Witness Post: Amaranth

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.  

 

                                           — Opening sentence, A Tale of Two Cities, Charles Dickens

 

 

Witness Post: Amaranth

“It was the best of grains, it was the worst of weeds, it was the age of market speculation, it was the epoch of commodity failures…” To parody Charles Dickens: this is A Tale of Two Amaranths. One tale is about a colorful flower and flourishing grain from around the world that has multiple uses and mysterious myths; the other is about the meteoric rise and catastrophic fall of an alpha-hungry, commodity-driven hedge fund. Let the two tales begin. 

 

Best of Grains

 Amaranthus, known by the common name of Amaranth, is a flowering plant with an extensive family tree that circles the globe. In some parts of the world Amaranth plants are considered annoying weeds. In other parts the plant is revered for its leafy vegetables, grainy cereal, bulbous roots and ornamental appeal.  In fields where it is cultivated, the visual attraction of the bright red leaves and showy flower-clusters has led horticulturalists to give Amaranth some colorful names such as Prince-of-Wales-Feather, Love-Lies-Bleeding and Red Amaranth. The “weed decrying crowd” still disdains the plant. However, with over 60 different recognized varieties and lots of hybridization experiments pushing that number toward 100, it is generally considered a worthy plant species in any farmers garden. 

 

The word Amaranth comes from two ancient Greek words: ἀμάραντος (amarantos), which translates as “unfading” or “unwithering,” and ἄνθος (anthos), meaning “flower.”  These two words combine to form a floral twist on the name for the plant. While many plants have Mediterranean origins, the double Greek root-word helps explain the plant’s enduring position as a recognized species, rather than a woeful weed.

 

 

One question is: Why plant Amaranth? The simple answer is that it is easy to grow and it has lots of uses on and off the kitchen table. That said there seems another more pervasive reason for Amaranth’s current popularity. The movement of Gluten-Free diets has accelerated the rapid adoption of this obscure grain. The phenomenon of gluten intolerance (from general indigestion to serious abdominal problems) is rampant in the Millennial Generation. In the Hooper Family we have nieces, nephews, cousins, friends and one child who are gluten intolerant. Even at Catholic masses these days, we hear of “gluten-free host stations,” catering to those who are sensitive to wheat. The more serious problem of reactions to gluten in diets is increasingly causing celiac disease and can be dangerous to your health.

 

The internet is full of stories: We must change our diets now. We live in food deserts. We are overly exposed to unhealthy food choices. Our children are malnourished and fat at the same time. Childhood obesity and diabetes are exploding. The story goes that in a single generation we have accepted too many simple sugars and genetically modified grains in our diets. We have “learned” to thrive on plants that are resistant to pesticides. 

 

 

One company’s weed killer, Monsanto’s Round-Up, has been incorporated into the new generation of wheat, barley and corn. The Round-Up resistant grains, when introduced to our children have stressed their immune systems. The increases in GI tract infections and food allergies are rampant, and lots of research points fingers at Monsanto as the leading culprit for sickening of our kids. Round-Up resistant grains may not be the whole story, but they are part of dramatic changes to our food supply. Add to it the Super-Sized sodas, and fast food lifestyle and daily processed food intake, and the end result is pretty ugly.  

 

Parents, for the health of our families, have been forced to switch from traditional gluten-rich grains (Rice, Corn, Wheat, Oats and Barley) and replace them with whole-grain and milled-grain substitutes that are Gluten-Free. The proliferation of exotic non-gluten grains from around the world (such as Quinoa, Flax, Millet, Coconut, Teff, Montina, Garbonzo Beans, Fava Beans and Amaranth) is a natural outgrowth of that global search. The first Amaranth I found was planted in the gardens at the Cottonwood Gulch Foundation in Thoreau, New Mexico. The Gulch gardens are at an altitude of 7,400 feet, but despite the short growing season and Sonoran Desert winds, the plants are flourishing in the plentiful summer sun. The most prolific plants in the gardens, harvested daily for the Gulch Base Camp residents are tomatoes, corn, kale, carrots, turnips, and collard greens. The Amaranth is a color bonus to the salad diet.  Not all of the Gulch diners love vegetables, but one thing for sure is that the Amaranth is growing with vim and vigor.

 

 

The Worst of Weeds

 

The Amaranth plant is a common leafy vegetable for salads. The red leaves, though a bit bitter, add some great color to the plate. When cooked slightly in some butter or olive oil, the wilted Amaranth is delicious. The entire plant can be consumed: the seeds are crushed into flour and the roots are boiled, chopped and eaten with other vegetables. 

