August 13th, 2019

Investment Letter August 2019

Dear Investors,

We’d like to begin by going over the results of the most recent audited
month of June 2019 in which the month N.A.V. declined by approximately
35.6% bringing the YTD returns to up approximately 117%. While this was a
disappointment after our big month of May 2019,(approximately +113%), it
should not represent any diminishment of our expectations and goals for the
balance of the year. To this end it would be important to go over what we see
as the primary drivers for the period ahead which is Tesla,(TSLA), Gold and the
general equities, currencies, and interest rate markets as influenced by the
latest shift by central banks to abandon a policy of “monetary normalization.”

Tesla

In our last investment call in late April 2019 we had stated our belief the
Tesla was near its end game because of stresses from its business model and
balance sheet. That fate was postponed when within days of our call Tesla
embarked on an expensive round of financing that raised some $2 Billion in
fresh capital. It didn’t stop the stock from entering a steep slide throughout
May which is what drove our strong results from our concentrated short Tesla
position, but in early June this slide reversed into one of the steepest rallies

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Tesla has seen since being public, a rally not in any way related to
fundamentals but by incessant touting by management that they would achieve
“record” deliveries of cars in the June 2019 quarter.(We were able to minimize
the negative impact of the short squeeze through the use of options and
hedges, and we believe these losses to be transitory as favorable re-pricing of
our short position could quickly return during a stock market decline). Through
a lot of gimmickry and severe price cutting, Tesla did manage record deliveries,
but at the expense of record low automotive margins, and an impressive
operating loss, thus proving our thesis that Tesla is structurally bankrupt in the
sense that it is now in a product mix and pricing dilemma where higher volumes
only bring higher losses, and that where demand for its products is plummeting
from brand destruction due to poor manufacturing quality, incoherent strategy
pivots, and underinvestment in customer service and support, all while major
competition is now obliterating Tesla sales.
In the first two quarters of 2019, even though Tesla sold more unit
volume of cars than in the last two quarters of 2018, Tesla lost $1.1 Billion. And
those volume gains were the result of a one time opening for its Model 3 car in
markets like Europe, China, and Canada where it quickly delivered into orders
accumulated over a two year reservation period thus virtually exhausting follow
on demand. This means effectively that not only has the so-called growth
narrative died for Tesla, but it should now be seeing year over year unit sales
declines on the order of 40% to 50% or more with lower pricing and an even
more unfavorable product mix. Incredibly, Tesla’s management, led by the
mercurial Elon Musk and which has seen a high pace of executive departures,
has refused to lower official guidance for this current year for both sales and
margins to a point where it is now mathematically impossible to reach stated
guidance. With growth forever dead and losses set to explode in the current
quarter and beyond as far as the eye can see, Tesla’s stock is grossly mis-priced

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and now perfectly poised to head towards its intrinsic value which we believe
to be zero. There will not be any realistic prospect of another financing round
to fund its voracious cash burn, and replenish dwindling reserves. There will be
no prospect of any savior for Tesla either in terms of new products to drive
growth, or any third party buyer at these current elevated price levels. Tesla is
structurally bankrupt and we will see a dramatic repricing of its shares in the
current quarter ending in September. As frustrating as these ephemeral
gyrations in the stock price has been, we have never seen a better and more
certain short sale candidate, or reason to be short Tesla, which is why we have
made it a large position believing that the mismatch in price is both epic and
the timeliness is here and now with the most powerful drivers of a business in
free fall. Tesla is not just a balance sheet and valuation story, it is a crumbling
business story from which the public has been largely oblivious believing
instead in Musk’s many misrepresentations, obfuscations, and empty promises
of products that will never come to be. The brand and business and soon to be
stock price destruction of Tesla coincides with a period of now emerging stock
market weakness which is why we feel it is desirable to hold our outsized
bearish position on Tesla so that we can reap outsized returns in a falling
market that in turn will allow us to redeploy additional capital in to gold and
the gold miners.

