Is There a Free Market in Silver?

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“I have little doubt that most of the silver that is on the SLV’s web site with a bar number is there somewhere. But what I am really concerned about is if it is hypothecated or not, meaning is there more than one owner on that same bar. And I can almost guarantee that there are multiple owners for almost every bar that they report. It does not mean that that bar does not exist.

It takes ten contracts to be a market maker. So I have got ten contracts, I have got fifty thousand ounces, and I ship it to my buddy who is a hedge fund manager over in Idaho. That is my silver. I have just sent it over to him on a lease. I have leased it to him. Now he has taken that silver and he has swapped it with somebody at the SLV, so they have got bars there. And he swapped for those and now those are on the exchange showing as part of the deal. So you can have a lease and a swap, so you could have two or three claims on those same bars. And that happens over and over again.

So the reason I used “purportedly” is that is the correct word. There are very few bars that are actually one-to-one correspondence that are sitting on the SLV and that is their only purpose. That is not the way banks operate. That is not the way the whole system operates. So I am not against the SLV, but I also state very clearly that if you follow what I teach, you would not want that to be considered a primary silver investment. That is a paper investment. That is not silver. That is paper. It only settles in paper. People ask whether I think there is going to be a default on the SLV. I say, how could there be? I mean, read the prospectus, they settle in cash. Think they have any trouble printing that stuff up? I haven’t seen any problem with that lately.”

So cautions David Morgan, publisher of The Morgan Report on precious metals and proprietor of Silver-Investor.com. More so than perhaps any other, the silver market has been loudly and visibly accused of rampant price manipulation. And more recently, suspicion is growing that the exchanges and ETFs dedicated to trading the metal do not hold sufficient volume of it to meet their obligations. Is the silver market free and fair? Chris delves deeply into these important questions with one of the best-known silver experts.

In this interview, David explains why:

  • The silver market is definitely manipulated, though likely not as rampantly as some believe. And desipte this manipulation, he believes the overall upward trend in silver (and gold) cannot be suppressed in the long run.
  • Holding phyiscal bullion as a core part of one’s precious metal portfolio is absolutely critical. Many of the bars pledged to tradable securites (ETFs, futures, etc) are assigned to multiple owners – meaning there is much less actual bullion underlying these securities than the market thinks.
  • Why his long-term outlook for silver is so bullish. Annual industrial demand for silver continues to outstrip supply from new mining, while increasing investment demand for silver as a monetary vehicle only takes more tonnage out of the market. At some point, the market will wake up to the fact that silver is in much shorter supply than current appreciated. At that point, the price will go much, much higher.

Click the play button below to listen to Chris’ interview with David Morgan (runtime 35m:58s):

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Or start reading the transcript below:

Chris Martenson: Welcome to another ChrisMartenson.com podcast. I am, of course, Chris Martenson, and today we are speaking with David Morgan, publisher of The Morgan Report on precious metals and proprietor of Silver-Investor.com. David is a long-time expert on the precious metals markets and how they operate and actively consults for investors, hedge funds, mining companies, depositories, and bullion dealers. Today we are going to talk with him about manipulation in the precious metals markets. Does it truly exist, and if so, where and to what extent? And what are the implications for buyers and holders of gold and silver today? David, we are privileged to have you here with us today.

David Morgan: Well, thank you. Pleased to be with you.

Chris Martenson: I am really pleased to have you here today and very interested in your views on silver, of course, naturally for you. The first thing I would like to start with: there is a lot of talk out on the internet, on my blog and at other blogs where people are wondering what is going on with the silver market. Is it a fair and free market? I guess this could be asked about the larger precious metals markets as well; and maybe the commodities markets, too, which people are concerned about. But with your experience and what you have seen: you have been looking at the silver market for a long time, tell me how you think the market currently is constructed and whether you think it is free and fair.

