The Morgan Report Blog

Why Banks Rob Depositors: “Because That’s Where the Money Is”

Why Banks Rob Depositors: “Because That’s Where the Money Is”
By David Smith of Money Metals Exchange

1One of America’s most notorious bank robbers, Willie Sutton (1901-80), is said to have remarked that he robbed banks “because that’s where the money is.” In a strange twist, the banks themselves are now beginning literally to rob their own customers.

The theft occurs via the innovative practice of “paying” (i.e. “charging”) negative interest rates on savings and checking account balances combined with account maintenance fees. Cash strapped Greece is looking to go even further – charging customers for daring to withdraw cash! So what gives here?

Banking Policies Are Becoming Injurious to Your Financial Well-being

Since the global financial near-collapse of 2008, Central Banks, led by the U.S. Federal Reserve, have tried to solve the problem of faltering economies, excessive debt creation, government deficit spending and a deflationary landscape by flooding the system with fiat money, literally created out of thin air.

Their reasoning is that the problem of excessive, unpayable debt can be solved by creating still more debt!

If you had trouble paying off a $300,000 dollar home mortgage, would borrowing another $200,000 to continue making payments help you solve your dilemma? Of course not. You would simply owe a total of $500,000! Yet this is exactly what many of the world’s leading financial wizards have been doing to keep government budgets afloat for the last 7 years.

In an effort to stimulate the economy and encourage consumption, the Federal Reserve has lowered interest rates well below where they would be if allowed to fluctuate based on free-market forces like business and consumer demand.

This has taken us to a Zero Interest Rate Policy (ZIRP), which by definition is theoretically the lowest rate that a central bank can impose as part of its strategic agenda. The closer rates get to zero, the fewer options monetary planners have at their disposal to attempt to stimulate economic demand.

Altering Your Behavior

The effect of excessive money creation has been compared to the liquid sloshing around in a giant punch bowl.

And since interest rates are so low, investors must take on more risk in the search get greater returns. Across the globe, this new money – in an uncontrolled manner – seeks out profitable venues for growth.

A great deal of the central bank-created paper/digital money thus ends up chasing finite amounts of art, real estate, collectibles, or financial assets like stocks or bonds. This has sparked the latest stock market bull runs in one country or another, leading to new and unsustainable bubbles.

Afterwards, the supposedly most-connected person on the planet – the U.S. Federal Reserve Chairman – always seems to be surprised.

The War against Cash

Image2While investors are chased into higher risk assets in search of yield, we are witness to a simultaneous “war on cash.”

Governments around the globe have lowered the amount of cash a person can withdraw without attracting the attention of authorities, who snoop on you to make extra sure you aren’t dealing drugs or selling weapons to terrorists. France, Sweden, Denmark, Israel are just the most recent to have announced this change.

With the formation of groups like the Orwellian “Better Than Cash Alliance,” plans are underway to eliminate cash altogether and leave the public with little choice but to keep all their money in a digital account. While using only electronic money may seem to be more “efficient,” it makes it possible for authorities to track all of your financial dealings AND even allow banks to impose a Negative Interest Rate Policy (NIRP) upon you.

Without measures to prevent block them, account holders with cash balances might choose to withdraw and hoard paper currency. That would be the simplest way to escape negative interest rates.

But with funds trapped inside of bank accounts, bankers could simply deduct the negative rate charge from each customer’s balance. (Question: Would not such “digital cash balance robbery” be just a modernized version of what Willie Sutton was doing back in the day?)

Targeting You for Outright Theft through NIRP or Asset Forfeiture

And then there are the rising abuses of Civil Asset Forfeiture. If you’re stopped on the road and have a few thousand dollars on you – no matter that you might be going to buy a used car or plan to make some purchases during an extended vacation… the police can easily deprive you of the cash, without even charging you with a crime.

In recent years, Civil Asset Forfeitures have reached the scale of billions of dollars. And police departments come to depend on this tempting “revenue stream,” creating the perverse incentive to seize even more.

Following a lengthy investigation last year, The Washington Post reported,

“There have been 61,998 cash seizures made on highways and elsewhere since 9/11 without search warrants or indictments through the Equitable Sharing Program, totaling more than $2.5 billion. State and local authorities kept more than $1.7 billion of that while Justice, Homeland Security and other federal agencies received $800 million. Half of the seizures were below $8,800.”

“Monetary thinkers” feel things would be so much more efficient — for the government — if we all went totally to digital accounts. No need to carry cash around or pay bills by mail. The authorities will know exactly how much money you have and what you spend it on, placing your balance under their control at the press of a button.

Coming Soon to a location near you?

Coming Soon to a location near you?

The legend of the Greek craftsman Daedalus is relevant today. He learned how to fly and taught his son Icarus – cautioning him not to get too close to the sun at the risk of melting the wax on his wings.

Immensely powerful central bankers believe that they can safely “fly high” with their monetary policies. But like Icarus, who flew too close to the sun and plunged from the sky when his contraption fell apart, so too do our monetary authorities run the risk of similar demise – and taking the rest of us down with them.

