An Exclusive Interview With 'Silver Fox' David Morgan

Includes: AGQ, DBS, GLD, IAU, SLV
by: Patrick MontesDeOca

I have the considerable pleasure of having with us Mr. David Morgan, author economist and publisher of and the Morgan Report. On this exclusive interview we had the opportunity to meet with David Morgan at the Cambridge Economic Summit in Palm Springs, CA. Morgan gives us a very refreshing and objective analysis of the current fundamentals in the Silver market and a profound, honest and transparent look at current events on a global basis.

PM: David, thank you so much for taking the time out of your busy schedule to be with us here today.

DM: Patrick, it is a pleasure especially in the sunshine.

PM: David, with everything currently transpiring in the global financial markets and socio-politically for that matter, why isn't every investor or saber in precious metals?

DM: I think it is a lack of education, also lack of knowledge, lack of monetary history and lack of getting the truth. I mean basically, an investment advisor any stockbroker or commodities broker or financial planner should really want to have a very basic understanding of what money is, and the subtitle of the Morgan Report is money metals and mining. Why money! Well, money transcends more people around the planet that are more interested in their money than anything else, the pervasive is pervasive in every way, it supersedes race, it supersedes nationality, supersedes economic class. The only people that are more concerned about their money than the poor are the rich. Everyone's concerned about money so it's some subject that everyone takes for granted and they don't understand the topic. Me, I am looked as somewhat of a monetary historian among other things. I mean silver is my expertise and I don't mind that title, but I am much bigger than that. Well, metals have proven as the money of choice. If you took a true free market, the people decide what money is. People say, well it could be anything. It could be sea shells or salt or it could be paper, could be electronic digit or it could be one that is logically true, then money can be anything, then money could be silver and gold if you apply that same logic, and of course again going to reinforce the point silver and gold is where the people have chosen like when they chose sea shells or beef or sand or whatever, it always had some problem with it.

Whereas the classic Aristotelian logic behind the precious metal is that it is rare, it is tangible, meaning an ounce of gold is an ounce of gold no matter what form it is in as long as the purity is the same. It is recognizable and it preserves well, so the fundamental facts of gold and silver stood the time of five thousand years. People that know that realize why they should have some savings in real money. But you won't get that message from CNBC. You won't get that message from a certified financial planner; you don't hear that from your stockbroker. You might hear that from a coin dealer here and there, but you are not going to hear it so it is under education in my view.

Patrick, I think it's that people are not responsible for themselves, especially today you got to have a trainer environment or… I will just go on that rant for a minute, what people are taught… are so ignorant that they can't do anything on their own. They cannot do their own exercise program, and they got to get a trainer, they can't figure out their own finances so they got to get a financial planner, they can't figure out what they should eat so they get their own chef. I am being a bit facetious but the idea is no… suck it up and learn yourself, be an adult get responsible and make your own financial decisions, it is your money!

PM: David, until some trust order and confidence is restored into the markets you recommend holding physical product until such time if ever trust and confidence is restored, could you expound upon that a little more?

DM: Patrick, if I can go back to just give you my mission statement which is to teach and empower people to understand the benefits of an honest financial system. Basically, the breakdown is that the whole system has become so corrupted from the top all the way through the bottom. That people don't know what to trust and a paper monetary system based on confidence, and that confidence is breaking down rapidly. We just go back and look at central banks; they are net buyers of gold now. Sovereign governments are buying gold so everyone understands the game is almost over and because they're doing it, I think the individual should know to wake up and to realize that it is probably the only asset class that is going to get them through these turbulent times financially. I would not recommend a hundred percent in metals but I think ten to twenty percent weighted is probably very important for anybody that again, gets the idea that these financial markets are in turmoil to put it politely.

PM: David, these are unprecedented times from a financial and economic standpoint. Do you think it's out of the question for an unprecedented move in gold or silver to happen in the next few years?

DM: My personal belief is that the move in gold and silver in terms of paper prices are going to go down in economic history books. I mean, never in the world have we had a system that didn't fail in paper-based or un-backed monetary system it has been tried again and again. China was the first one to use paper money. They used it eight times and it failed eight times. With a hundred percent failure rate every time it has been tried throughout monetary history it failed. So the idea that the United States dollar will not fail, and what will that mean?… well, what that will mean is that the precious metals will do the reciprocal of the opposite of what the dollar does and we are already seeing that. But I think the move ahead is going to be substantial. Just to get some fair value in today's paper price for silver you have to be $100 an ounce. And that is fair value, markets usually go undervalued to fair valued to overvalue. So in overvalued terms you could see silver go to hundreds of dollars an ounce.

