Desperation – lose some, lose some, unless you are James Cramer

The big financial discussion of the day centers on a big hedge fund called Amarinth. Let’s just say they blew up.

Trader Mike has some links to all the sex and gore of this natural gas trade gone baaaaad.

I really like Roger’s piece on the whole mess over at Information Arbitrage .

Note to self – throw arbitrage into any blog post and you sound smart and like an authority. Even “Putz Arbitrage” sounds smart and financial :) .

This paragragh is the one that strikes home with me:

Desperation. Once you’re down and it’s really bad we all know what happens. Empirical research tells us what happens. People lose all sense of perspective and logic and begin to gamble irrationally. “How can I face my investors? How can I face my friends? How can I live this down? How? How? How?” It is a rapidly accelerating downward spiral out of which there is little hope for salvation. I was quoted in Reuters as saying that “Fifty percent is a yardstick that some people use to say that once you have dropped that much, the game is over…The next week will be telling because if there are other positions that are directionally similar that continue to move against them, then they are going to be in deep trouble.” Well, based upon the recent announcement in Bloomberg that JPMorgan and Citadel are taking over Amaranth’s energy trades, I’d say that maximum ugliness has started to set in.

I am hearing that partners are willing to accept 15 percent on the dollar even though it is being said the fund is down 50 percent. Here’s why; accredited investors know that desperation set in before the announcement and that unless lucky bets are made, 50 percent quickly becomes 100 percent and more.

Which brings me to Mr. CNBC himself, James Cramer. No doubt a bold trader and successful entrepreneur, but he is an authority today for ONE DESPERATE bet made in the summer of 1998. Unless he is lying in his book, his fund was down 50 odd percent that summer and his partners were throwing in the towel. Redemptions were sitting on his fax machine and he threw caution to the wind and went long the market.

Now he’s a genius. Doesn’t sound like Amarinth gets a chance to double and triple down. Too bad, Cramer is boring on CNBC and Amarinth sounds way cool.

Update – Roger’s company is profiled twice today – once in Financial Times and once in TechCrunch – you can get to both from here .