-- Posted 22 October, 2009 | | Discuss This Article - Comments:
Andy Sutton: Hello everyone. Welcome to Contrary Investors Cafť for the Rocks and Stocks Report. My name is Andy Sutton and this week we have an exciting guest, David Morgan from Silver-Investor.com. I donít think this really needs much preamble, so without ado letís get right into the interview with David Morgan.
Everybody is asking the question recently and itís a question Iíve heard a lot and itís a question I know that the people are asking. Silver seems to be stuck in a little bit of a range here. What do you see as having needed to happen to get silver back up to that maybe $20.00 area? Everybody was real ecstatic when it got up to $20.00. Whatís it going take to get it back up there?
David Morgan: Well as trite as this may sound, it is a very good answer and itís also the truth. What it takes in any market, whether itís silver or a stock or commodity or whatever, is buying pressure. I mean the reason any stock or commodity goes up is because there are more buyers than sellers and of course the converse is true.
What happens is it is a consolidation period that is pretty high level right now but not at the old high, yet gold is over $1,000.00 per ounce.
In silver right now you have about an equal number of buyers and sellers between the range we have seen recently. And this is very typical of all markets. A bull market is named bull for a reason. All bull markets shake off as many participants as possible, on the way up.
For example, say you were an ardent gold bug or maybe a recent one, and you were smart enough to buy gold under $400.00 and you watched it go up past the $1,000.00 level. Or with silver, maybe you bought it under $5.00 and watched it go all the way to $21.00 and now itís sitting at $17.00. You might think, ďIíve always got a triple, I donít think itís going any higher. I should have sold it at above $20.00, but I didnít; Iím selling now.Ē And so youíre out of the market. Once they enter a market and make a sale for profit, very few people will reenter the same market.
Now of course, it does happen. Iím not talking about professional traders or people on the floor of the COMEX. Those are not people Iím speaking about. Iím talking about your average individual investor, who gets left on the sidelines. Once that person is in this consolidation period and sells out, then the market takes off again.
Mr. Sutton: How do you evaluate the precious metals markets, or even the mining shares?
Mr. Morgan: I use both technicals and fundamentals. In the newsletter I stress the fundamentals, because most people can understand the fundamental case if it is laid out logic-wise as to why you would want to be in the sector. The technicals are a tool and theyíre a good tool, but theyíre not an exact tool. So people get a little hung up, especially when they first start trading. I know when I started trading so many decades ago, I looked at all the indicators.
It was confusing. I didnít know which one had priority. Eventually I came around to looking at very few indicators, the very key indicators, and these give the best information. I think the fundamentals are the thing to stress and what we do know is that gold and silver never failed as money. The financial system is based on a lie at this point, where you can create money out of nothing! These types of systems have always failed. Will this one fail? I believe it has. Not totally, not completely, but it has failed.
In fact, if you consider it objectively and you look at the Federal Reserveís own data, you will see what they have to say about the 1913 dollar. You will observe from their own numbers that the dollarís now worth about $0.04. So if my child comes home from school with a 100-point quiz on which she correctly answered only four . . .
Mr. Sutton: You wouldnít be very happy.
Mr. Morgan: I would say that was about as bad an F as you could get. In fact thatís a miserable failure. And yet we pretend the dollar is still worth something. Well in reality it is, but from a perspective of 100 years, we had a 96 percent failure, using their numbers. Again, just to drive home the pointóthat dollar (which is a weight of precious metal, but we all overlook that little fact) is worth just four cents. Yes, in some sense that is a failure, especially when you consider that the Federal Reserveís mandate is to preserve monetary stability.
So to see the dollar get cut in half, when itís worth $0.02 instead of $0.04, do you think that could have a devastating effect on us? You bet! And at the end of these great inflations you can see an acceleration of the downside, which is what I expect. But I donít expect it quite yet, and going back to what we said just on the previous question, I think we have a few more months here where the dollar is going to move around. And once it breaks to the downside, I think youíre going see an acceleration, and when that happens, youíll probably see a near simultaneous break of the silver and gold moving further to the upside.
Mr. Sutton: Thatís one thing Iíve noticed as well, particularly in checking out the dollar and looking at the indicators both fundamental and otherwise. It seems that the dollar doesnít have much of a head of steam to go too much higher. And Iíll tell you what, thatís a really good analogy that you just made in how you can actually ďassign a grade,Ē if you will, to the Federal Reserve. I mean really, the performance of the Central Bank is measured by the value of the currency that it manages. And theyíve done a terrible job.
And if you consider another 50 percent decline in the dollar, $0.04 to $0.02 doesnít seem like a big deal over a 100-year period. But if you look at basically cutting peopleís standard of living in half over a short period of time here over the next couple of years, thatís going leave a big mark.
Mr. Morgan: Absolutely, and I do believe thatís what weíre facing. One of my themes in my newsletter a couple months ago was death of the dollar. And I donít mean that the dollar is absolutely zero and itís absolutely funny money, but what I do mean is that it ceases to be the reserve currency of the world. And once it loses that status, then it becomes nothing more than an internal currency where all our imported goods (which is almost everything we buy nowóeverything at Wal-Mart, for all practical intents and purposes) double in price. It is going to have a significant impact on us, and I believe very much thatís what weíre looking at over the next two years.
Now there are still some deflationary forces out there and it will continue. Itís an odd mix this time around, meaning that everything we need is going to cost more and everything that is non-essential is probably going to fall in price. For instance, you need food, that's going higher; you need energy, gasoline, and electricity, those are going higher. Almost all your commodities are needsósugar, wheat, you name itótheyíre only going higher, longer-term. Things you donít really need are going to see price pressure.
Mr. Sutton: David Morgan, appreciate your coming on Rocks and Stocks. It was a pleasure talking to you.
Mr. Morgan: My pleasure, thank you.
Mr. Sutton: Again weíd like to thank David Morgan for coming on CICís Rocks and Stocks. Weíre certainly looking forward to talking to him in the future. Until next time, this is Andy Sutton signing off for Contrary Investors Cafť, Rocks and Stocks.
Mr. Morgan has followed the silver market for more than 30 years. He wrote the book Get the Skinny on Silver Investing. Much of his Web site, Silver-Investor.com, is devoted to education about the precious metals; it is both a free site and does have a members-only section. Mr. Morgan has just written a free report titled, Silver Fundamentals, Fundamentally Flawed, which can be accessed here: Free Silver Report. To receive full access to The Morgan Report, click the hyperlink.
-- Posted 22 October, 2009 | | Discuss This Article - Comments: