<< Return to Part 1
A few weeks ago I had the fortunate experience of attending the Silver Summit in Spokane, WA. As I was walking down the main hall I recognized Mr. David Morgan from Silver-Investor.com. He was walking straight towards me. I quickly introduced myself and asked him if I could set up an appointment to do an interview with him. I was not prepared for this but I also did not want to miss out on this great chance to interview Mr. Morgan
The following is part 2 of that interview with Mr. David Morgan. It was all improvised and in real time. The most important thing is that I was able to capture his point of view on the current silver market and what the prospects are for the intermediate to long- term silver market price trends.
Patrick MontesDeOca: How does that fit into this eurozone crisis that seems to be brewing and to the left to the right nobody seems to know what to do, which is I believe the current problem that we have right now, which is the lack of confidence in leaderships globally; to be able and take a stand and make some fundamental changes, real changes.
So, how does that affect the current price structure and maybe at the present time or maybe over the next six months to twelve months?
David Morgan: Oh great question, the answer is that there is a competition; there is a competition between safety. And the perception changes overtime, and the perception right now as we are doing this interview, is that the safest place you can be is in the U.S. Dollar, not necessarily in gold. And so that ebbs and flows; now that’s not every vote, there’s people buying gold as we speak and there’s people pouring money into the US Dollar as we speak, the problem with the currency markets is that they’re so fast and so huge and so many dingy dollars out there in the monetary universe, that if you move really large sums it’s really difficult to move those even in the gold market and silver markets, it’s ridiculous because it’s such a smaller/thin market. But nonetheless we see more and more move into that realm; especially we talked about the Asian market.
So, over time you’re going to see, you’re sort of asking to see short term and long term, so with the short term I don’t pay attention to the short term swings, I mean I do, but what I’m saying is that longer terms is what you really want to focus on, the real question is: Has the real trend ended or not? I think the answer is, the trend has not ended. It has subsided and now it’s cooling off and consolidating and it’s going to build a basis to go up and it’s going to go up further. And how much further no one knows, but I think we’re going to see, you know gold could easily double from here or the next three or four years and silver could easily double or triple from here or the next three four years.
And that’s with things going as well as they are right now without getting any worse, and unfortunately there’s a lot of problems in the transatlantic region. Most people aren’t talking about is that for Germany to pump more money into the eurozone, that they’ve got to go to their legislature and get a vote from the people that said we want to increase our debt.
PM: That’s about 16 or 17 parliaments I think that have to be dealt with.
DM: So this is going, this is not an easy solution. The mainstream press is going to throw two trillion euros at the problem and everyone is going to be happy for a while. And everyone’s going to ask well where is it coming from? What value does it really have? Does making more debt solve a debt problem? And lastly but more importantly where you getting the money from, from where are they getting it?
PM: It sounds to me that this economic choice is more of an inflationary or hyper-inflationary choice that they make, which is very similar to the third world debt, Argentina, Mexico, Latin American countries that essentially utilize a depreciation of the currency to wipe out the debt. Are we kind of moving into that same sentiment on a global basis now?
DM: Yes, I like to say it this way but there’s two ways you can really do it, there’s really several but there’s really basically only two ways, there’s a default you know somebody from the Federal reserve can get on there, or from the US government, this is not just the US this is global. And say “We can’t, we’re broke, we can’t pay our debts, you know all those bonds and ten-year notes there, they can’t be paid.”
PM: You’re talking central banks, European defaults or American?
DM: Any of them.
PM: The world's integrated of course
DM: They’re all broke. I mean there are pockets here and there but I’m talking about the major players, the major central banks, they’re broke. Ok, so no one is going to admit that and say we’re broke but that’s a default. That’s an admission of the truth, and you can default partially and say that you know you may get your 50 cents on the dollar.
PM: You might say we’re going through that right now
DM: Because you know that’s all our of the past years, if we’re really truthful about this we can’t pay on 100 cents - on the 100 cents we can pay 60% of it, take it or leave it, or something like that. But I don’t see that happening.
So the other way is to default with the currency, and you default with the currency over time, right now we found that (based on) the federal reserve back in 1913 the dollar is worth 4 cents, so that is, when does it go to 2 cents, when does it go to 1 cent, when does it go to 5 cents? And at some point and there’s already mad co - nations throughout the global economy where you know there’s noise in China and Russia, well what can we have in alternative to the dollar? How about a basket of currencies? The IMF has said “You know, we are looking for an alternative to the reserve currency” and on and on it goes. Because everyone knows that this thing can’t go on forever and there must be some kind of alternative and of course the real alternative through history is silver and gold.
