2017 Year in Review

2017 turned out to be an epic year for investing

particularly if you were in the business of either predicting
bubbles, blowing bubbles, or riding bubbles. It was a year in
which buying high and anticipating higher was well rewarded. If
2017 was the year of bubbles it was more akin to “bubbles on
steroids” as even brand new classes of assets became birthed
and then rationalized even with returns of many thousands of
percent as brand new “stores of value”. This bubblicious
backdrop became the new normal for investment expectations
where somehow lost in the mix was the realization that all of
this was the unnatural stepchild of a nine year orgy of central
bank liquidity in the form of a $20+ Trillion tsunami of printed
money and expanded credit. Is it any wonder we ended 2017
with the mania of all manias in the form of crypto currencies?
2017 was an investment party in the theme of a Roman
Bacchanal where the Fed and assorted central banks supplied
the free booze and non-stop dance music. If you were an
investment fund whose core positions were gold centric, or
leveraged toward the gold mining equities sector as was our
fund, you were specifically uninvited to the best investment
party since the roaring 1920’s.

Silicon Valley | British Virgin Islands | www.CoronaCap.com

Buying High versus Buying Low

Fortunes are not made by buying high and selling higher.

The bubble markets have only stayed bubbly because its long
holders haven’t yet sold. Those prices are only held up by the
momentum, and the supply of greater fools supplying that
momentum. The minute that momentum ends and the selling
begins there is only an elevator shaft that awaits these prices as
they are so far away from fundamental values. The momentum
seen in the first few days of this New Year is the proverbial
chicken running with its head cut off. There is no further fuel to
feed this momentum. The Fed’s free booze was cut off in
October as the mammoth Fed balance sheet has begun to be
reduced, albeit in baby steps, but reduced nonetheless. The ECB
in turn has begun its own quantitative tightening this week by
cutting in half the sum of new euro bond purchases by 50%.
When you consider that 100% of the so-called economic recovery
was derived by the artificial means of money printing and credit
creation, the likelihood of additional economic growth or
market momentum absent the artificial central bank stimulus is
exactly zero. The closure of the liquidity spigot is virtually
guaranteed to bring about a crash in the bubble assets while
gold as the negatively correlated “un-bubble” asset is set to
soar. What follows this inevitable market crash will be the
perfect and desired rationale for central banks to revive their
one and only crisis prevention tool of choice: renewed money
printing and currency and debt debasement thus setting
ourselves up for Stage II of an explosive upturn in gold and gold
related assets.

Silicon Valley | British Virgin Islands | www.CoronaCap.com

How Cheap is Cheap?

While general stock prices have set all time valuation

records in terms of any traditional value metric including price
to sales, price to earnings, price to cash flow, etc. and investor
allocations towards equities have reached new highs including
the use of record amounts of margin debt to hold such added
allocations; gold mining stocks as measured by the level of the
oldest gold mining index,(XAU), is sitting near 50 year lows.
Gold itself is resting presently only 35% above its 1980 levels
while at the same time stocks are priced at approximately
3,000% above 1980 levels. All of this is happening at the moment
of the world’s greatest ever monetary debauchery, greatest ever
systemic leverage, and highest ever financial asset pricing.
Using the thinking side of the brain it is not hard to conjure up
the significant investment opportunity for gold and the
companies that mine gold. Instead of focusing on this
opportunity the public has seized upon mining new phantom
mathematical currencies which have been absurdly propelled to
valuations that are many fold the combined market value of all
precious metal mining enterprises on planet earth.

Gold versus Stocks: An Historic Opportunity

The two most important ideas to consider are the

following:

Silicon Valley | British Virgin Islands | www.CoronaCap.com

 Firstly, consider that the spectrum of valuation ranges for
gold over a very long time horizon has varied from a high where
gold is priced at one times (100%) of the Dow Jones Industrial
Average; to a low where gold is priced at 3% of that same
average. Gold presently sits at 5% of the Dow Jones Industrial
Average. This would imply that for gold to traverse to its
opposite extreme, that it would multiply by 20 fold while stocks
from current levels would decline by more than 90%.
(www.macrotrends.net/1378).

Secondly, consider that the financial system was brought to

Death’s door and was only kept alive since then with a
continuous application of made up money and debt creation on
a scale never before seen in modern economic history. Investors
accepting this as their “new normal” are making a fatal mistake
in terms of thinking that this is anything but normal and in fact
100% unsustainable. Investors have gone “all in” at the worst
possible time, precisely 9 years after the risks to a bullish
scenario were lowest to place themselves fully long the most
vulnerable assets of all, financial assets and the U.S dollar, just
as the punch bowl is being removed. Already and rather
ominously, one of these, the U.S dollar, has just finished its
worst year in decades just as U.S. financial assets partied on,
hardly a ringing endorsement of the other’s bullish move.

2018 is poised to be the exact opposite of 2017. The best

performers of 2017 will be the worst. Investor sentiment will

Silicon Valley | British Virgin Islands | www.CoronaCap.com

shift from unbridled optimism to abject pessimism as reality sets
in, and in the process vast amounts of fictional debt based
wealth will disappear. The Fund is positioned to capitalize on
this inevitable re-shift. 2017 with all of its frustrations did not
invalidate the strategy, but instead only lengthened the runway
while also raising the reward opportunity. We are invested in
assets that are undervalued by orders of magnitude. The prize
we are reaching for is measured in hundreds of percent. This
prize is achievable and likely for 2018.

The dollar has already started its descent. Bullion prices

have already started their ascent. The Fund’s progress in just
the early few days of this New Year have already erased the last
two month’s negative NAV performance. Much more will follow
and all of our considerable frustration and endurance this past
18 months will be amply rewarded and we are beginning to see
this unfold in the here and now. That was the motivation for me
to add to my personal stake in the Fund.

Silicon Valley | British Virgin Islands | www.CoronaCap.com

 2018 will be a very good year to us and I would like to
thank our fellow partners for your continued confidence and
support as I wish us all the very best in this New Year1.

Best Regards,

John Scurci
Partner and Chief Investment Officer
Corona Associates Capital Management, LLC

1 Legal Disclaimer - Attention: The information contained herein is confidential and is intended
solely for the use of the intended recipient. Access, copying, distribution or re-use of this letter
by any other person is not authorized. If you are not the intended recipient please advise the
sender immediately and destroy all copies of this letter. Nothing presented herein should be
deemed to constitute a recommendation or an offer to sell any investment product. This letter
contains forward looking statements, as defined by SEC Regulation D, and the Investment Act
of 1940, which are the original ideas and best judgments of the authors. The conclusions
expressed herein are not guaranteed, and past performance is not predictive of future results.
Circular 230 Notice: Any written advice provided herein (and in any attachments) is not intended
or written to be used, and cannot be used, to avoid any penalty under the Internal Revenue
Code or to promote, market, or recommend to anyone, a transaction or matter addressed
herein. Past performance is not necessarily indicative of future results. All investments involve
risk, including the loss of principal. The views expressed herein are those of Corona Associates
Capital Management,(“CACM”), as of the date indicated and may change without notice. CACM
may buy or sell any security at any time and is under no obligation to provide updates to the
information contained herein. This is not a recommendation to buy or sell any security.

Silicon Valley | British Virgin Islands | www.CoronaCap.com