Financial Repression Has One Logical Outcome…

In a recent article at, David Levenstein really nails it, saying:

“Financial repression has long been a driver of demand for physical precious metals. This demand will accelerate as measures become more draconian. Some bank customers… will decide that bullion is a better option than sitting on piles of depreciating paper currency or paying banks to hold deposits… Historically, only gold and silver have been trusted private stores of value as well as a hedge against political, financial, and economic turmoil. In such an insane environment, gold and silver will become the only real trusted alternative to fiat currencies. And, as more new capital flows into physical bullion, its price will soar.”

Got gold? Got silver? Got common sense?


davidsmithDavid Smith David Smith is Senior Analyst for and is a regular contributor to Money Metals Exchange. For the last 15 years, he has investigated precious metals mines and exploration sites all over Argentina, Chile, Mexico, China, Canada, and the U.S. and shared his findings and investment wisdom with readers, radio listeners, and audiences at North American investment conferences.


David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?


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Time to Move Capital into Next Bull Market – Part I

If you remember the dot com bubble as clearly as I do and are a technical analyst then you will recall the month which the NASDAQ broke down and confirmed a new bear market has started. The date was November of 2000.

You may be wondering why I bring this up. What do tech stocks have to do with commodities?

Good question because they have nothing in common. But the key here is that when a bull market ends in one asset class that money is shifted into another. That money moved into commodities and resource stocks and in a big way.

Precious metals and miners exploded, surging an average of 1000% return (10 times ROI) over the next six years, topping out in 2008. In fact, these resource stocks bottom the exact month which the NASDAQ confirmed it was in a bear market on Nov 2000.

Compare Dot-Com Bubble & Burst to Precious Metals Stocks
Over the next couple of weeks, I will be sharing some of my top stock picks in the metals sector (gold, silver, nickel, and copper). If you missed the 2001 and 2008 metals bull market then you best pay attention and be sure you don’t miss what is about to happen.


Compare Bull Market in Stocks with the Energy Sector
The financial markets and asset classes move in cycles, and there are times when specific sectors outperform others. Resources stocks specifically the energy sector is about to enter its strongest phase within the US equities bull market which started in early 2009.

Oil stocks have a lot of positive things in their favor in my opinion, though many will disagree. But it’s all in how you look at the data and your investment horizon.

During the previous market tops which are the same for NASDAQ, DOW, S&P 500, energy stocks have outperformed most sectors. Why? In short, we will always need energy, many of the companies pay dividends and when money starts to roll out of equities the underlying commodities typically hold their value for an extended period of time.

These past stock market tops generated 36%-40% returns during a time when most traders and investors were losing their shirts, or should I say lost 50% of their life savings… Which train would you rather be on?


Now take a quick look at the price of crude oil
Oil has formed what is called a (double bottom, or “W” formation and also appears to be completing a cup & handle pattern). Whatever you want to call it, they are all very bullish patterns, meaning a much higher price for oil is expected.

In short, higher oil prices, means more profits for energy companies, it’s that simple.


An Oil Junior Resource Stock

There are times during market cycles when I like to own shares of some junior companies. When a major shift looks imminent within a market or sector just like we saw in 2000 and again in 2008 I like to hold shares in companies which have the potential to rally several hundred percent.

A couple of weeks ago I talked about a speculative oil stock Cardiff Energy Corp. which I own shares. The story behind this stock is real and the horizontal well which they will start drilling mid-June 2015 has the potential to generate 5-7 times of a vertical well. Below is the chart with my short term targets.

The low priced crude oil is wreaking havoc with oil companies and share prices. The best plays are those who have the lowest cost of production per barrel and I heard this well could produce profits even if oil was trading at $25 per barrel and sold at WTI pricing with no discount.

The energy behind this share price is very impressive and shows that investors are confident in the horizontal well. If they strike oil who knows where the share price could rally to.


Detail Third Party Report:

Side note: I met with Jack Bal the President, CFO, and Direction of Cardiff Energy Corp. in Toronto recently to learn more about the company and projects. Cardiff is currently doing a private placement to raise capital and if I’m correct investors can get shares at 25% discount from the current market value. And from what I understand they have room for a few more small investors. If this is of interested to you give Jack Bal a call directly at Cardiff Energy 1-604-306-5285, and you can mention this report if you want.

Next Bull Market Conclusion:
In short, every good investment will eventually become a bad one and vice versa. Knowing when to shift our capital from one sector to another is vital for steady long-term growth of our portfolio.

Over the next couple weeks through this multi-part series I will be sharing some very lucrative stock picks which I am investing in and the second one will likely be a nickel resource company that looks poised to rocket higher.