PM: Do you see a shift of demand in terms of this policy is now being changed by some of the central banks where essentially if they are moving in this direction they have to hedge in some way, so do you see possibly a larger amount of demand shifting from some of these banks in order to hedge themselves possibly, or protect themselves against this potentially devastating collapse we have in the fiat currency?
DM: Yeah, absolutely, it’s really the only alternative that they have. Central banks, several months ago, became net buyers of gold and up until that time-frame were net sellers of gold. So that shift has taken place, and it will continue. I mean, you want to see China building its gold reserves. And so it’s good, and interestingly nobody knows really what we want in terms of a gold economy as far as some sense of confidence restored in the system.
Confidence doesn’t necessarily get restored by a gold standard, although in my opinion it will probably do a great deal, I don’t think you are going to see a true gold standard ever again. You might have some sort of gold cover clause or you might have a basket of currencies with gold included in it, you might have a basket of currencies with commodities included in it. There may be other methods.
I really don’t see going back to the gold standard again. It could happen, but it is doubtful. And the other problem with gold only standard; gold money standard is that’s a cash basis really, and there is so much debt in the system, which is the main problem, all this debt needs to be whipped out. It is uneconomic.
PM: You are talking about debt not in the private sector?
DM: Both. Private and business. Absolutely.
PM: There is a lot of talk about how much money these companies are making.
DM: Well, there is a lot of very well off corporations with a ton of cash and they are not deploying it because they don’t know what the financial future is and they don’t want to build out with new infrastructures of new buildings or whatever it is because they don’t know what the regulatory environment is going to be, they don’t know what the currency is going to be, so they are sitting on a lot of cash. On the other side you have all these people who are over extended from the credit mess that have houses they can’t pay for, so there is both sides to it.
PM: Sure, one last question if I may, what do you see here in the U.S. as far as the intervention with the Feds and the eurozone and some kind of a stimulus or concerted effort by central banks or U.S. banks? Do you think the U.S. will participate on a large scale?
DM: Possibly, I mean, it’s slowly leaked out recently about how much money the Feds have given to the eurozone and I think they are willing to do it again. But the problem is the system is broken to this point where they are “pushing on a string.”
So what they are doing is flooding the banks with easy credit; they are letting them borrow as much as they need or want or wish, but none of that is going to the physical economy.
Which you really have to focus on to get a clear picture of what’s happening looking at the amount of dollars or euros that are floating around and how many are injected and how many trillions this, and how much debt we have going on. Yeah it's important, but what you really have to focus on is if we are getting better or worse. Because that is the physical economy.
What you want to look at is how (many) more wheat fields are being grown globally than the year before, how much more oil is coming out of the ground than the year before. And that is a decline. So, what you really want to look in a sound situation is the global physical economy, is it expanding or is it contacting? Well, it is contracting. So, it doesn’t matter, how the stimulus is getting to the banks if it is not creating new wealth, which it isn’t. And so that is the problem. That is the analogy “pushing on a string.” I could give you a lot of cash, but the less there is a demand for it to build something new, or farm more land, or build a new water supply, or whatever it may be, then contraction continues.
People are scared, they don’t know what to do, they don’t have solutions, there aren’t really any strong leaders that are coming up to the front and letting people know. So the people are rebelling, you see it all over. You see it in New York, you see it in Greece for quite some time, you see it in the eurozone, and you’re seeing it basically everywhere. And what this is, is frustration because most people are not leaders, most people are followers and they will follow if they are told what to do and how do we solve a problem. And a lot of people will do it. They’ll pitch in and go “Ok, now I get it, we’ll get on with it and let’s go.” But everyone is fumbling the football and pointing fingers and blaming this, that it’s because of the Greeks that we are having the problems.
PM: People blame others until the roof falls off, then they have to take emergency action. Mr. David Morgan, thank you so much once again, it’s been a pleasure talking to you.
Disclosure: I am long GLD, PSLV, SLV.
Disclaimer: Trading in precious metals involves significant risk and is not suitable for everyone. Past performance is not necessarily indicative of future results.
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