Marking the 11th Hour

2015 Year End Letter to Investors

Dear Friends and Investment Partners,
I wanted to take this opportunity to comment on the performance, investment strategy,
and outlook for our Fund Partnership. 2015 has been an incredibly challenging year and one
that has produced volatile results both up and down in our Fund during a period marked by
fundamentals that held consistent to our macro views, but one in which investor perceptions
held opposite to those views. I call it a continued Alice in Wonderland market in which what
was down was seen as up and what was bad was seen as good. Market perceptions and
opinions do matter, but they are always eventually outweighed by facts and fundamentals;
while we have our own opinions and views, our investment strategy has been rooted in facts
and fundamentals. Although our investment results marked to the present have been
disappointing when weighed against these investor perceptions, our strategies have been
supported by the facts and fundamentals that have unfolded throughout the year. These
include the view that the US and global economies have not been getting better, and that the
current Central Bank strategy of holding down interest rates, while enabling an ever greater
proliferation of debt ultimately imperils this debt, the paper instruments comprising it, and the
illusory wealth built through it. Events of 2015 have strengthened our conviction of the
increasing and ultimate value of physical gold and of the ultimate demise of many financial
assets such as sovereign debt, currencies, and equity instruments built on artificially contrived
conditions and beliefs. Within this period marked by complacency and lack of awareness of risk,
lies profound asymmetric opportunities. I wanted to communicate both my conviction in this
belief, and the timeliness of an epic unfolding of positive developments for our investment
1

thesis and Fund in the immediate days and weeks ahead. 2016 promises to be an epic year on
all fronts.

To Raise or Not to Raise - Janet Yellen December 17, 2015

The financial airwaves have been saturated with this question for days, weeks, and months.
When interest rates were finally raised by a largely symbolic 25 basis points after being held
almost seven years at the emergency level of zero, the Fed sought to preserve an element of
dwindling credibility, as this was truly the only reason to deliver this symbolic hike. It was not
the result of the Feds desired narrative, namely a further sign that the economy was getting
better, accelerating to escape velocity, and that therefore such a rate hike was timely. In
reality the US economy has broken out in a vigorously downward momentum joining many
regional economies like Brazil, Canada, Australia and others that are already in outright
recessions. This rate hike not only punctuates a period of Fed policy failure in that the only
justification of zero rates for seven long years was to help engineer a global recovery that never
happened, but now augers yet another policy blunder in that it will serve to further strengthen
this downward economic momentum both domestically and abroad.

Why We Are At the Precise Turning Point

It is not about a trivial one-quarter point raising of interest rates to prove that the Fed can
act and maintain their credibility. Its about the fact that global economies everywhere are
rolling over into recessionary conditions and doing so after global debt has increased nearly
40% since 2008 1, stressing out markets and debt structures to their very limit. Seven years ago

Source: Bank for International Settlements; Haver Analytics; International Monetary Fund World Economic
Outlook; McKinsey Global Institute analysis.

when the global financial crisis reared its ugly head, interest rates in the US were at 5% - they
were at zero prior to this miniscule rate hike, with virtually no room to be reduced further in
response to this now unfolding global economic crash.

The Fed is now boxed in with nowhere to go and with no ammunition to deal with what is
coming next. Seven years of zero interest rates, $ 7 Trillion dollars of freshly printed money
globally, and more than $7 Trillion dollars of new debt acquired by the US Government through
fiscally stimulative deficit spending and the economy has failed to achieve so called escape
velocity 3. The global GDP engine is now sputtering in reverse and the implications of this on an
all-time heightened debt saturated world is ominous.

www.federalreserve.gov
Sources: St. Louis Fed FRED Database; US Department of the Treasury: Bureau of the Fiscal Service;
research.stlouisfed.org
3

As you know, the long side of our investment portfolio has been primarily geared towards
physical gold, and gold mining equities. We also have significant exposure to non-dollar
instruments through positions in foreign equities and currencies such as Russia and Brazil as
well as long oil related equities, and derivatives. In addition we have short US equities market
exposure through leveraged derivatives in the S+P Volatility Index, and short positions in
various momentum oriented, revenue challenged and balance sheet impaired technology
related equities and NASDAQ derivatives; our portfolio has also added to short positions in
interest rate sensitive fixed income, government, and junk debt securities. All of this means we
are positioned to benefit from any increase in gold values, any weakness in the US dollar, any
fragility in the US equities markets, and any increase in volatility. While the latter half of this
year showed many of these categories working against us, we expect our investment themes
to come roaring back with a vengeance starting now, as widely perceived Goldilocks
perceptions that everything is awesome gives way to the cruel reality that everything is not
so sanguine in world economies, and subsequently, financial markets.

