OK so it's natural gas.
One major hedge fund speculator has lost his shirt speculating in energy. No one should be surprised if more suffer the same fate in the recent gasoline price plummet.
from the NY times
http://www.nytimes.com/...
Enormous losses at one of the nation's largest hedge funds resurrected worries yesterday that major bets by these secretive, unregulated investment partnerships could create widespread financial disruptions.
The hedge fund, Amaranth Advisors, based in Greenwich, Conn., made an estimated $1 billion on rising energy prices last year. Yesterday, the fund told its investors that it had lost more than $3 billion in the recent downturn in natural gas and that it was working with its lenders and selling its holdings "to protect our investors." .....
....Amaranth is not the first hedge fund to experience problems in energy markets. MotherRock Energy Fund, a $400 million portfolio, shut down last month after losing money on its bets that natural gas prices would fall. Summer heat sent prices soaring and the fund lost 24.6 percent in June and 25.5 percent in July, according to one investor......
The problems at Aramanth will help fuel a debate over whether more oversight is needed over hedge funds, which have become increasingly powerful forces in the markets. There are nearly 9,000 hedge funds, managing more than $1.2 trillion in assets. In 1990, hedge funds managed just $38.9 billion, according to Hedge Fund Research.
think their head natgas trader will give back last year's $75 million bonus? It's called the trader's option. Make big bets; if you win you get a big bonus. If you lose, get a new job.
Hedge funds have a huge power to make markets more brittle. They feed off the usual volatility, but these markets can be very very shallow especially at the extremes. If you have a huge bet on, get it wrong and need to get out quickly, it's like falling off a cliff. There is no one interested in buying a little below in a market that is inflated beyond reason. Reality can be a loooooooong way down.
My gut tells me this is a lot of what has happened in gasoline in August when gasoline fell $30/bbl while crude just fell $13-14. The calendar called time on the bets and the losers all rushed to sell and found no buyers. No Katrina to make gasoline liquid gold this year.
The only bad news is the money is now residing with Wall Street if I don't miss my guess.