[LTC-GLOBAL] LTC-ATF

[Deprived]

WEEKLY REPORT (W/E 18th August 2013)

Apologies for reports being late - even when I don't publish a report I save a copy of the spreadsheet on the Sunday so it can be produced later.




Just over 2.5% growth this week - with ~2% from trading and the rest from the small fall in LTC vs BTC.

As this report was significantly late I'm foregoing the management fee of 72 units that was due (theoretically I'm taking it then giving it back - as the gain from it will show up in the next week's report.  That saved me changing formulas for calculating adjusted NAV/U for end of this report and beginning of next).

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[Deprived]

WEEKLY REPORT (W/E 25th August 2013)




2.3% growth this week - however only about 0.63% came from trading profits with the remainder due to LTC falling more significantly vs BTC.  Do remember that when I say 0.63% from trading profits there was actually a bit more made from trading - that figure is after deduction of all dividend payments made on bonds.

Management fee of 66 units for this week IS being taken  (you'll see HWM for start of this week was set to UNADJUSTED NAV/U from last week - making sure no management fee was taken on the gain in NAV/U from me not taking last week's fee).

Will update current spreadsheet to reflect the management fee and also some profitable trades that went through overnight then will make a third post - giving more report details and also current NAV/U, current bid etc.

[Deprived]

Exchange-rate : .0208
Adjusted NAV/U : 0.6611

At present we're up ~2.2% on the week with an estimated 1.37% being from trading and the rest from LTC continuing to fall vs BTC.

Fund's own bid is at : .648

Trading has been a bit trickier than usual last few weeks to crashes in the prices of various securities (strangely, some of the worse ones managed not to fall).  As we don't hold long-term investment positions much this sort of thing doesn't impact us to the extent it does actual 'investment funds' - unless, of course, we get caught holding securities when they crash.  That wasn't the case here - although we DO have significant holdings for a change (and they've gone up since last report) they aren't in the ones that crashed (exception being ASICMINER where we did pick some up during the crash - and may not end up making much profit on them).

The crash itself is no surprise - it's largely grossly overvalued mining stuff losing value so as only to be hugely overvalued : the real crash hasn't happened yet (and likely won't for another month or two).  I DON'T include ASICMINER in the 'grossly overvalued' category (it may well be overvalued but, if so, it isn't grossly so).

The new ASICMINER pass-through still isn't up for a few reasons:

1.  I had significant RL work the last few weeks which wouldn't have let me commit to the significant time needed after it launches to process transfers in and maintain constant bid/ask walls - the crash in price exascerbated this as it meant far more attention would need to be spent.
2.  Our new PT security is currentl glitched - I started updating it (did a few sections) but the actual contract can't be amended.  Somehow it's gone into a status as though it had been trading - where contract is locked against changes.  Will get burnside to fix this.
3.  I've received updated software which will allow cross-platform automated share swapping - once tested this will make life much easier for me to run the pass-through and also simplify the contract and explanatory notes I need to provide to investors.

Some clarification on points 1 and 3.  Initially (at least) the pass-through will be to shares of the pass-through on BTC-TC NOT to actual ASICMINER shares.  This simplifies life for me in a few ways:

1.  Transfers are much simpler.
2.  Obtaining new backing shares is much easier.

Investors will be able to transfer shares in both directions between the BTC-TC ASICM pass-through and our one.  I had been planning to do this manually initially - but now I have the updated software to test it makes sense to get that done first and start off with it already automated.  That reduces work-load for me and also allows the fee per transfer to be a lot lower.  Our pass-through will be a 100:1 split (each share in it representing 1/100th of a BTC-TC pass-through share).  Transfers will have the minimum possible fee - of 1 of our shares per trade.  That makes the maximum fee for a transfer 1%.

By doing this I largely sacrifice the ability to make profit for LTC-ATF by selling at a markup (we can safely assume the spread against BTC-TC will be arbitraged right down) - so our profit will come from the 3% fee on dividends.  That offers much better value for investors - and should also offer much better liquidity (as anyone who wants to can arb against the spread on BTC-TC).  In general when offering services such as pass-throughs I'd prefer to take a small percentage on a larger volume whilst offering good value than attempt to screw people by marking things up a lot.

Unfortuantely even with automated transfers there's still significant overhead for me - for each person who wants to do transfers I have to link their BTC-TC and LTC-Global accounts manually so the bot knows where to send to.  And that means I have to deal with a PM from each user, verify it vs an actual transfer and update the database for the bot.  Which is why the pass-through couldn't go live when I knew I wouldn't have much time - as I have to do one of linking accounts or manually maintaining bid/ask walls.

I still have some RL work to finish off today - then should be free until late next week (when I'll have some work to do again) so will try to get the modified bot tested over the weekend and the Security details updated.

Rough priority list for my work on securities (other than the usual daily trading etc which always occurs) is :

1.  Test modified transfer bot.
2.  Get ASICM pass-through finalised and up for approval.
3.  Get other new set of securities done.
4.  Get my website completed - It's frustrating that the website is mainly ready but needs to me to spend a few days working solidly on content before it can launch.

[Deprived]

Notification of Testing

Over the coming weekend (31st August and 1st September) I will be testing a modified transfer bot that can automatically handle trades between BTC-TC and LTC-Global.  Testing may extend past that if necessary.

This testing will occur on the LTC-ATF.B1 and LTC-ATF.B2 securities.  Various accounts controlled by myself will be transferring these securities around - and extra of each security will be temporarily issued for the purpose of testing.

This testing will have no lasting impact (all extra sharcs issued will be returned prior to dividend payments) but will mean that at times the shares outstanding on LTC-ATF.B1 and LTC-ATF.B2 may significantly vary (testing isn't only of 1:1 exchanging but also of X:1 exchanging with fee deduction and return of shares not amounting to sufficient for a full trade to occur).