David Morgan: Okay, well, it is definitely not a free market in the true since of the word, and it is manipulated but probably not at the level that a lot of people consider it to be manipulated. This question comes up fairly often. One of the more recent times it came up was in a very large public forum at the Silver Summit in 2009. The Silver Summit was actually a creation of mine and one of the mining guys in the Silver Valley that is fairly close to where I live in Spokane. The Silver Valley is in the Coeur d’Alene mining district in Idaho, and I am about an hour and a half from there. Anyway, we started Silver Summit several years ago, and it grows every year. And 2009 had a pretty good turnout. I am going to guess probably 800 to 1,000 people. And during one of the intermissions, Al Korelin, who has his own radio show, gathered us as the MC. Us meaning myself, Bill Murphy from GATA, Roger Wiegand, Trader Rog, and Jeff Christian from CPM Group, and I believe that was it, those four. It might have been one more, and if I am leaving someone out, forgive me, but…and I wanted to get the debate going between manipulation and non-manipulation. 

So Murphy went first and gave the GATA position and then Jeff Christian gave the CPM position and then it was my turn. And I said, well I am in the middle, and I didn't really plan to be in the middle, but you cannot manipulate the overall trend of a market. The free market forces that remain are large enough to take a market higher or lower depending upon what the real market forces are. The forces underlying the silver market are tremendously huge from two aspects, both industrial and monetary, and those forces have been showing from basically 2003 to present day. Where you can really make the case that the manipulation that exist certainly takes place – and I will explain that in a moment – but you can really say that what is left of the free market really has an effect is from the advent of the ETFs in the silver market. If you look at what the silver price has done since April 2006 when the SLV was implemented – actually, before that because there was some anticipation in the market – till present day, you will see a huge increase not only in the amount of physical metal purportedly bought by these ETFs, but the overall trend of the market price-wise, of course.

I think it bears repeating that the overall trend in both gold and silver cannot be manipulated. All right, so what does that mean? Well, that means that what remains of the free market forces have influence, but within that main trend, the market is manipulated quite a bit. How often? I do not know. Daily? I doubt it. But I think there are some extreme cases. And I think it is good to look at the extreme cases because if they can do it in an extreme way, they could probably do it the subtle way as well. So one of the extreme cases was brought out and I think, again, GATA probably did one of the best jobs of this because I think they filmed a lot of this, of one of the traders – I forget his name – but he talked about 25% of the world's silver markets being sold at one mouse click. Now anyone that knows anything about the market a moves understands what he just said. All markets move based on buying or selling pressure. If there is more buying pressure, the price of whatever the commodity or the stock or the automobile or the Rembrandt painting, it does not matter – whatever is being purchased will force the price higher because there is a lot of buyers that want to buy it. Conversely, if there is a lot of sellers selling something, the price will move down, be it a stock, be it a commodity, be it an abundance of Taurus automobiles. No one wants a Taurus anymore. There are lots of sales signs on them.

So that is how markets move. So if you have a huge supply on paper of silver and you say to the market, u201CI am selling 25% of the world's supply nowu201D, there is no way that that cannot do anything but manipulate the price downward in a huge, huge way. Because if you understand commodities and most people that listen to these types of programs do, it is a zero-sum game. For every winner there is loser, and all orders have to match. And so that took the market down substantially, and that was brought out in the CFC hearing. Chris, if you might…well, you might have a question or two, but I also want to give another good example of how the market is manipulated.

Chris Martenson: Yeah. Oh, absolutely.

David Morgan: Let us take the floor trading. Now just to be very clear with everyone, the amount of floor trading that takes place in commodities these days is rather small relative to the amount of what they call u201Coff-floor trading,u201D which really means electronic trading. I mean, the amount of computer trading that goes on in these markets is huge relative to what is still done on the floor. But nonetheless, this serves as a very good example of how the price of silver actually operates, pretty much from an objective perspective. And I want to emphasize the word u201Cobjectiveu201D because I have given this rendition, which is factual, many times, and it is always amusing to me the reactions I get. I did this, actually, for a bunch of Casey's researchers at a mining trip I was in in Mexico. There were about six of them, myself counting as number seven. And – I am going to give this out – but three of them were convinced that proves without a doubt the market is manipulated, and the other three said, no, that is just how the market works.

