, many borrowers in the subprime mortgage market will not be able to repay their loans on time, and a crisis will inevitably break out in the subprime mortgage market.
However, the booming U.S. real estate market in the early stages blinded almost everyone. At this point in time, no one thought that the U.S. real estate market would collapse. These people included almost all the senior executives of major multinational banks, investment banks, insurance companies, and securities companies in the world.
But the collapse of the market is not determined by the will of a certain person. Although the apparent prosperity has allowed these large investment institutions to continue to invest large amounts of money in financial derivatives to gain profits, secretly, an undercurrent has begun to emerge.
First, a series of strange financial events occurred on Wall Street. Although no one realized at that time that this series of strange financial events would be linked to the collapse of the US real estate market, this series of strange financial events was an undoubted precursor to the collapse of the US real estate market!
As the saying goes, "When a country is about to fall, there must be evildoers!" This also applies to the American real estate market.
If the US real estate market is regarded as a huge financial empire, then when this huge financial empire collapses, some unbelievable "monsters" will inevitably appear.
The first evildoer to pop up was the Amaranth Fund, known as the "everlasting flower".
Amaranth comes from Greek, and its original meaning is "the flower that never fades".
In September 2000, Nicholas Maunis, a Wall Street trader who was proficient in convertible bond trading, established Amaranth Advisory Co., Ltd., also known as the Amaranth Fund, in the small town of Greenwich, Connecticut, USA.
When the fund was first established, it only had an initial capital of US$600 million. In the beginning, it mainly engaged in convertible bond arbitrage transactions and also dabbled in some other derivative transactions. It is a multi-strategy hedge fund.
By the end of 2005, Amaranth's fund size had grown to $7.24 billion.
There is a "star" natural gas futures trader in the Amaranth Fund. This star trader from Canada is named Brian Hunter. He jumped from Deutsche Bank to the Amaranth Fund in 2004. He had worked in Deutsche Bank for three years before that, specializing in natural gas futures trading.
Mr. Hunter has extensive experience in natural gas futures trading and a calm and persistent trading style. In September 2005, he successfully seized the opportunity to buy when the US natural gas price soared due to Hurricane Katrina hitting the Gulf of Mexico, earning more than $1 billion for the Amaranth Fund and receiving a year-end bonus of about $75 million to $100 million.
But Hunter is the reason for both success and failure.
Having tasted the sweetness of success in natural gas futures trading and the meager profits from convertible bond arbitrage trading, Amaranth Fund continued to increase its investment in natural gas futures after 2006, using about half of its assets in natural gas futures trading.
In the first four months of 2006, Brian Hunt earned $2 billion for the Amaranth Fund. Although he lost $1 billion in May, he earned $1 billion from June to August. At the end of July, Hunt said in an interview that he had a "great" prospect for the return of speculating in natural gas futures: "The volatility cycle of the crude oil futures market generally takes several years, while the volatility cycle of the natural gas futures market is only a few months!"
However, man's plans are not as good as God's plans, and there is no "general who always wins" in the market! In mid-September 2006, Hunter's earlier "bet" that natural gas futures prices would continue to rise and established a huge shoulder arbitrage position of "buying NYMEX natural gas futures 0703 contracts and selling 0704 contracts". However, the price did not develop in the direction Hunter judged, but fell sharply. As a result, Hunter's "heavy bet" suffered a heavy loss!
On September 18, 2006, Nicholas Maunis, the founder of Amaranth Fund, suddenly sent a letter to his investors, informing them that Amaranth Fund suffered heavy losses in its energy investment due to an "unexpected" drop in natural gas prices. Since Amaranth Fund is a well-known "big player" in the NYMEX natural gas futures market, the news of Amaranth Fund's losses quickly spread throughout the Wall Street financial market that day, causing a lot of shock and speculation in the market. On September 19, The New York Times disclosed that Amaranth Fund had lost more than $3 billion in speculation in natural gas futures!
After the news of Amaranth Fund's sudden huge losses spread, its investors, lending banks, and partners demanded that it return its loans and deposits, and Amaranth was forced to close its losing positions at a discount.
However, due to its heavy position in natural gas futures, a large number of liquidation orders flooded into the market, and the accelerated decline in futures prices further aggravated the losses of its original positions. By the end of September 2006, the losses of the Amaranth Fund had expanded to US$6.6 billion, accounting for more than 70% of its total assets.
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