Facts versus Perception

Interest rates were not at zero through natural circumstances. They have been rigged to that
level by Central Banks. This in turn distorts all asset prices from stocks to bonds to real estate.
These asset price levels that investors have become accepting of and complacent of only persist
through continued successful Central Bank interest rate rigging which in turn depends upon
continued faith in the judgement of these same Central Banks. The physical gold portion of our
portfolio is a hedge against this continued state of affairs and the likelihood that rigged markets
cannot stay rigged.

We believe the debt saturated world is already bankrupt. The US government is already
incapable of ever repaying its massive debt structure even while it adds hourly to its existing
debt stock. The integrity of said debt structure rests solely on the ability of the US Government
to borrow enormous quantities of fresh capital and to roll over existing debt indefinitely. This
will not happen. The physical gold portion of our portfolio is a hedge against these continued
outcomes.
World economies including the US are not growing and in fact are tipping into a recession. A
problem (2008 Global Financial Crisis) which is inherently a debt problem cannot be cured by
additional debt. The physical gold portion of our portfolio is a hedge against this failed debt
outcome.
Above all else the existing global financial system depends upon debt being saved (paid) at
all costs: Default on said debt is not an option (witness Greece and the US banks in 2008). Our
physical gold is a hedge against all possible failed debt outcomes from default, to
hyperinflation, and debasement of the currency.
The world financial system needs a massive new infusion of equity capital sufficiently large
enough to exceed or extinguish crippling global debt. The only way this can be achieved is
through a massive upward revaluation of the gold stocks held by world governments, and
Central Bank balance sheets 4. This day is coming soon as all other options of default,
debasement, and stagnant economic growth fail.
Welcome to our Brave New World.

World Gold Council. www.gold.org

Why This Will End and End Badly

1) Our analysis has led to the conclusion Fed is trapped. In 2008, in response to the debt
crisis, interest rates were lowered nearly 500 basis points. No such room to lower exists
today. Starting in 2008 the Fed and other global Central Banks also began to inflate the
currency through money printing approximately $3.5 Trillion in the US and almost $10
Trillion globally, and by some estimates even more 5. All the stops were pulled. In
addition governments engaged in massive fiscal deficit spending whereby global
government debt increased 40-50% since 2008 and even more so in the US where
government debt grew from approx. 10 Trillion to $19 Trillion 6. In other words, all of
these extraordinary actions were taken to save failing debt in hopes to achieve so called
escape velocity for the global economy.
Where are we now? On the heels of the first Fed rate hike in nearly a decade, global
economies are now rolling over into significant recessionary conditions. Brazil, Canada,
Australia and many emerging market economies are already in full blown recessions
with the US, Europe, and China following close at hand. This once again imperils debt
structures globally and it has already showed up in the US, with junk bond markets
imploding where High Yield CCC rated bonds have risen in yields from 8% to 17%, rates
not seen for these junk bonds since 2008.

Chinas Money Supply Growth, Dwarfs the Rest of the World. By Steve Johnson. September 2015.
www.ft.com
6
Debt and (Not Much) Deleveraging. By Richard Dobbs, Susan Lund, Jonathan Woetzel, and Mina
Mutafchieva. McKinsey Global Institute. 2015.

Frequency: Daily, Close BofA Merrill Lynch US

High Yield CCC or Below Option Adjusted Spread
%
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2009-07-06

2010-11-18

2012-04-01

2013-08-14

2014-12-27

2016-05-10

Sources: BofA Merrill Lynch; St. Louis Fed

Soon to follow will be the student loan securitized markets and subprime auto loan markets
which exceed $2 Trillion. As poorly timed as most recent Fed actions have been, this past
weeks rate hike promises to be an epic policy blunder for the Fed.
2) Here is what we believe follows: We have entered the very beginning stages of a swift
and far reaching equity bear market that will ravage broad indexes like the S+P down by
50% or more quickly. We are positioned for this through volatility derivatives, short
positions, and gold and gold related equity investments. Having boxed themselves in
with a rate hike blunder it will take months before the Fed will act to reverse course in a
vain attempt to stabilize markets with additional monetary madness/stimulus such as
quantitative easing, or negative interest rates. During this time plenty of market
mayhem will ensue and gold will catch a major bid from investors and fiduciaries
seeking safe haven refuge in volatile markets. Our Funds portfolio is highly and
positively correlated to this expected event.