So here it goes. And this really, really applied earlier on in the silver market. It still applies to some extent now, but the market has many more participants, as I said: the ETFs, more offshore participation, and India has always been there, but China. There is just a lot more interest in the market, so the market is more diverse, which is good for any market. But regardless, here is how it works. So, especially in the earlier days, you have, let us just say, two main parties. And this really is a good breakdown of it. I will give Ted Butler plenty of credit here — he has explained this many, many times. I do not know if he is explaining it the way I am going to. But he talks about the commercials or the banks, they are the synonymous, and the trading funds. So I am a trading fund and I am long silver, meaning I am buying. I am bullish, I think the price is going up. So I am in the silver market, I am buying, buying, buying. Well, there is buying pressure and for every buy there has to be a sell, so the banks are selling, selling, selling, selling. So now, hypothetically, and you can look at a chart, but you can see the price when we broke out a $5.55. The price went up to $8.40. So there is all this buying pressure and the market moves up, up, up, and the price is up roughly $3 from the break out of $5.55. And now what happens is the trading funds have shot all their bullets. In other words, they have no more money available to them at all to put in the silver market. They bet $5.50 and $5.75 and $6 and $6.25 and $6.50, and they are buying all the way up. And the banks are selling to them all the way up. But now there is only – really, there are several ways, but I am just going to focus and keep it really simple. There is only one way for these trading funds – I hope I did not say banks – the trading funds buying all the way up, the banks selling all the way up. The trading funds have a huge profit on paper. The only way for the trading funds to get out of their position with a profit is to do what?

Chris Martenson: Sell the position.

David Morgan: To sell.

Chris Martenson: Yeah.

David Morgan: Absolutely. They have to sell. But since the banks were selling all the way up, do you think the banks are going to buy at the top when they've been selling it all the way up? They are going to sell on top of the trading funds. What is that called? Huge selling pressure. Huge. Hey, but wait a minute: all trades must match. So on the way up, some hedge fund decided that $7.20 looked like a really great price for silver, but they missed it and it opened at $7.40 the next day and then it went to $7.60 and a few trading days later it was over $8. And then a few trading days after that it was in the $8.30s and $8.40s, but they have an open order for $7.20. And so now they get their wish because there are no orders that are open to buy silver except that order, and now you get what is called a u201Cgap down.u201D They have to match. There are all these sells. The trading funds are selling. The banks are selling. Who's going to buy? And the answer is that lucky hedge fund is buying. So that is a gap in the chart and that means that those 20 contracts that the hedge fund wanted to buy is $7.20. It gets its wish. So it shows in the chart as a gap.

And the reason I am doing this and emphasizing it so strongly is I think that the extreme example is the best way to illustrate the point so perfectly clear that there is no ambiguity for anybody listening, Chris, to your show. Because I want it to be well-understood. I want people to understand how these markets work. And I want it to be unambiguous or unquestionable what really takes place. So then you can take that same scenario a little further, and it might be some people that are on the floor themselves that say, u201CGee, we just had a $1.20 gap down. I think it is going to bounceu201D. So the locals, that's what they call them, come in and buy or maybe somebody saw it and says that cannot be – whatever. So the market starts to get more participants and there is more fresh orders that come in and that kind of thing, and then maybe some of the banks say, u201CWell gee, we just shot it down a buck twenty, maybe we could get rid of some of our shorts in the $8su201D, at the $8 level and that type of thing. Now there was a gap in the chart at that time, it was not as dramatic as I just illustrated, but it does exist. If anyone goes back and checks, you will see there is actually two gaps in the chart, and this is what takes place and took place again and again and again. I would just call it the game restarting.

And again, I will give Ted Butler some credit here that he very much deserves, because Ted was really instrumental in waking a lot of people up to the Commitment of Traders reports. And what you could do with those in the early days is you could almost trade silver to the penny. Now those days are long, long, long, gone. And not that I advocate trading for anybody, in fact, just the opposite. I think most people should never being in the futures market. I happen to be there myself on a very small basis. In other words, I do what I teach which is, if you have the wherewithal, the funds, and the ability, then you can use a very small, small portion of your overall funds to either use it to speculate hedge or that type of thing. But regardless, that is how the market works. I think I have beat it to death, Chris, but you give me some feedback.

Chris Martenson: Well, this very much fits with my own views. I actually was a futures trader for a while for myself, for my own private fund. I mostly focused on SPX and silver and gold. So I am very aware of the shenanigans that you talk about because I watched them happen again and again. And so what I focused on here, though, is: you said if the main trend is up though, these bounces that we are talking about where a trading fund and a commercial bank are involved in some blood sport with each other. As far as I am concerned – they do not even care about fundamentals, fundamentals like what is the industrial use of silver? How much is there? All they care about is where the books are stacked, right? How many people are short? How many people are long? It is a game. So the price of silver is volatile not because of fundamentals, for the most part, but because of these games that are going on, particularly in the paper markets.

