December 15, 2021

Ticker Symbols:  OCMAX – OCMGX

OCM Gold Fund Ex Dividend/Payable Date Friday December 17th, 2021

U.S. Inflation at 39-year high…. Fed – “Move along, nothing to see here. We got this”

Most money managers and investors have never experienced inflation and that includes members of the Federal Reserve Open Market Committee (FOMC).  Because of the symbiotic relationship between the stock market and the Federal Reserve, today’s market participants, in our opinion, want to believe the Federal Reserve has the tools to combat inflation without imploding the financial asset bubble it created.  We are witnessing each hot inflation print being greeted with a counterintuitive sell off in gold prices.  The only explanation, in our opinion, is the unwavering belief the Fed has the ability to raise interest rates aggressively to counter inflationary pressures caused by its past actions of expanding money supply faster than GDP growth.  

“Transitory” Inflation Label. A Fed Credibility Issue?

Are market participants getting close to calling a spade a spade?  November 17th Wall Street Journal opinion piece by Lawrence Goodman, “How the Fed Rigs the Bond Market” may be part of a chorus that is waking up to the reality Fed policy has destroyed the U.S. dollar as a store of value, “ Fed actions have crowded out private-sector price discovery for more than 10 years, pushing yields to lows and stock prices to record highs.  The consequence of this blurred line between Fed and Treasury responsibilities – “monetizing the debt” is inflation”.

Stephen Roach – “The Fed Woefully Behind the Curve”

With inflationary pressures now going from transitory to pervasive, the policy rate should be the first line of defense, not the final shoe to drop.  In real (inflation-adjusted) terms, the federal funds rate, currently at -6%, is deeper in negative territory than it was at the lows of the mid-1970’s (-5% in February of 1975), when monetary -policy blunders set the stage for the Great Inflation.  Today’s Fed is woefully behind the curve”.  The Fed Must Think Creatively Again by Stephen S. Roach – Project Syndicate (project-syndicate.org)

Debt levels – Fed Policy Backed into Corner

With household, corporate and government debt at record levels, it is our belief the Federal Reserve’s ability to aggressively fight inflation with a tighter monetary policy is precarious at best. We believe higher interest rates threaten tipping the global economy into a recession, potentially setting off cascading debt defaults.  Further, pulling the punch bowl from the equity market party could usher in an unwinding of market structure tied to derivative products that could have frightening consequences for all market participants.  The Fed’s attempt to normalize rates off zero starting in December 2015 showed that a Fed Funds rate of 2.5% was the tipping point before the global economy rolled over in July 2019.  So, the burning questions are can the Federal Reserve raise interest rates and pull liquidity to fight inflation without setting off unintended consequences? Or will it let inflation run to ease the global debt burden? Or does it have a politically palpable option?


“Investors have poured almost $900 billion into equity exchange traded and long only funds in 2021 – exceeding the combined total from the past 19 years — according to analysts at Bank of America and EPFR Global.”

Sentiment toward gold assets is historically the reciprocal of sentiment toward financial assets. We believe contrarian investors should take note.

Consumer Confidence and Gold Shares (BGMI)

Over the last 50 years, the two previous times when consumer confidence peaked and rolled over, gold shares outperformed the S&P 500 for the 10- and 11-year periods following. (March 1969 – to March 1979/1980 and September 2000 to October 1, 2010/2011)

Source:  Conference Board, Orrell Capital Management

Happy Holidays,

Greg Orrell

For more information or to schedule a call with Greg Orrell, Portfolio Manager, please call 1-800-779-4681.

Investors should carefully consider the investment objectives, risks, charges, and expenses of the OCM Gold Fund. This and other important information about a Fund are contained in a Fund’s Prospectus, which can be obtained by calling 1-800-779-4681. The Prospectus should be read carefully before investing. Funds are distributed by Northern Lights, LLC, FINRA/SIPC. Orrell Capital Management, Inc. and Northern Lights Distributors, LLC are not affiliated.

The Fund invests in gold and other precious metals, which involves additional risks, such as the possibility for substantial price fluctuations over a short period of time and may be affected by unpredictable international monetary and political developments such as currency devaluations or revaluations, economic and social conditions within a country, trade imbalances, or trade or currency restrictions between countries. The prices of gold and other precious metals may decline versus the dollar, which would adversely affect the market prices of the securities of gold and precious metals producers. The Fund may also invest in foreign securities which involve greater volatility and political, economic, and currency risks and differences in accounting methods. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund. Prospective investors who are uncomfortable with an investment that will fluctuate in value should not invest in the Fund.
XAU Index is the Philadelphia Gold and Silver Index.  It is an unmanaged capitalization weighted index composed of 16 companies listed on US exchanges involved in the gold and silver mining industry.
HUI Index also known as gold BUGS index is the NYSE Arca’s index measuring gold companies that do not hedge their gold production beyond a year and a half.

The S&P 500 Index, a registered trademark of McGraw-Hill Co., Inc. is a market capitalization-weighted index of 500 widely held common stocks. You cannot invest directly in an index.

Investments cannot be made in an index. Unmanaged index returns do not reflect any fees, expenses, or sales charges.
Past performance is no guarantee of future results.

NLD Code: 6803-NLD-12152021
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