You know what's cool? An oil-price collapse that saves you a few dollars when you fill up the Escalade. You know what's cooler? An oil-price collapse that makes you ONE BILLION FREAKING DOLLARS.
A hedge fund called PointState Capital is currently enjoying that second state of cool, Bloomberg reported on Wednesday. The New York firm has made a $1 billion profit from betting that crude oil would crater, according to the report.
In hindsight, it does seem like a pretty no-duh bet to make. Way back in May 2014, Bloomberg notes, PointState CEO Zach Schreiber publicly laid out a simple case for crude's impending collapse. Schreiber correctly noted that oil and gas producers in the U.S. were pumping too much oil out of the ground and setting up a huge price decline -- in other words, rapidly strangling the goose that was, at the time, laying golden oil-filled eggs.
Since Schreiber's presentation, crude has fallen from roughly $100 a barrel in May to less than $50 a barrel this week. Bada bing, bada boom, make a billion dollars. So easy.
PointState started out with a relatively meager $5 billion in 2011, founded by alumni of a much bigger hedge fund run by a more famous hedge fund manager, Stanley Druckenmiller. Now its leader, Schreiber, who used to quietly trade oil and other commodities for Druckenmiller, is suddenly at real risk of becoming a rock-star hedge fund genius whose every move is followed obsessively.
But everybody's a genius in hindsight. Foresight is a lot harder. Untold scores of hedge funds took the opposite bet of PointState and got themselves slaughtered.
A PointState representative did not immediately respond to The Huffington Post's request for confirmation or comment.
The hedge funds who made the wrong call aren't the only ones suffering: The U.S. oil and gas producers Schreiber mentioned are starting to make layoffs and production cuts.
It's worth noting that Schreiber got an unexpected assist from OPEC, which decided in November to stand back and watch oil prices go straight to hell, hoping to squeeze out some U.S. producers. Almost nobody expected that to happen -- it's possible that even Schreiber didn't see it coming. He didn't mention it in his May presentation, Bloomberg points out.
This is not the first big hedge fund win that seems obvious in hindsight. Most famously, John Paulson, founder of Paulson and Co., made between $3 billion and $4 billion in a single year betting on the subprime mortgage collapse that everybody should have seen coming.
These guys make it look so easy that they inspire others to invest their money in hedge funds, or even to start their own. The trouble is that most hedge funds are big failures, unable even to keep up with the broader stock market.
It's not as easy as the geniuses make it look -- even for the geniuses. Paulson's ride since the financial crisis hasn't been bump-free; he took massive losses in 2011 and 2014 on big bets gone wrong. The list of huge hedge fund disasters is at least as long as the list of huge hedge fund wins.
For Schreiber, now comes the hard part. Though that $1 billion should ease the way a bit.