David Morgan: Absolutely agree 100%. I mean, those guys on the floor do not have a clue if we would ever run out of silver or what is used for – any of that stuff. They do exactly as you stated. So they could care less. But, of course, the public sees this stuff and they get worried that the commercials know something no one else knows about, the true fundamental picture of silver and that kind of thing. The commercials may have some insight into that, but traders basically do not care. And most of the banks really do not either. They are there for one purpose and that is to make money.

Chris Martenson: Yeah, well anybody who still has a lot of faith in the banks at this point maybe they should start reading some newspapers from starting about two years ago. I have lost a lot of faith in these people to do anything other than to have a very, very finely focused since of what is available today, maybe tomorrow – but next year, not so much. And so they do that game really well. I want to talk now about where silver is going. And before I get there, you mentioned one word that was very interesting to me, I want to make sure we circle back on it. You mentioned in regards to the silver ETF, SLV, you use the word u201Cpurportedlyu201D to describe their actual physical silver holdings. Can you flush that out for me, please?

David Morgan: Absolutely. This is one that is in a controversial area, and I have done a few interviews privately for my Mastermind group. But I have little doubt that most of the silver that is on the SLV's web site and gives you the bar number is there somewhere. But what I am really concerned about is if it is hypothecated or not, meaning are there more than one owners on that same bar. And I can almost guarantee that there are multiple owners for almost every bar that they report. It does not mean that that bar does not exist.

It takes ten contracts to be a market maker. So I have got ten contracts, I have got fifty thousand ounces, and I ship it to my buddy who is a hedge fund manager over in Idaho. That is my silver. I have just sent it over to him on a lease. I have leased it to him. Now he has taken that silver and he has swapped it with somebody at the SLV, so they have got bars there. And he swapped for those and now those are on the exchange showing as part of the deal. So you can have a lease and a swap, so you could have two or three claims on those same bars. And that happens over and over again.

So the reason I used u201Cpurportedlyu201D is that is the correct word. There are very few bars that are actually one-to-one correspondence that are sitting on the SLV and that is their only purpose. That is not the way banks operate. That is not the way the whole system operates. So I am not against the SLV, but I also state very clearly that if you follow what I teach, you would not want that to be considered a primary silver investment. That is a paper investment. That is not silver. That is paper. It only settles in paper. People ask whether I think there is going to be a default on the SLV. I say, how could there be? I mean, read the prospectus, they settle in cash. Think they have any trouble printing that stuff up? I have not seen any problem with that lately. 

Chris Martenson: Yeah. All right, so they have, apparently, a lot sitting over there. When we look at this primary trend, you mentioned that SLV was really a critical component of starting to enforce, I guess, the fundamental trend to the upside. Any concern about them being a catalyst for reversing it, or do you just see investment demand continuing from here? And how does SLV factor into that for you?

David Morgan: Yeah, very good question. I have been asked that before. I am so bullish and I am biased. I think anyone that knows me very well knows that. I was asked that early on and it kind of dawned on me. Yeah, of course, you know?

First of all, some numbers. The SLV has claim to roughly 300 million ounces of silver. The amount of silver that is held by the dealers on the COMEX is less than 30 million. So in round numbers, the SLV is ten times bigger than the COMEX, yet the COMEX is what gets all the attention. You add in the physical realm whether the amount of the SLV is held independently without multiple claims like I am almost certain that there is. Regardless of that fact, they are a huge supplier of silver. So when you get a selloff, as we had recently, I think it was 35 million ounces came off the SLV, at least by their books. And that, of course, is a large hunk of silver to move around. And it is just like the example I gave earlier, it will weight on the market significantly and it has. Now whether that physical silver really moved off of the SLV vaults to somewhere else, I am not sure. It probably was a paper transaction, but that neither here nor there as far as would it actually caused the market to do.

Chris Martenson: Okay. So here we are and silver just recently…if we are going to talk about manipulation, we have to talk about the most recent take-down, I guess. So by my eyes, anything that starts at 1:30 in the morning on Sunday and knocks that much off of silver's price is a suspect move in my mind, particularly since most of that knock down stuck at the first open of the major markets the next morning. What are your views on that particular piece of work there?