As well as shares outstanding varying in the securities themselves there will on occasions also be changes in shares held by the DMS accounts on both BTC-TC and LTC-Global.

All testing will be on accounts controlled by myself and manual transfers will be used to return all share counts to their correct values at the conclusion of testing (and before any dividend payments).

[Deprived]

WEEKLY REPORT




Growth in NAV/U (pre-management fee) was 3.9% with an estimate that ~1.75% was trading profits and the rest resulting from the continued decline of LTC vs BTC.  With BTC rising steadily vs USD it would be expected that LTC will continue to fall vs BTC due to arbitrage unless/until something happens to cause a rise in LTC's value.

If this continues much longer it does pose a potential (minor) problem to LTC-ATF.  Under the terms of the contracts for our bonds we are committed to ensuring that the value of our issued bonds does not exceed 150% of LTC-ATF's own NAV (Assets we manage less the value of our liabilities).  As LTC falls vs BTC that ratio increases - and currently stands at 108.68%.  That's not a problem at present - being barely above the 75-100% range that I consider to be the sweet-spot.  But if LTC declines much further then we'll get near the 150% point.

If that point is reached (and it would be reached if LTC fell to around .013 vs BTC - lower than that if we make more profit in the meantime) then the fund has to do one of two things:

1.  Recall bonds.
2.  Issue more LTC-ATF units.

As there's no way to selectively recall part of an issue and, in any event, we can use all the capital we have I would go with option 2 - and sell more units into existing bids.

Hopefully it won't come to that and if it does happen then it isn't as bad as it may seem.  Whilst it would dilute existing investment that is balanced by two factors:

1.  The new units would be selling at above NAV/U and so generate an increase in NAV/U.
2.  When LTC falls vs BTC profits tend to rise (expressed in LTC).  That's because most of our trading is done in BTC - and with a lower exchange-rate each 1 BTC of profit translates into more LTC profit and hence a larger percentage increase in NAV/U.  The massive rise in LTC vs BTC is what caused us to be unable to generate the 5-10% profits we were making earlier on - if LTC does fall right back vs BTC then such profits would become possible again.

Notwithstanding the above I'd still prefer not to need to issue more units - and will only do so if it becomes essential to do so and then would only do so to the extent that I had to.  The commitment to maintain that ratio is a key one from the perspective of bondholders (it's what ensures they can't end up with LTC-ATF defaulting on them if some trades go wrong) and is not one that can be avoided.  It's also a sensible one from the perpective of LTC-ATF investors - as it avoids the potential of massive percentage loss of NAV/U from a few bad trades.

Given that I'm having to consider this possibility does this mean I was wrong to pay a dividend in July?  I don't think so.  When the last dividend was paid the exchange-rate was at .0032 and appeared to have stablised in that area.  I don't think I could reasonably be expected to predict a fall in the rate to .0013 within 2 months (which is what would need to happen for more units to be issued).  Whilst it was always a possibility (everything's always a possibility) retaining unused capital solely to protect against a drop of that magnitude would, I believe, have been unreasonably cautious.

Let's hope LTC doesn't fall faster than we make profits - but if it does then hopefully it's at least clear what will happen (and why).  I would NOT be able to give advance warning of such sales if the ratio was actually over 150% (I would have to immediately fix it).  if the ratio was near 150% but below it then I'd try to give some advance notice to maximise the price new units sold at.  Note that I have the right to personally purchase 25% of newly issed units at NAV/U - I would not exercise that right for small batches sold in a rush (nor would I place bids to buy them ahead of others - unless there were insufficent bids over NAV/U otherwise).  I WOULD exercise that right if a larger batch were sold with advance notice - to maintain my own equity in LTC-ATF.

Management fee of 111 units will be transferred after this is posted.
Fund's own bid is at : .657

Back to testing the new transfer bot.

[Deprived]

Just a brief update.

As you may have noticed LTC has risen significantly vs BTC.  That means two things:

1.  The rise reduces growth (expressed in LTC).  Recent weeks have seen growth boosted by LTC falling - looks like this week will be the opposite.  At present despite having made over 2.5% trading this week we're only up 0.14%.
2.  This rise greatly diminishes the likelihood of needing to issue more units.  At present the bonds:NAV ratio is at around 93% which is pretty much exactly where I like it to be (75%-100% range is my target).

For those new to the fund let me explain about our currency exposure.  We raise most of our BTC-denominated capital from bonds - which generate liabilities cancelling out our BTC-exposure on that capital.  But we can't raise ALL our BTC-denominated capital from bonds as that would potentially leave bond-holders exposed in the event of a fast depreciation in the LTC/BTC exchange-rate coupled with even a modest trading loss in BTC-denominated investments.  So we always maintain around a 15% exposure to BTC - with orders set on BTC-E to keep us at that level of exposure if the exchange-rate moves significantly.

Because we do have some exposure to BTC any rise in LTC vs BTC decreases our NAV/U (our BTC-denominated investments become worth less LTC) and any fall in LTC vs BTC increases our NAV/U.  For small movements this has negligible impact but for larger moves in the exchange-rate it does produce a noticable effect.

Long-term the trading performance of the fund has had far more impact than the exchange-rate : we've delivered over 800% profit DESPITE LTC massively rising vs BTC over the life-time of the fund (that rise means the profit delivered measured in LTC has been REDUCED from what it would otherwise have been).

Personally I prefer weeks like this one so far (no real change in NAV/U with decent trading profits being cancelled by a rise in LTC) to ones like last week (higher growth - but largely due to LTC falling vs BTC).