 

The seeds are more appropriately called a pseudo-cereal, according to Wikipedia.[1]  Pseudo-cereals are broadleaf plants whose seeds can be “ground to be eaten like cereal.” Besides Amaranth, other examples of these pseudo-cereals include Quinoa and Buckwheat.

 

Most of the Amaranth found around the world grows up among other crops, becoming a nuisance for farmers to control. It is commonly referred to as Pigweeds, for its extended period of germination, rapid growth, and high rate of seed production. The U.S. and Canada have labeled several Amaranth species as “invasive” and noxious for their pervasive growth and general resistance to pesticides: A. albus, A. blitoides, A. palmeri, A. powellii, A. retroflexus, A. spinosus, A. tuberculatus and A. viridis.  These Amaranth species grow up among cotton plants, soybeans, wheat, barley and oats, dramatically reducing the yield of these other crops. One particular species, Amaranth palmeri, has been labeled as the “5^th Worst” on the Southeastern U.S. list of “Most Troublesome Weeds.”  Farmers must use proper weed control, including pesticides, to kill the Amaranth before it successfully colonizes in the higher cash grains.[2]

 

But not all farmers feel that Amaranth is BAD. Some agriculturalists, because of Amaranth’s characteristics in the garden, specifically germinate the Amaranth plants to grow up as companion plants alongside their preferred crops. For example, ground beetles, which eat many of the invasive insects around the fields, often find shelter in the Amaranth roots. Plus the roots of the Amaranth break up the soil, making room their more delicate neighbors to get a proper root hold in the soil. Lastly the Amaranth also traps and kills leaf miners and other nasty bugs, which would otherwise dine on the crops nearby.[3]

 

 

 

Age of Market Speculation 

A company called Amaranth Advisors came on our radar screen, when the D3 Family Funds started buying common stock in the oil and gas company, called Denbury Resources (DNR). When investing in a company, we feel it is critical to get to know the management, board members, analysts, and other investors — both on the equity and debt side of that investment.  DNR had had some difficulty getting traditional bank loans, because of the unusual nature of their oil extraction, so they reverted to private debt investors, such as Amaranth Advisors in Connecticut. Amaranth liked the DNR story and held a corporate note for $25 million, with DNR’s oil and gas reserves as collateral.  DNR, therefore, got access to some needed cash, when they were building a processor to inject carbon dioxide in the ground. The CO₂ mixes with the tough to extract oil and pushes the oil to the surface with surprising efficiency.

 

Amaranth Advisors was founded by Nicholas Maounis in 2000.  Based in Greenwich, Maounis founded his company on a strategy called convertible arbitrage. In layman’s terms the strategy takes advantage of a crease of profit that lies between bank debt and corporate debt. The firm’s primary profit vehicle started by making bets on corporate bonds, but soon migrated to a $9 billion multi-strategy approach that included corporate debt, convertible bonds, natural resources trading and others.

 

At D3 we could not find out much about Amaranth (they refused to take my calls), but in spring 2006 one of the DNR board members from Texas Pacific Group vouched for them, intimating that with a tight bank lending market, Amaranth was a good source of corporate debt. The bank market was indeed tight, but none of us realized that the other shoe was about to drop. 

 

 

 

Epoch of Commodity Failures

 

Before we were through our due diligence, the stock price for DNR started to crater. In a few days it fell from $35 a share to $7. The reason? Amaranth, to the markets surprise, was on the ropes.

 

The culprit of Amaranth’s woes came from its Canadian natural gas trading desk. Their head trader, a mathematics wiz from Calgary by the name of Brian Hunter, made enormous bets, just after Hurricane Katrina. He bullishly bet that the price of natural gas would continue to rise.  He invested so heavily in natural gas futures, that when the prices failed to move as expected, he lost $6.5 billion for his clients. 

 

Amaranth Investors needed an immediate billion dollar infusion to save the company. When no guardian angel arrived, the firm collapsed. The aftermath was a multi-year inquisition of Hunter, futures trading, risk management, corporate oversight, and greed. The collapse of Amaranth Advisors proved to be one of the largest implosions of a hedge fund in history. 

 

When news hit the wires that Amaranth Advisors was collapsing, panic trumped sanity, and any company with Amaranth on its books went down with the ship. Like companies tied to Enron, companies with debt owed to Amaranth were immediately punished for the affiliation. DNR, which only owed Amaranth $25 million, lost over $150 million in market value in one fell swoop. At D3 we viewed it as a buying opportunity and we piled into the stock, becoming one of its largest outside stockholders. 