PM: Why do you think we are generally so under-invested in gold and silver relative to our Asian counterparts?

DM: A lack of knowledge, lack of understanding, lack of education. I think that people turn over to money is too complicated of a subject. I need a financial planner, my stockbroker knows what is best for me. Gold and silver are volatile and there's no real promotion of gold and silver. Most of your mainstream financial products that you hear about on the mainstream press and financial channels don't emphasize gold at all but gold does get some press much more than silver does, but nonetheless it's not really given the truth and what I mean by that is that gold has been the best asset for the last decade. Gold has gone up every year for the last ten years in a row and that would be something that you think an honest financial system that CNBC talking heads would talk about "well, we looked over last year John and guess what?... gold was up again this year. In fact it's the tenth year, eleventh year in a row." But you don't hear that, you hear them at conferences like this but you don't hear them in mainstream because I think if the general public got the idea that gold is continuing to go up they might get on the internet and type in why is gold going up on to Google and start reading.

PM: David, you're big on gold and silver mining stocks what's the prudent play with this type of investment at this time?

DM: Well, I'll just back up a slight bit why I am big on the mining shares. I've always advocated a physical position before you move into that arena. I really like that arena because you still get leverage and one of my friends here at the conference Frank Barbera, I listened to his lecture this morning and he pointed out like Newmont, which is a big major mining gold mining concern has got a dividend policy now that every time that gold stabilizes a $100 dollar higher they increase their dividend rates. If we were to go for example to $2,500 dollars an ounce and stabilize there for a certain period of time the dividend rate would be like 6 or 7 percent yield. Now that is a nice healthy yield I think any financial planner worth his weight, and is really earning his money and has his heart in the right place for his clientele will be looking at something like that. I mean the biggest question I get…I get several, but one of the biggest ones I get is how do I earn income from gold? Well, Newmont is now going to pay you an income promoting gold. So that's just one, and I focus a little differently. Most newsletter writers are in a box and the box is that they really doubt any mining shares. I like to speculate like everybody else, but I really don't emphasize that part of the market. I look at the top tiers, the mid tiers and the growth tiers. I do a little bit of speculation and I do a lot of good research. We really try to find companies of merit before we put any suggestions out.

PM: David, everything else being somewhat equal, what are things going to look like in two thousand and fourteen when the Fed releases its lock on zero base interest rates. What's this going to do to the dollar, inflation and the recovery in general?

DM: Well, the Fed sets the discount window and they set the rate that banks can borrow from each other, and the rate the bank can borrow from the Fed… and put that money to work at a higher interest rate, and that is called the spread. Any time you get a positive spread you are going to re-liquefy your balance sheet. The Fed is doing that deliberately because the banking system failed. But it's not failed to the point where we cannot get to our money. Having said that, the market actually controls interest rates beyond the discount window the feds uses to set rates. So you can actually see an increase in interest rates by demand or demand and supply of the money system itself that could take place. So far it hasn't, but bond buyers are the Fed and the Fed is actually buying its own debt so to speak. The treasury and the United States government borrows all the money into existence, they are really not printing it directly. Then when the treasury wants to sell off or borrow more money the Fed goes ahead and purchases some previously issued loans and creates actually cash into the system. Regardless, I think you are going to see a different situation… and of course most people reading this interview do not understand money or inflation. They don't get it. Well, I was only making $12,000 a year in 72. Now I make $82,000 a year. That is a lot bigger number, but those numbers are just for the idea, the idea that it might put you in a positive. I don't know but the point is you have a lot more dollars, your standard of living is only maintained because you put your wife to work and you got a second job, and maybe made a couple good investments. In other words, the person's power of the average American's life wealth status has actually gone down, not up during that time frame and this is something that's critical. That goes back to what I write about money, metals and mining. I keep pounding in my reports and in the public domain about the seriousness of this problem because people often say, well… no one told us or… I don't understand. And you are not going to see me very often on CNBC. I do get on Fox business actually fairly regularly, but nonetheless I don't run into a lot of people telling the general public, the investing public the truth about these matters.

PM: David, can you comment on the benefits of buying gold or silver coins relative to gold or silver bullion in times of uncertainty such as these or is there a benefit?

DM: I think there is. I think it is like owning one unit of a hundred ounce bar versus one hundred coins. In the coin form you got a hundred decisions you can make. You could sell one at a time, ten at a time twenty at a time and that kind of thing. Where as if it was in bar form you have to make one decision and it has to be correct. So, I really teach and have taught often at the beginning, if you are going to start in the physical arena you should really start with small coinage first, and if you're a high net worth individual bars are easier to stack and track but that's an individual case. Most people are better served by owning the coins.