The Dollar and Gold

We believe the current fragility of the financial system and global economies is all rooted
in a foundation of unsustainable debt. This started as a debt problem, remains a debt problem,
and will end as a debt problem. This end will also imperil the US dollar and the use of the dollar
as a reserve asset, likely in terminal fashion. The debt which was a problem 7 years ago has not
gone away, it has only grown 50 100% larger, and this is why there is no benign outcome for
this debt and the dollar. The dollar is based on this very debt and also backed by it, so as this
debt goes bad, the dollar withers and dies. There is no other outcome and since the world is
8

now tipping into a recession, the debt is toppling over into default so things will change rapidly
from here.
How gold fits in: Gold is the only asset owned by key government actors that can
extinguish this debt. At the point of no return officially held gold will be deployed to
extinguish this debt burden. So the question becomes what level will gold need to be revalued to achieve this end? (Remember: Default or money printing are not ultimate solutions
to the debt dilemma as default destroys the worlds banking system and money printing on the
scale required destroys the currencies.)

An Examination of the US Debt

The United States is de-facto bankrupt. This is not an opinion; this is an unstated fact.

As discussed earlier, total official US Government debt is approximately $19 Trillion (up
from $10 Trillion in 2008 and rising by more than $1 Trillion per annum). This debt level alone
explains why we have had to live with engineered zero interest rates for so long. Doing the
math. @ 6% interest rates the interest expense on current US debt would exceed all the tax
revenues collected by the US Government annually. That means the US is bankrupt. How much
is $19 Trillion? If the US population is comprised of four person family units. $19 Trillion
means each family owes approx. $250,000.

What about Social Security and Medicare? Conveniently, the US Government doesnt express
their future promises to Social Security and Medicare payments as part of their debt structure.
If the present value of these promises were added to the debt total.the US Government debt
obligations would rise by an additional $100 to $200 Trillion. Translated to the family of four
example expressed earlier, this brings each American familys share of the national debt to
between $1.2 Million and $2 Million 8.Do you think that will ever be repaid? It aint going to
happen!

Some Other Relevant Numbers to Ponder When Thinking About Gold

-

Global Debt = Approximately$200 Trillion (without US Entitlements) Composition: US

33%; Europe 26%; Japan 20%, China 6%).

Total Amount of Money in Existence: (most narrow definition of all currency notes plus
money held in savings and checking accounts, i.e. M2 or Broad Money): $80.9 Trillion 9

8
9

Source : www.usdebtclock.org
www.ciafactbook.gov

10

Total Funds Invested in Derivatives: $1.2 Quadrillion (thats $1,200,000,000,000,000) 10.

Market Value of Global Stock Markets Combined: approximately $70 Trillion (US is 50% of
that) 11.

Market Value of All Global Real Estate: $7.6 Trillion 12.

Total Quantity of All Gold (above ground) on Planet Earth: 5 Billion ounces.

(Approximately 1 Billion ounces are owned by governments and Central Banks) 13.

Approximate Market Value of All Physical Gold in Existence: $6 Trillion 14.

Required Gold Value for Officially Held Gold Stocks to Enable Extinguishment of Official

(Sovereign) Debt: Approximately$100,000 per ounce 15.

Some Other Things to Ponder

10

The Money Project. www.money.visualcapitalist.com

Stimulus Fed Rally Back On as Global Markets Top $70 Trillion. By Inyoung Hwang. www.bloomberg.com
12
Institutional investors, with one third of them public real-estate companies, own about $7.6 trillion of
commercial real estate worldwide. This is still a fraction of the total of all real-estate.
13
World Gold Council.
14
Calculated using a recent prevailing spot price of $1,075 USD per ounce.
15
Sources: World Gold Council; IMF; Bank of International Settlements.
11

11

Over 13% of all asset managers have never worked during a rising interest rate
environment 16.

Most of all current Wall St professionals have never held a gold coin in their hand.

Most of all current Wall St professionals have never worked through an inflationary
economic cycle.

2016 What I Expect To See

Based on our analysis of the current global macro environment we expect to see the following
occur in 2016:
- Stock Market A decline of 50% or more in US Markets during 2016.

- FED

After several months of dithering amidst market volatility, deteriorating macro-

economic conditions and rising unemployment a walk-back of this recent symbolic rate hike,
and a resumption of large scale money printing, aka, QE4.

- Dollar

- A broad and deep decline in the DXY Dollar Index of 10 or more points, (i.e.

DXY below 90 from present levels of 99).

16

How Will Newbie Fund Managers Handle Their First Rate Hike? Eric Chemi. CNBC.com

12

- Gold

- A minimum increase in the Dollar price of Gold of 50% by the end of 2016.

In conclusion we anticipate 2016 to be a year of global macro risks, and market volatility that
few anticipate, and fewer still are prepared to capitalize on. We believe our investment thesis
and portfolio are well positioned to benefit from this changing landscape.
Thank you for your continued confidence and support, and the very best wishes for the
Holidays and New Year.
John Scurci

December 24th, 2015 17

Partner and Portfolio Manager, Corona Associates Capital Management,LLC

Antilles Capital Master Fund LP
Antilles Capital BVI
Dorado Capital Partners LP

17

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.

13