David Morgan: Well, my personal view on that is that it was so blatantly obvious a blind man could see it. I mean, look, when you get a market that is moving that down in such a small volume arena. Remember all prices move up and down – as you know, I am not lecturing you, Chris, this is for your audience – you know, up and down. So there is a massive amount of selling in a very, very, very small market. It takes the price down significantly because it is such a teeny market. You can move it very easily. So the smaller the market it, the easier you can manipulate it.

So now what happens on the open is that the clerks are required by law to start sending out margin calls on everybody that is on the open that is in the margin territory, so this thing starts feeding on itself. And this has got to be orchestrated. I mean, you have to be a moron not to know what is going to take place when you do it. So it really upsets me, as you can tell from my voice. I do not like it. I do not know if it is any way to correct it. I mean, if there was a floor trader that is bullish silver out of position for tech, which is it could have been true, maybe. They might have seen it and see the order flow being so ridiculously small they said, u201CAre you kidding me?u201D, and started to buy on the open. And it might not have happened, you know, there was enough time right at the open and they would have to be pretty quickly to take place where you might have prevented some of the damage – but that is not what happened. You almost have to wonder, you have to actually ask the question: u201Cis this a total set up or not?u201D I mean, it is like, okay, it is going to happen now. And then, of course, when it opens in the markets, get ready boys. Get your speed dialers set up because here we go. u201CStart sending out the margin calls. We are coming for them again.u201D   

Chris Martenson: All right, so yeah, the whole thing looked very suspicious to me. The analogy I use is it is kind of like the price of beef plummeted in Hawaii one evening, and then next morning, all of Oklahoma opened up 10% down.

David Morgan: Good analogy. Well-said. I will use that one the next time I am asked about this.

Chris Martenson: And it's silly, right?

David Morgan: It is.

Chris Martenson: It should not have had any impact at all, really. I mean, it should have been undone and whoever dumped all that should have lost their shirt.

David Morgan: Anyway, you are getting me excited. You are exactly right, and it is only because these paper markets exist how they exist that this can take place.

Chris Martenson: Yeah. All right, let us switch things up a bit though. You mentioned that you do not recommend anybody should be trading silver, so I think you are an investor in silver. Why is it that you think silver is a good investment, and could somebody Rip Van Winkle silver in your mind? I mean, they buy some, go to sleep, 10 or 20 years later wake up and feel good about what they have done?

David Morgan: Yeah. Personally, I do both, trading and investing. I have three levels of service. The main service is for the buy-and-hold investor, and I think that is the safest for those people. Some people like to trade and that is fine, and I do a little bit of that myself. As far as a Rip Van Winkle question, it is an excellent question. I was obviously very bullish on silver starting, actually, a couple times in my life. This is the second bull market for me, but I really got on the band wagon in, actually, the late 90s and then after moving up here and starting a Web site, I had another one earlier. But regardless, I was very bullish on silver from 2000 to 2010 on basically the monetary aspect. Yeah, I looked at the industrial and it was growing and it was important, but after ten years, I decided to take another look at the silver market from the aspect of assuming I didn't know anything about the silver markets. So I took out a blank sheet of paper and I asked a question: u201CThis is January 2010, would I want to buy silver for the next ten years or not?u201D When I got done with that study, I published it in the March issue of The Morgan Report. It is still available for all my members, paid members can get it, but I have lectured on this for free. So if you really want this information, if you just Google my name, there are several lectures out there that I have gone through pretty much the entire report.

Regardless, Chris, what I found was astonishing. What I found was that within three to four years, we are going to be back in a deficit situation and most of the silver bucks know what that means and some of the new listeners might not. But silver basically was in a deficit from 1990 to 2006. For 16 straight years the amount of mining available and recycling available did not meet total demand. But supply and demand have to meet every year. And so the way it meets is by the above-ground stockpile, I will call it, of silver. It was 2 billion ounces in 1990. It dwindled down to roughly 500 million by 2006, so round numbers, we were taking a 100 million ounces of fine silver out of the stockpile every year to meet the demand for 16 straight years. And then around that same time frame, the mining supply had increased and increased from the commodities boom and we had a crossover, meaning that the mining supply plus recycling does meet total demand currently. That is just on the industrial side, but if you throw in the monetary aspect as well, you have monetary demand that is going to be there. And you are going to have a supply chain that cannot meet just the industrial demand. So I am more bullish now, Chris, on silver going out ten years than I was, as I said, back in the year 2000.