Central Bank Easing: Why This Time is Different

From a long time ago we maintained that the world’s central banks
would reverse course from trying to slowly raise rates and normalize their
bloated balance sheets to being forced to reengage a new round of lower rates
and money printing,(QE). Even we were stunned at how quickly and forcefully
the prior two year tightening narrative was abandoned. The culprit was a

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rapidly weakening global economy that threatened to tear down a global debt
structure that has doubled since the central banks began their relentless easing
ten years ago. They are now easing again, but this time is different. They are
easing at a time of record stock prices, and record low levels of
unemployment, a historic first. The underlying reason for the about face is
fear: trepidation that the global economy is weakening at a rate to undermine
a colossal and extremely fragile debt structure. This monetary policy “first”
has brought about a change in our thinking.
Let us begin by saying that no one believes in the gold story more than
we do, and no one believes in the opportunity in gold more than we do. But
having said that, we believe that this time is different for both gold and the
gold miners than it was in 2016. That difference once again is the debt. This
time the world is being gripped by an emerging slow-motion debt crisis. What
the central banks fear is that this debt crisis shifts from slow motion to a quick
paced full-on debt collapse. The result is that there is an enormous ongoing
wave of debt contraction and repayment taking place which causes the dollar
to be strongly bid for as a means to acquire the dollars needed to repay dollar
denominated debt around the world.(ie. Margin calls by foreign investors
require them to buy dollars to repay their dollar denominated debts. This
dynamic of a dollar shortage causes the potential for a move in the dollar
higher due to increased demand in a liquidity crisis). This continued strength in
the dollar, combined with a possibility for a “super-spike” in the dollar, creates
the potential for a sudden reversal in gold strength. The other important factor
that holds gold down is the enormous amount of ‘paper gold’,(ie. derivatives
like GLD that are hypothecated, and not fully backed by physical allocated
metal), that must be now kept alive (free from default). This too creates
pressure to cap gold prices in the short term. Add to this scenario the very real
possibility of a stock market crash and once again there is the possibility that

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the gold mining stocks become viewed as stocks in a stock market crash as
opposed to being viewed as gold proxies. It was this shift in thinking that
motivated us to assume an aggressive bearish position on a stock market
decline (largely via Tesla which possesses the valuation flaw combined with
fundamental business defects, but also cyclical and overvalued semi-conductor
stocks vulnerable to heightened and protracted Chinese trade war tensions,
and cloud storage and computing stocks which sport both lofty valuations, and
vulnerabilities to declining capital expenditure investments by retrenching
enterprise clients in a declining economy; there are also short opportunities in
the cyclical homebuilding and real-estate sectors, high yield and corporate
debt, and utilities which we are currently evaluating), while capping our
exposure to the gold mining equities through the sale of covered calls. As the
mining stocks recently breached these call levels we temporarily repositioned
that capital further towards our bearish stock market views. The Fund is
heavily positioned for a stock market decline (largely through Tesla) while
awaiting for re-entry into lower levels for gold and the gold miners. Our time
line is September to October 2019, both for a general market decline and for a
Tesla crash. We expect following the September to October period either lower
prices for gold and gold shares, or greater Fund capital purchasing power of
gold shares through Tesla declines. We see this as the most advantageous risk-
reward opportunity, and one that can maximize longer term opportunity for
gold as it emerges from some near term volatility.

We seek to achieve large positive swings in returns much like what was
achieved in May 2019. These outsized swings are created from concentration
and timing that can never be precisely predicted. We have a very high
conviction on the timing for our short position with Tesla. We have a very high
conviction for the timing of a general stock market decline, (this month

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through early Fall). And we have a lesser, but still strong conviction, that gold
and gold shares face strong price resistance at these levels and more than
marginal possibilities for a short term pullback that sets up for more attractive
re-entry points. We will hold fast to our timing expectations of September to
October, and revise our thinking and position weightings around these expected
outcomes. The goal is to achieve a strong finish for the year for the Fund in
terms of recovering from the volatility of the last two years.

Once again we express our thanks and appreciation for our investors
continued support, and welcome any questions you may have on the
investment strategy1.

Kind 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.

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