 

The Amaranth debacle took some time to resolve itself, and when it did, DNR returned to a reasonable stock price and beyond.  

 

After litigation, Amaranth was sold to Citadel Investment Group LLC, and other debt holders for pennies on the dollar. (Ironically, less than a year before the collapse, Hunter had been offered a $1 million signing bonus by Steven Cohen to join his hedge fund, SAC Capital Advisors, LLC, another Greenwich firm which has been in the news lately (July, 2013) for rampant tolerance for insider trading.) The entire Amaranth Advisors story is well told in the book Hedge Hogs by Barbara Dreyfuss, who spins the tale of math-whiz trading and risky dancing with regulators right up to the collapse of the firm. It is a good read.

 

 

What’s in a Name?

 

Why Nicholas Maounis named his firm after the eponymous weed, Amaranth, is anyone’s guess. The word, translated “unwithering flower,” must be the way that Maounis wanted his Advisory to thrive, but the history of the word in literature is a good place to start. 

 

References to Amaranth show up in Aesop’s Fables, John Milton’s Epic, Paradise Lost, as well as in poems by John Keats, Percy Shelley and Samuel Coleridge.

 

In ancient Greece the Amaranth was sacred to the Ephesian Artemis. The plant was supposed to have special healing powers. It was also used as a symbol of immortality, decorating images of the village gods and stone tombs.  In the legends of the day, the hunter Amarynthus (a form of Amaranth), a servant of the king, was a hero and brave warrior. There is a centuries old popular Greek folk song, entitled Amarantos,[4] which translates:

 

“Look at the amaranth:

on tall mountains it grows,

on the very stones and rocks

and places inaccessible.”

 

 

Other Legends of the Amaranth

 

In China the local healers use Amaranth to cure illnesses caused by infections. They make a paste out of the seeds and spread it on rashes or they have patient ingest it to cure migraines. The curative powers of the plant seem to be well known in Africa, South America, Asia and in other parts of the world. 

 

The mystical aspects of the grain are even celebrated by people in Mexico, who make skulls on the Day of the Dead out of Amaranth seeds and other nuts and honey.

 

Amaranth seed and honey skull shapes for Day of the Dead in Mexico

  

Uses of Amaranth: For Seeds, Flour, Leaves, Roots and Stems

 

The seeds were cultivated on a large scale in ancient Mexico, Guatemala, and Peru, but nowadays it is only cultivated in small farms of in Mexico, Central America, China, India, Nepal, and other tropical countries. Amaranth has been seen as a crop of the future because it is easily harvested, it is a good source of protein, it has several edible forms, and it is easy to cook. A single large seed head can weigh up to one kilogram (1k) and hold over 500,000 seeds.

 

The Amaranth seeds can easily be ground into flour and used alone or as an additive to wheat. It can be baked, fermented, molded and pan-fried. Many of the world’s populations that simply bake Amaranth have found it to be the right smell, texture, and flavor for their palates.

 

Amaranth species have been cultivated as leaf vegetables in many parts of the world. From Indonesia to Malaysia, from the Philippines to China, Amaranth is called by different names but it is revered throughout for its leafy vegetable qualities. It mixes well with garlic, onions, chilies, salt, pepper, spices, and other greens to make colorful dishes. In China, Viet Nam and other parts of Southeast Asia the leaves and stems are used with success in stir-fry vegetables and soups.

 

The roots of a mature Amaranth are a popular vegetable. They are white and cook well with tomatoes and tamarind gravy. Apparently the roots have a milky taste that is quite alkaline. The roots, seeds, and leave have become a traditional food stock in Africa because the plants are nutritious, hardy and, most importantly, inexpensive.  East Africans have given Amaranth a common name that translates to the expression: “We have money left over for fish!”[5]

 

Lastly — Amaranth Dyes

 

Amaranth red dye in horse blanket

 

Native American grains are still cooked on special hot stones over an open flame

 

The Navajo and Hopi Indians use the flower of the Amaranth as a source of deep red dye. They boil the leaves and flowers to color their sheep’s wool red, which they weave it into their rugs, blankets and ceremonial sashes. The pigments, known as betalains, can be made synthetically, but the Native Americans prefer the ‘old fashioned way,’ as they do with many of their cooking and weaving traditions

 

Coda

 

The present period in the world seems a lot like the one described by Dickens in eighteen century Paris.  The only notion that connects these two tales is the name: Amaranth.  Other than the coincidental moniker, they have nothing in common; they are the superlative degree of comparison only.  At least until some other connections arise and occur to interested readers.

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