I was surprised by this – now I want to be very careful here because one, whenever you project something ten years, and I do not do a linear projection by the way, you are probably going to make some errors. So I was very concerned if I took into account that there are errors to be made, there are things that I am going to overlook, so I only looked at the three main areas where the most rapid growth in silver exists and that is in food, water, and solar. So the three things people need the most, they need food, they need to eat, and they need energy. There is a huge push, as everyone knows, for solar energy around the planet. Governments around the globe are looking to push the solar industry. I am an engineer. Solar is really not that efficient a methodology to make electricity but it does. But it is being pushed. And when you have it being pushed, it is going to get a lot of money and a lot of silver is going to be used in the process. Water purification, very important obviously, silver is used there more and more. And lastly, on the food processing. Packaging is part of it. With the nanotechnology, you can impregnate these plastic sheets with silver now, and you can do a wrapping of a meat or any other product. You could do it with potato chips, as an example (they don't). Any packaging you can think of, silver impregnated will keep the product from spoiling a lot longer, so it is used mostly in like the meat packing industry. But that is a huge growth industry as well.

So those three are the only ones that I account for in the study. I did not look at the RFID tags, I did not look at consumer electronics, I did not look at everybody in China buying a flat screen television. I just discounted all that stuff. They still are going to have a problem three or four years out. And the reason I keep saying three or four is because there is going to be a very significant increase in the amount of silver that comes out of the ground from some significant mines over the next three years or so. And I have to be truthful, I mean that is fact and let us stick to the facts. So there may be a lot of the mainstream press or the mainstream financial press telling everybody how much new silver is coming to the market. And they will probably be accurate on their numbers.

What they are not telling you is that that is going to last for just a few more years. And if everything goes as I expect it to, meaning in a very strong recessionary environment, there is still going to be huge industrial demand for silver. And there is algo going to be monetary or investment demand. I think silver is one of the most easy investments you could actually sleep on. Now, it moves quite rapidly up and down as we all know, but if you are taking a Rip Van Winkle approach that I'm putting X amount of dollars or Aussie dollars or Candos into silver, ten years out and I am giving it my grandkids or for myself or whatever the case may be. And that long term approach, I cannot think of a better investment.

Chris Martenson: Yeah. All right, so I just noted I think India's year-over-year demand growth for silver was up a couple hundred percent this past year, and we are seeing all sorts of demand increasing from industrial sources. One of the things I track very closely is the idea that, yes there are some fairly significant new mines coming on board, but a lot of silver also comes as a byproduct of other things: zinc, copper mining, other things. And as I look into that space, I see peak oil as being very real. I see energy as being a critical component of mining and mining cost, and I see the possibility that some marginal mines may not really be economic at these or higher fuel prices. So there are all sorts of factors sort of weighing in on this. Yes, there are more people. Yes, there is more industrial demand. Yes, we are going to be wanting more silver for a variety of purposes. Yes, there are new mines coming on to help meet that. And on the other side of that, we have got this idea that known mines are depleting. Eventually all mines run out; that is the nature of mining. And they run out faster at higher fuel cost because the marginal production just does not cut it. So on a Rip Van Winkle standpoint, when I look at these things, 10 or 20 years I think we are facing a very different landscape, and so it defaults all the way back to I have got a very simple investment philosophy here – a bird in the hand is worth two in a the bush. I prefer physical silver in this regard. What are your thoughts there?

David Morgan: I have always talked from the beginning that as long as this bull market continues, number one: you have to buy physical to start your metals portfolio. Basically, if I could, I would not let anyone subscribe to my service that did not initiate a position of physical silver and or gold before they ever talk to me, so to speak. I cannot control that, of course. But, no, the only monetary asset outside of what I call the matrix, I mean everything else…you can have the best mining company in the world, but you still have to buy it through a broker and you still have to sell it through a clearing house. Gold and silver, you do not have to clear anywhere. I mean, I come from an aircraft background. I do not talk about this very often, but the survival kit in fighter jets is a gold coin. They do not care where you parachute over. It could be Vietnam. It could be China. It could be anywhere. Anywhere in the world, that gold coin is recognized as money. And there is not any clearing problem, is there? You just hand it to somebody and they know what it is.