[Deprived]

WEEKLY REPORT (Data for 8th September 2013)




The week ended with only 0.56% growth in NAV/U but with estimated profits from trading of 3.01%.  The difference, of course, being LTC rising significantly vs BTC.  The exchange-rate is pretty much back where it was 2 weeks previously - and it can be seen if you compare NAV/U now (.6746) to that at the start 2 weeks back (.6481) that we've grown a bit over 4% as expected with pretty much exactly the same exchange-rate.  Actual growth doesn't exactly match my stated trading profits for a few reasons:

• They're estimates.
• Exchange-rate isn't exactly the same.
• Percentage of holdings in each currency has moved.
• My estimated trading profits are pre-management fee whilst the change in NAV/U over any longer period has had management fees deducted.

I'm still no nearer to getting the new securities done.  Problem I've run into is a practical one at my end.  The plan was to move the existing bot over to a different computer/net connection whilst testing the new bot (all the transfer bots were intended to run on the other connection anyway).  The second net connection is a backup mobile broadband connection I have.  Unfortunately in testing the move it became apparent that there's far more bandwidth being used than that connection can support - it only has a pretty small allowance per month (and ridiculously expensive fees for any excess).

At present the only API call to obtain your transaction history provides the full history - which is already well over half a MB for the DMS account.  When you're calling that every few minutes it eats up mobile broadband allowances very rapidly (a test-run showed it using half a GB per day) and that figure is only going to increase.  The ASICMINER pass-through would need a similar download on the main LTC-ATF issuer account (which already has a pretty large history) and on a second account (so as to support transfers in both directions).  The other new set of securities need similar downloads on 2 more new accounts.

Burnside has indicated he'll provide an API call that only provides a few days data - which will solve that issue and allow us to finally get things running.  The ASICMINER pass-through pretty much needs the automated transfer facility so as to allow a market on LTC-Global to be made by any investor who wants to : with the price of the underlying share moving a lot AND the exchange-rate of LTC/BTC being very fluid it's not something I could personally market-make on 24/7 without charging massive premiums on LTC-Global which I don't want to do.  I'd like the prices on LTC-Global to stay very close to the ones on BTC-TC with our profit coming, not from price-gouging on sales, but from a small cut of dividends and a small fee for transfers in both directions.  I believe that is far better for investors and also offers better long-term profit for LTC-ATF.

Longer-term I still intend to develop a proper trading bot with BTC-E integration at which point it could automatically arbitrage for LTC-ATF whenever exchange-rate and/or price-movements made doing so profitable.  But that's still a fair way off.

Management fee of 16 units will be transferred shortly.  I'll then post a brief update with current NAV/U and the fund's own bid price (there's been hardly any net trading profit this week - what profit I made has been wiped by having to mark down some shares I bought with bad timing - but NAV/U will still be up a bit because of LTC falling vs BTC).

[Deprived]

Exchange-rate : .02
Adjusted NAV/U : 0.6858
Fund bid at : .672

Before management fee, NAV/U is up by just under 2% on the week with an estimated .45% from trading and rest because of the drop in LTC/BTC exchange-rate.  It's better than I thought but still not a very good week.  Those figures already include full provision for tonight's LTC-ATF.B1 dividend so shouldn't change much by the final report (unless we get some good trades, the exchange-rate moves or price of shares we hold falls and they have to marked down).

[Deprived]

WEEKLY REPORT (status as of 15th September 2013)




No real change since my update on Saturday - think we made a tiny bit more profit and the exchange-rate changed very lightly.  Final results were 2.0% profit of which only 0.48% was from trading with rest due to LTC's drop vs BTC.

Management fee of 58 unit will be transferred shortly.
Fund's own bid is at : .673

As there's nothing new to report I'd like to raise a suggestion I've been considering for a while - ever since LTC last bubbled in fact.  When LTC rises massively vs BTC and is likely to crash again it puts investors in a bit of a bad spot (those who don't like missing out on profits anyway).  IF they cash out of LTC-ATF they can make a decent profit (in LTC) by swapping to BTC then back to LTC after the bubble bursts.  But in return for taking that short-term profit they then have to try to get back into their LTC-ATF position.  This can be expensive and/or very hard in a relatively illiquid market - and it can also cause major price movements when nothing has changed in respect of the actual asset itself.

The same situation can arise for other reasons - ANY reason, in fact, where someone has a short-term profitable position but wants to maintain (or get back) their LTC-ATF position.

Now at present there's a couple of ways to do it:

1.  Sell into the market then buy back via the market.  This would likely be fine for small amounts (a few hundred shares or less) but would lead to massive losses if done with any holding in the thousands of shares.
2.  Take out a loan (and use the LTC-ATF shares as collateral).  Whilst you almost certainly won't get to borrow against full market value of the shares (it being a lot higher than NAV/U) I expect you'd get very near NAV/U.  Except that if LTC is in the middle of major price movement most lenders will be very wary of LTC-denominated collateral.

So in the most significant scenario (major upward movement of LTC that is likely to crash back down + significant holdings) neither of these options really works.  I'd like the fund to offer an alternative.  It's really simple.  Investors would be allowed to:

Sell their shares back directly to the fund.  They'd receive 95% of the NAV/U per share (lower than usual) but also an option to buy up to the same number of shares back at any time in the next month for whatever the current NAV/U was at the time of repurchase + 10%.

It should be pretty obvious how that helps the investor - it allows them to use the capital tied up in their shares whilst reserving their place in the fund - but how does it help the fund?

Well, obviously the fund makes a profit on the spread.  But to understand how it works very well for the fund you need to look at what happens to the fund's capital requirements with a moving LTC/BTC exchange-rate.

When LTC rises vs BTC our debt:equity ratio drops - as we owe same amount of BTC but our own LTC-denominated holdings are worth a lot more BTC.  That causes our effective BTC-denominated capital to rise (and that's what matters in trading terms as we don't do a lot of actual LTC-denominated trading) and we end up in a situation where we have more capital than we actually need, so at that stage buying back units is what we ideally want to do : so allowing people to cash out then is not just acceptable but positively good for everyone else (and doubly so if it's at a lower price than usual).

However if LTC then falls again vs BTC then suddenly we need (or want, or ata least don't mind having) that capital back again.  Now obviously in theory we'd prefer to sell into the market at 2-3 times NAV/U than by allowing execution of an option at 10% over NAV/U.  But fact is that without something like this we'd never have bought the units back in the first place (they'd have been sold into market orders or used as collateral - noone is going to sell back to the fund at NAV/U without the right to get back in).

And in LTC terms not only are we making the 15% spread but if the units were sold back when LTC was high then repurchased when LTC was low then the NAV/U at reinvestment will be higher (in LTC terms - lower in BTC terms of course) than when the units were bought.

The proposal essentially allows existing investors to divest then reinvest (to make profit during the divested period) with the cost to them being lower - but with the cost (to them) of doing it going to LTC-ATF rather than either to market traders or to those giving loans (or, most likely, them just missing out on other profit due to the difficulty of getting back in).  There'd be limits on it - so it would only be available if it didn't take the debt:equity ratio too high, it would be first-come-first-served, it would be manually managed and all such trades would be documented in our reports including who did them (it isn't impossible I'd do it - though that's a lot less likely now than it was in the past due to my LTC-ATF investment only being a fairly small part of my portfolio now).

Any thoughts, comments or suggestions?  This isn't urgent (right now debt:equity is too high to do it - am planning ahead to whenever LTC gets on Gox or bubbles for some other reason) and I don't intend on having a vote soon - but it's something to consider anyway.

[Deprived]

LTC-ATF Buys shares + Options in BMF

I don't generally disclose investments/trades we make but am disclosing (and will discuss in some length) this one for a few reasons:

1.  It's a matter of public record anyway (which I'm fine with)
2.  It's in BMF (run by usagi) which definitely warrants an explanation from me
3.  It's likely we'll hold the shares for a while - so would be disclosed by me anyway (unless there was a material disadvantage in doing so)
4.  It isn't a straightforward purchase of equity - so is entirely capable of being misrepresented.

In this post I'm just going to quote the terms of the deal then I'll make a second, much longer, one and explain WHY I did it, how it's to the likely benefit of LTC-ATF etc.

The post by usagi offering the deal is here :

https://bitcointalk.org/index.php?topic=295356.msg3166233#msg3166233

As it's now locked I can't directly quote it, but here's the terms as stated:

The following rules are in effect:

1. Warrants
For each share bought at our IBV (0.032 BTC) via this private placement program, BMF will grant you an additional purchase warrant to for one share of BMF at current IBV (0.032 BTC) valid for one year. These warrants can be exercised any time within one year of purchase.

2. Six-month buyback guarantee
I guarantee the repurchase of one share at warrant-face-value (0.032), per granted warrant. This means if you purchase 100 shares of BMF via this program for 3.2 BTC total, I will repurchase the 100 shares from you at any time within six months for the price you paid & the 100 warrants you were granted. I.E. you can back out of the deal anytime over the next six months. It may take up to seven days to liquidate your value for large or multiple simultaneous redemption orders (20btc+).

Usagi has commented on the agreement here:

https://bitcointalk.org/index.php?topic=229036.msg3174029#msg3174029

There are two significant inaccuracies in that report:

1.  LTC-ATF has NOT bought a controlling interest in BMF for two reasons:
a) The shares purchased amount to (just) under 50% of outstanding shares.
b) Only 1/3 of the shares purchased were by LTC-ATF, the rest were by myself personally.

2.  Usagi states "As a vote of confidence, Deprived has committed to hold the fund for a minimum of two months.".  That is not accurate.  What I've committed to is not exercising the right to sell back at .032/share for 2 months.  Which is significantly different - as will become apparent in my next post.

I think the first inaccuracy was done for impact - and the second is just a poor choice of words on usagi's part.

I'll post this in both LTC-ATF threads then make a much more lengthy post going into a lot more detail - as there's quite a few points that I want to clarify/explain.

[Deprived]

As promised, here's a lot more detail/explanation on the BMF investment.

Why Invest in BMF/Usagi?

The short answer to this is that I believe making this deal has a positive expectation for LTC-ATF/myself.  There a few general points to consider - I'll get to explaining why it has a positive expectation in a seperate section of this post.

1.  Quality of an investment has never been something which has prevented me trading securities.  Examples where LTC-ATF have traded something that was completely horrible include trading the spread on Obsi's Ponzi AFTER it was known to be a scam and he'd stopped paying interest and holding DMC shares despite it being maybe the most mismanaged fund that wasn't an actual scam (we made 200%+ on our investment due to it being misvalued by the market as they hadn't appreciated the value/liquidity of its ASICMINER holdings).  In short, LTC-ATF holding/trading something has NEVER meant that I believe it to be intrinsically a good investment - just that the circumstances of our trading are such that I believe it to have a positive expectation for us.

That isn't to say that quality is something I ignore - far from it.  But it's important to remember that LTC-ATF's objective is to make profit for our unit-holders - and I always have done that regardless of my views of the actual securities traded.  The most recent such case being Labcoin - where LTC-ATF flipped shares for 150% profits despite there never being any convincing evidence that it was a profitable or sound venture.

In short, it doesn't matter whether I believe BMF is a good investment (or usagi a good manager) or not so long as I believe the deal is profitable (has a positive expectation - as actual profit is never guaranteed) for LTC-ATF.  In fact, as we'll see later, this deal doesn't need usagi to do well for LTC-ATF to make a profit (though the best possible outcome for us IS that he does well).

2.  Risk of issuer default is always an important factor.  I've been (and continue to be) critical of many of usagi's past dealings.  There are specific aspects of his behaviour I've been critical of - it's my belief that those don't present any great risk to us here.  The ONLY risk that matters here (in terms of default) is whether or not he adheres to the agreement.  And the agreement is specific on the most important points:

a) The price at which warrants can be exercised,
b) The right to sell back and the price at which this occurs,
c) The MAXIMUM time he has to perform buybacks in.  This is absolutely critical - as one of my main ongoing criticisms of him has been the ridiculous amount of time (it continues to take) to buyback his Nyan.A.  No explicit time-scale was defined for that - and so there's no date at which 'default' can be declared.  In our case the time-scale is "It may take up to seven days to liquidate your value for large or multiple simultaneous redemption orders (20btc+)."  There's an absolute maximum of seven days defined.

This moves things away from the grey areas - where I believe his judgment has been bad - into something very black and white where there's no way to delay or argue that it means something other than it evidently does.  I believe that usagi will try his hardest to avoid breaking the deal - as doing so would finish him here for good.

3.  It's important to understand what I did and what I didn't 'buy'.

The wrong view to take is that I bought shares in BMF that came with warrants/options as a bonus.
The correct view to take (from my perspective) is that I bought options that could be exercised as PUTs OR CALLs (at the same strike price) and that the premium I paid to get those options was that I had to buy some BMF shares at current NAV/U.

It's important for LTC-ATF investors to understand the distinction between the two - as my entire rationale for making the deal (and strategy going forward) rests upon me having made the decision with the second description reflecting my viewpoint.

So What Do The Warrants Mean?

There's an important point with these which must be considered when looking at my strategy going forward.  Each warrant we hold can ONLY be used in one direction or the other - not both.

LTC-ATF holds 1563 shares of BMF.  We are NOT entitled to do 1563 redemptions at .032 AND 1563 CALLs at.032.  Rather we're entitled to 1563 of any mix of the two.  That's because the terms for redemption at .032 are that a warrant has to be surrendered for each share redeemed.

That restriction is an entirely reasonable (in fact, essential) one for usagi to have imposed - as without it we could make the deal, immediately sellback all shares at the same price and be left with 1563 totally free 1-year CALLs at .032.

For the remainder of this post I'll describe them as options - as holding one warrant effectively gives the right to either PUT or CALL 1 share at .032.

There's no restriction on the size of each execution - and they don't have to all be in the same direction - but we can only execute 1563 options in total (warrants were issued per share, not per purchase, so can be considered as independent).

Potential Conflict of Interest

This point needs to be got out of the way.  As one third of the shares/options were purchased by LTC-ATF and 2/3 by myself personally there exists a potential conflict of interest when an opportunity to trade or exercise options comes around.

That's not an entirely new situation - a similar position occurred on the LABCOIN IPO where LTC-ATF bought a small amount to flip and I personally bought a much larger amount to flip.  As then (and on one other occasion I can think of) the simple rule I follow is that LTC-ATF gets to go in the most profitable position.  So on LABCOIN I dumped the LTC-ATF holdings right before dumping (the first half of) my own (had to let the market recover a bit before dumping 2nd half).  Here if it would be in the interest of both LTC-ATF and myself to sell/exercise an option then LTC-ATF gets to go in whichever position is the most profitable (be it first or second - in some scenarios going second is best value).

But it does raise the question of WHY I got into this potential conflict of interest in the first place.  The answer to that is very straightforward - that it is far better for LTC-ATF that I hold the rest of the warrants than that anyone else does.  I can avoid Prisoner's Dilemma-type scenarios where each holder does better not cooperating despite the best result for all being cooperation.  I can avoid races to execute options where delaying makes more sense but being second costs.  And I control sufficient votes (at least initially) to block any dumb moves.  Knowing what all other warrant/option holders will do is a massive edge when going from a general strategy into the specifics of tactics.

In short, LTC-ATF will definitely be no worse off - and almost certainly better off - from me holding the remaining warrants than from anyone else having them.

Have been typing a while now - and still probably at best halfway through making the post.  Will post this half now - then, after a quick break, type up a second half where I look at the real substance (why it's likely to be profitable and an overview of strategy).  It's amazing how long it takes to type up crap like this when it only took about 30 seconds to realise it all after reading the offer post.

[ThickAsThieves]

In the end, I'm guessing the only question we'll have is why you believe Usagi will make good on any option excercises that equate to profit for you, loss to him.

Is BMF the fund that is basically all PMBs and thus guaranteed to depreciate? Admittedely I've ignored much of his workings and offers, so I am speaking with some ignorance.

[Deprived]

Time to get into the meat of it - why is the investment +EV for LTC-ATF?  It's useful here to consider the worst and best cases to determine a range within which likely results will fall.

I won't, hereafter, be discussing default by issuer - which is always the worst case.  I explained in the first post why I don't believe default on the agreement by usagi is likely - but obviously it can't be totally discounted and is the true worst case.  That's always the worst case for all securities we hold - the only important point with it is that I don't believe the default risk is higher than usual here.  There's some mitigation as far as default is concerned as well - on most securities we're also exposed to some extent to exchange default.  Here we're largely immune to that - as the repurchase agreement means we're theoretically immune to losses to the security caused by the exchange failing.

So bear in mind the above when reading on - I'm not saying default risk doesn't exist just that, as always, there's no point dwelling on it : the key is determining that likely profit makes a small default risk acceptable.

For the remainder of this post when I refer to 'value' it is somewhat ambiguous : it could refer to NAV/U or it could refer to market price.  Which I refer to in practice is very situational - at times NAV/U will drive decisions I make and at other times market price matters more.  I'm making no effort to disambiguate such references.

Worst Case Scenarios

There are two different scenarios which are potentially the worst case ones - it's not immediately clear which is actually worst.