PM: David, with all the negative news every time you open a newspaper, turn on the television or go to the web, as a trader, is there contrarian sentiment to these scenarios that might want to shape your strategy going forward?

DM: When I first started in the markets I really had a strong math background and still do. My first degree is in engineering before I went on to know the economic side of things… which is my passion. And I thought I could do really well in the stock market based on my ability in math. I mean, figuring out what the true price-to-earnings ratio is or what everything's forecast would be or what the margins are in a given company. And I found out pretty early that knowing the math of the company is a tool but only a tool. That's not really the best way to determine where the market is going to go. So, I had to regroup and think about it and what I determined was the psychology. It's the sentiment, you know and that's one part hard to get a handle on because of the sentiment indicators. I have a very good… actually key to keying into sentiment because of my service. When I have a lot of new subscribers, I know sentiment is very bullish and when no one is buying our reports at all, I know sentiment is very bearish. And that's a good indicator, when it's very bearish that is the time to buy and when it is very bullish it is a good time to sell. So, right it's not necessarily a good indicator. I would say, I don't agree totally that it's the lowest I've seen personally based on my work. And when I see, but again, I think there's a reason for the market to go up higher. This is a different sentiment although that's important and I don't want to contradict myself. Hear is something that we haven't talked about. What I've been able to determine over the last six months is that we're ready for the next leg up because the professional money managers are coming into the market. The last resource show I did for the Cambridge House was in January, and most retail people since are scared and sentiment is low. The hedge funds, the people that have real money to invest, not saying the individual doesn't. I'm talking about group money is ready and getting back in this market in smart significant ways. It is not only in the mining side but the coin side. I happen to be well connected as you know throughout the industry. Two to the larger wholesaler/retailers in the coin business, both have got massive campaigns going through Wall Street to buy physical product. So that is the kind of money that is coming to this market to move it higher. It is coming to this market and I believe that we're going see now is a good move in the metals this year.

PM: Is there a chance that the US will revert to the gold standard to defend the dollars position as a world reserve currency?

DM: I've been asked that question many times. If you think you want gold standard or not and the answer is one, I don't know. I would like to see I think, if it did happen it would be in a pseudo- gold standard of the partial backing not classical standard. I don't see ever a classic true gold coin standard being activated in the United States ever again. But again going back to my mission statement as long as there is integrity and honesty in a system, actually if the paper system had worked it never would have had to destroy itself. That's just human nature. People see an edge; they start to increase the money supply for a good cause a good package. Whatever the great mandate or cause is it gets corrupted over time. I would like to see some integrity installed back in the system. I think, you'll even be able to inspire partial gold backing, or maybe some commodity backing of some type. But time will tell, will see.

PM: David, you are speaking at the summit here. Can you give our viewers a brief synopsis of what you might be speaking about?

DM: Every year at least, I revamp myself because I can hear myself talk every day. I get tired of it… but seriously, I decided to try to make it a more general fun speech and I put myths in the silver market. And I put myths in the silver market, here's one myth, it goes back your coin question. One of the myths about silver market, get lots of questions from coin dealer's and maybe even a few more aware financial planners, although that's very rare but the thought that the actual wording as well that you also spoke, and I think everyone should own little. But I just did the data, because the idea is… everyone and a little, too very ambiguous terms. Who is everyone and how much is a little. On this recently made video I said okay, if everyone in the planet, talk about six to seven billion people on the planet. I cut that down… I accepted five percent of everyone just in the United States… three hundred ten million to twenty million, how much is a little… another ambiguous term. So I went ahead and took it to two ounces. I think we all agree that even thirty five dollars silver or seventy bucks is not a big event for most people. I thought about it, so I said what if you had three hundred fifty million people which is bit more than a true population of the US and everybody bought two ounces, that's roughly seven hundred million ounces silver which is the entire mining supply of the globe on an annual basis. So if everyone bought a little it will buy of the entire mining supply and none will be left over for industry at all. And it's only a little of a little, in other words it's only five percent of the population behind something like seventy bucks which the average income earner of the United States or even a welfare recipient can certainly afford seventy bucks a year. So the idea for everyone to own a little is impossible. That's the point I want bring home very strongly, it is precious for a reason. It is precious and is scarce and it is hard to get to and does take time and energy.

PM: David Morgan silver - and the Morgan report. David, thank you so much for being with us here today. I really appreciate you taking the time from your busy schedule to join us. Hopefully we can do it again soon.

Disclosure: I am long PSLV, AG, AGQ.

Disclaimer: Precious metals products trading involves significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results.