So that is what gold and silver represent anywhere on the planet, and a lot of people just do not get it. They do not get what value is, what real value money's basis is, what honest money is all about. A lot of people do. There is a very small percentage. But people take for granted that everyone knows what gold is and yet ask them…a lot of people in some places have never seen it, like a certain currency or whatever. But that kind of money, gold money, silver money is recognized everywhere. So I definitely emphasize buying the physical metal first and have it in hand if you are okay with that. If not, have it in a secure location that you will have access to and you know it is there. After that is established, then I am a little looser. I am pretty free market. So the way I teach is to go in a top-tier cash rich un-hedged mining companies. I like big money and big companies. I am much more inclined to grow my wealth at 20, 25, 30% a year compounded than to buy every junior mining company out there that has got a story to tell.

I am not really that big on the story stock thing. We have done very well on some of them. I have lost on others. But I teach bet a little to win a lot. This is speculative money. Make sure it is a speculation. Sometimes people do not do what I teach. I cannot, again, control that, but I am very consistent with what I tell people. Right now the real sweet spot on the mining side is in the mid-tier sector, and that did so well for the first ten years I have kind of refocused the report now to emphasize that sector because that is where the real best risk-to-reward profile lies. But any of us that write in this sector, you have got to diversify even within the sector. Nothing is more frustrating than buying a mining company and only buying one and your goes down while many more are going up. You have to have a basket. No one is smart enough to give you a stock that is going to do well. You have to diversify throughout that sector. I hate a long list. Diversifying does not mean you have to have a hundred. I think ten or so is probably enough diversification. Who can track a hundred companies? I know I cannot.

Chris Martenson: Right. So we have our physical core portfolio. Even Merrill Lynch says 10% gold exposure is not a bad idea. I am personally much higher than that. Everybody has to make their own sort of decision around that. And then after that, you recommend and track and offer service around looking at how you can leverage your investments in the markets. So, David, if people want to find out more about you and your service, where would they go?

David Morgan: Well, there is a couple ways to get there. The easiest is the domain name, TheMorganReport.com. It is all one word, TheMorganReport.com. You can also go to Silver-Investor.com. Both take you to the same place.

Chris Martenson: Great. And you have your offerings, your subscription service – people can find out more.

David Morgan: Right. It is a two purpose Web site, tons of information for free. Do not feel obligated to subscribe. You can get on the free email list if you want. I give good information on that for free every week. And then if you are a serious investor and you want to get my best thinking, you can try a subscription.

Chris Martenson: Excellent. So how is the Silver Summit 2011 shaping up?

David Morgan: Quite well, thank you, and we are not afraid to cover both sides. I mean, Jeff Christian and I, call us u201Cfriendsu201D in quotation marks, we certainly do not agree on everything, but Jeff is invited every year. And I think it is good for people to hear both sides. I am not a know-it-all. I try to be a learn-it-all. I read a lot of stuff that I am opposed to, but I think it keeps my mind sharp. And I like to see the other side. I try to keep an open mind. I am skeptical but with an open mind.

My main core proposition is my mission statement and that revolves around the fact that fiat money has always failed. And if you do not think it is going to fail this time, then do not listen to this program and have a nice day. If you are concerned, then I think you should get better educated. And, Chris, I think you are one of the leaders in the field as far as educating people. You are a broader base than I am. I mean, I am pretty strong economically, especially on the Austrian School, but I am pretty focused on the metals themselves and mining. And that keeps me quite busy every day, but you have got a broader base looking at the oil situation. And I, coming back to what you said earlier, totally agree. I mean, I think you are not going to see the increase compounding two to three percent in the silver market that we have seen over the last eight years continue because of the energy situation, but I projected my analysis as if it would. In other words, to be concerned, I pretended as if we could keep mining at a three percent growth rate compounded for the next decade. I really, really doubt that is the case.

Chris Martenson: Right. So, well thank you for the kind words, and it has been a pleasure talking with you today. I hope we get to do it again.

David Morgan: My pleasure. Anytime.

Chris Martenson: All right. Thank you very much, David.

David Morgan: You're welcome.

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