1.  Short-term heavy loss for BMF with no medium-term recovery.  In this scenario the value of BMF falls immediately and massively and hasn't made any significant recovery after 2 months.  We end up sitting on the shares for 2 months then selling them back at the purchase price.  The loss to LTC-ATF in this is the cost of 50 BTC for 2 months - which can be approximated as being 60 days of paying dividends on LTC-ATF.B2 on 50 BTC (as that's where we raise new capital now) or 1.5 BTC.  There's no larger opportunity cost as we could sell more LTC-ATF.B2 into the market without problem.

2.  Whilst the above is the obvious worst-case scenario there's actually another which potentially ends up worse.  That's where the value of BMF drops slightly then stays there.  And remains there for 6 months.  In that scenario we can never sell at or above .032 on the market - as the value is just too low - but because the fall is small there's a strong disincentive to sellback after 2 months as by doing so we would surrender our right to the 1 year warrants.  In that situation we end up selling back after 5 months or so - so it costs us a lot more in capital servicing.  Of course during that period we ARE receiving dividends - and as the value hasn't fallen a lot those are likely to cover a significant part of what would otherwise be our losses (if the value has fallen AND dividends were tiny then we'd be selling back earlier and the outcome would be roughly like 1.).  So it's a bit of a toss-up which is the worst.

Bottom line is that maximum expected losses to LTC-ATF on the 50 BTC investment, ignoring default, are around 2 BTC.

Best Case Scenario

For purely illustrative purposes let me give a humorous best case scenario.  I'm not intending to suggest that usagi WOULD gamble the funds on J-D - take it as analogy for investing in something high-risk and high-reward.

1.  We sell our shares on the market at around the price we paid for them.
2.  Usagi gambles the 150 BTC we paid for them (representing around half the NAV of BMF) on a single even-money roll on Just-Dice.

If Usagi wins the roll then NAV has increased by 50% - we can now start turning in warrants to get shares at .032 and selling them at a signficant profit on the market.

If Usagi loses the roll then NAV has halved.  We can now start buying shares on the market at around .016 and selling back per our right to do so.  And as we do this the NAV MAY fall even lower - as if BMF is paying for the redemptions then the NAV/U of all remaining shares is falling so we get the next batch cheaper.  And as this would end up with us having all the cash and the final NAV/U for everyone else being 0 there's pressure on the other investors to sell first (and get something) allowing us to buy even cheaper.  I say "NAV MAY fall" as it isn't at all clear to me whether if I sell back at .032 when NAV/U is lower BMF or usagi pays the difference - it's a point I deliberately didn't try to clarify as I didn't believe asking the question to be in my/LTC-ATF's interest.

Now ignore the J-D references above and consider what would happen to the share price of BMF if NAV/U either fell or rose significantly due to usagi's investment performance.  It's pretty safe to assume that if he makes heavy losses it won't trade at a premium, and if he makes large profits it likely WILL trade at a premium.  The extent to which that happens depends mainly on his willingness to issue or redeem paper - but the pressure is always going to be in the direction which maximises our profits.

In anything approaching a best-case scenario we can make a signficant profit if the value of BMF EITHER rises or falls by a lot.  That's because we have the ability to execute (what are effectively) options in either direction.  What we absolutely don't want is value stagnation.

More Realistic Scenarios

The best case, as described above, is pretty much guaranteed not to happen.  Whilst the value of BMF could conceivably go up or down a lot there's just no way to shift all BMF shares at near NAV/U in the first place.  That said if anyone wants them I'd sell them all right now at a 5% discount - but only if all sold in one block (there's good reasons why selling a small number at a discount is a bad move).

I'm going to have to be intentionally a bit vague from here on out - as if I were to describe precisely the strategies I plan to use it would make them less likely to succeed.  Some of you will be able to read between the lines or extrapolate from what I say - others won't.  If you're an investor in LTC-ATF and have some brilliant idea of how profit could be made DON'T post it in the thread because:

a) I almost certainly already plan on doing it.
b) Informing other market participants probably reduces either the probability of it working or the profitability of executing it.

For LTC-ATF to make a profit doesn't require that we sell all of our BMF shares - in fact we only need to sell a relatively small amount.  There are a few key factors that we require to occur for us to make a profit:

1.  That the value of BMF is above the price we paid for SOME period within the next few months and that we sell some shares near that price - freeing up options.
2.  That subsequently, but within the next 6 months, the value of BMF moves majorly in EITHER direction.

The best outcome for us is undoubtedly if, whatever it is usagi has planned, makes a significant profit - as we then get to make profit on selling existing shares AND double-dip with warrants.  But provided we free up a fairly small number of options we come out ahead if the value subsequently crashes.

It's important at this point to consider what the portfolio of BMF actually is.  Although it claims to be a mining investment fund at present the vast majority of its holdings are very safe things like bonds - many of which actually pay more than what we pay ourself on LTC-ATF.B2.  So whilst we would ideally like to sell shares quickly we don't face any massive cost if we fail to do so due to dividends reducing the effective cost of holding them (with no change in value) to next to nothing.

I don't know what usagi's planned big investment opportunity is - but it's a safe bet that he isn't just planning to buy more bonds as that wouldn't achieve anything for him other than a nasty cashflow problem in 2 months time when I asked for the 150 BTC back.  I believe it against the interest of LTC-ATF investors for me to speculate further on this.

There's two more things to consider when looking at why this is a decent thing for LTC-ATF:

1.  LTC-ATF can now trade BMF with impunity provided certain guidelines are adhered to.
2.  LTC-ATF can write options on BMF backed by the options we already hold (again subject to certain restrictions).

Hopefully this at least shows that the downside is small compared to the upside : if you do the math then with a downside of under 5% of invested capital usagi doesn't need THAT high a chance of making a profit for this to work out well for LTC-ATF on average.  And that's if we were to totally discard any possibility of profit if BMF were to fall in price.

The key, for me, in choosing to do this deal was that the most likely downside is very small compared to the upside.  It really IS that simple.  It's then just down to me to extract the most possible benefit from it - which I've hinted at above but can't describe in detail for (hopefully) obvious reasons.

The LOL Factor

I'd be remiss if I failed to mention that the humorous side of this DID occur to me when considering it.  I believe the deal is good for LTC-ATF on its merits - but that it was with usagi added an amusement factor which certainly added value for me personally.

Disclaimer

As with all investments I make on behalf of LTC-ATF no endorsement of securities we hold should be assumed.  LTC-ATF trades and holds securities because I believe the specific circumstances, terms and context of those holdings make the situation +EV for LTC-ATF.  That should never be extrapolated into a general recommendation to buy, hold, trade or otherwise interact with something.

The sort of points discussed above are things that I consider on most investments/trades we do - having seen how long it took me to type this up only reaffirms my decision not to, in general, discuss the detail of LTC-ATF's dealings.

[Deprived]

In the end, I'm guessing the only question we'll have is why you believe Usagi will make good on any option excercises that equate to profit for you, loss to him.

Is BMF the fund that is basically all PMBs and thus guaranteed to depreciate? Admittedely I've ignored much of his workings and offers, so I am speaking with some ignorance.

It was nearly all PMBs - and did depreciate.  Now it's nearly all bonds with just a few PMBs left.  After taking a haircut on DMS.MINING he swapped to DMS.SELLING.

I addressed your question to an extent already in the second post.  Bottom line is I'm confident he'll make good on option exercises if he possibly can.  You need to look pretty carefully at his past behaviour to see why I believe that.  I'm not going to expand on that as it falls into the area where it isn't in the financial interest of LTC-ATF investors for me to do so.

[usagi]

So What Do The Warrants Mean?

There's an important point with these which must be considered when looking at my strategy going forward.  Each warrant we hold can ONLY be used in one direction or the other - not both.

Yes, once exercised in either direction they expire.
The buyback is for 1 share and 1 warrant (it's just a reversal of the original trade). Should Deprived choose instead to exercise them as purchase warrants, they would be spent in the process.

So in essence they can only be used once -- either to sell a share back to BMF at 0.032, or to buy a new share at 0.032.

Deprived can also sell these warrants if he so chooses, he doesn't even have to inform us of the sale (although in that case we would only accept his authorization to exercise them).

[Deprived]

So What Do The Warrants Mean?

There's an important point with these which must be considered when looking at my strategy going forward.  Each warrant we hold can ONLY be used in one direction or the other - not both.

Yes, once exercised in either direction they expire.
The buyback is for 1 share and 1 warrant (it's just a reversal of the original trade). Should Deprived choose instead to exercise them as purchase warrants, they would be spent in the process.

So in essence they can only be used once -- either to sell a share back to BMF at 0.032, or to buy a new share at 0.032.

Deprived can also sell these warrants if he so chooses, he doesn't even have to inform us of the sale (although in that case we would only accept his authorization to exercise them).

Thanks for the clarification.  I hadn't actually considered selling them - though they definitely have value.  Any sales or exercising of them will, of course, be recorded here.

BMF shares will be valued in accounts at .032 unless/until they have a higher value AND there's significant bids at above that.  The warrants, as with all options we hold, will be value at zero.  Though options/warrants often have a clear value that value tends not to be immediately realisable so shouldn't be recognised in NAV/U.  If the situation arises where their value IS realisable then I'd value (and that report that value) appropriately.

[Deprived]

In view of the imminent closure of BTC-TC and LTC-Global, LTC-ATF will be closing its doors.  In theory we could move to another exchange - but there's nowhere which supports securities denominated in LTC so a major restructure would be needed with a massive change to the contract.

The following will happen today, assuming the exchanges are up and the necessary functionality works:

1.  All bonds will be recalled at face value.  The contracts are explicit that redemption is at face value in the event that LTC-ATF closes.
2.  I will buy out all LTC-ATF shares at the NAV/U as of yesterday.  The adjusted NAV/U (i.e. post management fee) was 0.69148904 LTC per share.

This is an expedited version of the closure procedure defined in the contract.  If I were to strictly follow the contract then bonds would be paid out now (once I was sure all funds were going to be accessible) then LTC-ATF investors would get back cash slowly as shares were sold.  Some of the investments we hold are NOT going to sell for full value - e.g. the 500 LTCI we picked up a day or 2 ago to flip (which will lose a load of value because of holdings LTC-GLobal shares which obviously aren't going to be worth a lot).  There would also be signficant delays realising some assets - e.g. the BMF shares where I can't sell them back for nearly 2 months.

As maximum losses are under 100 BTC I've decided I'll just eat whatever losses there are myself and save my self the hassle of sending small bits out as we sell stuff - and then having to send out to lots of people directly after October.  I'd hope all investors would appreciate that this isn't something I was obliged to do, will definitely cost me some BTC (probably only 20-25 BTC unless usagi defaults on the BMF deal) and is better for investors than if I stuck rigidly to the contract.

Those of you who invested at the start will have made very slightly under 900% profit denominated in LTC, 5550% denominated in BTC and something with even more digits if you measure it in USD.  Thanks for your support - and hope you're happy with the return you received for putting your trust in me.  For those who invested more recently, buying at well above NAV/U, I can only apologise for your losses.

DMS will be dealt with seperately in its own thread.

For the BBET and MPOE pass-throughs, for now I'll fill any asks where I can sell at that price into orders on MPEx.  Down the line I'd be aiming to do a forced buyback before LTC-Global gos offline at whatever price I can sell the underlying at.  I'll address those in more detail once I've got the easy ones (bonds and LTC-ATF itself) out of the way.

[Deprived]

A dividend of 0.69148904 LTC per share has been submitted for immediate processing in full and final settlement in respect of LTC-ATF's closure.  I returned my own shares to the fund first - so the total paid is under half the NAV that the fund had at closure.

That payment represents the adjusted NAV/U as of late yesterday evening when I locked the spreadsheet ready for this week's report.  I haven't attempted to mark things down because of the collapse in value of them today.  I'd been intending to do a much longer report than usual to celebrate the fund's 1 year anniversary.  We never quite reached it (the anniversary is still 3 days away).

It's been fun - and profitable - and who knows, maybe I'll start a new fund somewhere else in the future.

P.S.  Both bonds have also been repurchased in full at face value.  The pass-throughs aren't closed yet - but I'll personally take liability for those and will try to get them closed out as well before the exchange closes.

[zxcvbs]

Well this is disgusting will never put money on these sites, a total loss of 100 ltc, i dont even wanna think about share holders with big capitals on this stock. Much information, much reports, but on the moment of fulfill shareholders, happens things like that, yes i would have read the terms, look and morals can be disguised too well. Im not statisfied with the final handling of this stock.
this is the price i paid to yell.

[thy]

In view of the imminent closure of BTC-TC and LTC-Global, LTC-ATF will be closing its doors.  In theory we could move to another exchange - but there's nowhere which supports securities denominated in LTC so a major restructure would be needed with a massive change to the contract.

The following will happen today, assuming the exchanges are up and the necessary functionality works:

1.  All bonds will be recalled at face value.  The contracts are explicit that redemption is at face value in the event that LTC-ATF closes.
2.  I will buy out all LTC-ATF shares at the NAV/U as of yesterday.  The adjusted NAV/U (i.e. post management fee) was 0.69148904 LTC per share.
...

Lots of things in your post to comment on, but lets start with the above and have a look at the LTC.AFT contract at LTC-global.
From LTC-AFT's Contract with it's shareholders we read the following:

"LIQUIDITY & FUND CLOSURE

The fund does not pay dividends - so the only way for investors to realise
profits (or losses) is to sell their units. The fund shall attempt at all times
hold at least 5% of fund value in LTC for the purpose of buying back units.
When the manager is online (and has an accurate current valuation of the fund)
this shall be done by bid-walls placed on LTC-GLOBAL at between 95% and 99% of
NAV/U (the precise value within that range may be set by the manager - based,
primarily, on volatility of the LTC/BTC exchange rate).

If significant bids already exist at above 99% of NAV then the manager is
released from the obligation to place bid-walls - but not from the obligation to
hold sufficient liquid LTC to place such walls if the need arises.

If circumstances arise such that the manager is no longer able to continue
operating the fund then the manager shall dispose of all assets held by the fund
and distribute the proceeds to unit holders. Such process shall be conducted in
as timely a fashion as is possible without incurring major loss by selling into
under-priced bids."

 
The contract say "If circumstances arise such that the manager is no longer able to continue
operating the fund..", it dosen't say if the exchage the fund is listed on were to close down.
I can't see that it would be stranger to run a fund denominated in LTC on an BTC exchange (like Bitfunder or Havelock) than having bonds denominated in BTC on an LTC exchange.....
So BTC-TC and LTC-GLOBAL's closing is not really a reason for closing the fund according to the contract, that is not an option that excist for you to take in this type of situation(it would have been another situation if there woould have been no btcstocktrading platforms or exchanges left or if you had been seriously ill and couldent continue things because of that) accourding to the contract as it's possible to continue running the fund either on another exchange or totally without any exchange, so that looks like a breach of the contract.


The only slight problem i can see in the contract is this line:

"The manager is entitled (and expected) to buy back units. This may only be done
on the LTC-GLOBAL exchange at prices below the current NAV/U."

And i can hardly think investors would object to having trades of the share be done at another exchange instead and the wording in that sentance dosen't mean the funds have to close just because you can't buyback shares at that specific exchange after the 7 october ....


So the action you took on LTC-AFT, LTC-AFT.B1 and LTC-AFT.B2 looks to have been taken to quick and be incorect ones. The coming 2 weeks on LTC-golobal and BTC.TC may also result in a lot of profitable situations for you and your fund so there's probably lots of BTC's and LTC's for the fund and you to make in that period so closing the fund now seemes like a very bad decition for the shareholders and bondholders.
Also the BMF position the fund recently took just a few days ago looks like it can be a very profitable one with those options rights to.


There's also the fact that some(/many ?) people that invested in your fund relatively late will make big losses on the action you decided to do while closing things down, witch probably was in breach of the contract(s) they made there investment based on.

LTC.AFT.B2 has probably for most periods only been trading at max at 4% over face value, but LTC.AFT.B1 for example has at times traded at over 30% or so over face value and even worse the LTC-AFT itself that has been trading at around 300% NAV for quite a while now.

Therefore i think the least thing you should do if you stand by your decition that things should be closed down for good is to compensate those shareholders/bondholders that made a loss on this action you took(as it most likely was a incorrect one), whether they have bought LTC-AFT stocks at above NAV value, LTC-AFT.B1 or LTC-AFT.B2 bonds above face value and havent made there investments back on them sofar, as the LTC-AFT shoulden't have been closed accourding to the contract and therefore neither the bonds should have been bought out.
It also looks like many/most of those LTC-AFT.B1 bonds and LTC-AFT stocks that has been sold at high market prices recently has been sold by either you personally or your other fund DMS that you also own significant amount of shares in, so your quick decition to close things down in what looks like a very profitable situation for shareholders/bondholders if things would have been carried on gives a very bad taste...