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Be sure to check out The Technical Traders at

Chris Vermeulen

Disclaimer: Nothing in this report should be construed as a solicitation to buy or sell any securities mentioned. Technical Traders Ltd., its owners and the author of this report are not registered broker-dealers or financial advisors. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. Never make an investment based solely on what you read in an online or printed report, including this report, especially if the investment involves a small, thinly-traded company that isn’t well known. Technical Traders Ltd. and the author of this report has been paid by Cardiff Energy Corp. In addition, the author owns shares of Cardiff Energy Corp. and would also benefit from volume and price appreciation of its stock. The information provided here within should not be construed as a financial analysis but rather as an advertisement. The author’s views and opinions regarding the companies featured in reports are his own views and are based on information that he has researched independently and has received, which the author assumes to be reliable. Technical Traders Ltd. and the author of this report do not guarantee the accuracy, completeness, or usefulness of any content of this report, nor its fitness for any particular purpose. Lastly, the author does not guarantee that any of the companies mentioned in the reports will perform as expected, and any comparisons made to other companies may not be valid or come into effect.


David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?


Join The Morgan Report Free for 30 Days *
* 30 Day Trial applies to new user sign ups only!
Offer does not apply to Premium Memberships.

Money Metals Interview with David Morgan of Silver

Money Metals Interview with David Morgan of Silver


Mike Gleason: I’m happy to welcome back our friend, David Morgan, of The Morgan Report and author of the fabulous new book The Silver Manifesto. We don’t get the opportunity to do face to face interviews all that often but David is here in person in our Idaho headquarters facilities and we’re doing this from our little recording studio. First off, David, welcome and thanks for joining us as always and thanks for paying us a visit.

David Morgan: Mike, great to be with you and thank you for the tour. It’s quite a facility, brand new or I guess less than a year old. I’ve been through more than one of these. I have to say you’ve thought through everything on the security bases as well as any I’ve ever seen.

Mike Gleason: Well, thank you very much for the feedback there. We certainly appreciate that. It’s great having you here. Before we get into the book which I definitely want to cover with you today – which is a fantastic read by the way – I wanted to have a little bit of your background as a primer because obviously your experiences had a lot to do with creation of this book. How did David Morgan come to be so fascinated with silverware and how did it all start for you?

David Morgan: Well, on my first book, Get the Skinny on Silver Investing, I wrote that when I was 11 years old that the coin has changed from 90% silver coins to what we call the Johnson slugs. That caught my attention but certainly at that point in my life I had no idea what I’d be doing at this point in my life. It’s something I sort of didn’t really forget about but didn’t pay much attention to. After all, I was 11 years old. But I was fascinated by money and markets even as a small youngster. When I was 16, I asked my dad if I could I start trading stocks and I actually was allowed to do so. There’s a form I don’t even know if it exists anymore, it’s called the Uniform Gift to Minors Act, if the parent signed it, then you’re allowed to trade stocks under the age of 18.

I started doing that. I, on my own, started looking into monetary history and what money was and all that stuff. I discovered very early on about the goldsmiths and how they loaned out… or how they put out certificates that didn’t have one-to-one correspondence to the amount of gold that they held because they discovered that maybe one out of 10 people came into actually claim the certificate for gold. The whole fractional reserve banking and how it was done. I became very fascinated about banking and fractional reserve banking and how the system really worked and I knew most of the stuff by the time I was 17 years old.

When I had some money on my first job, real job, I mean, I worked summer jobs. But when I got my first real job and started saving money in a serious way, I started looking to precious metals and primarily gold because it seem from what I’ve read to that point in time that gold was the best place to be. As I saw the first market in gold from the early 70’s to the January 21st 1980, I was pretty much gold focused. Then after the fall of that time frame and silver pulled back substantially and so did gold, I asked the big question, why do the Hunt brothers buy silver? Why didn’t they buy gold? What were they so interested in about silver? Then knowing later, not at that time that Bunker Hunt felt the correct ratio between silver and gold was 5 to 1.

During the peak of the silver market, it actually hit the 16 to 1 monetary ratio very briefly, that one day when silver peaked. I started looking at silver. The more I read, the more I studied, the more I developed a study of silver, the more it became apparent to me that although more volatile, it held far more potential than gold. When I came into the business I’m in now and got in the internet and stopped just consulting and decided to start writing a newsletter, it definitely was silver focused for a lot of reasons but primarily just because the background that I had through experience in the gold market and subsequent when I’d learned and studied about the silver market post 1980, not that I didn’t have any silver exposure on the first run up, I did, but I was again was primarily focused on the gold market until after the fact.

Mike Gleason: In the months leading up to the release of The Silver Manifesto, I recall you saying that this is the book you’ve been wanting to write for several years, perhaps even since you wrote your bestselling Get the Skinny on Silver Investing so it truly was years in the making. It’s incredibly comprehensive. You and coauthor Chris Marchese go through all aspects of silver from its history as a monetary metal, the industrial component and the drivers there and now the huge amount of investment demand that is developed over the recent years, it truly is the bible on all things silver. So I imagine that even you, the silver guru as many people refer to you as probably learned something about the metal that you didn’t know. Talk about the book and give the audience who hasn’t yet had a chance to read it, an idea of what it’s all about.
David Morgan: Well certainly I did. I learned a little bit more about the potential for silver in the electronics realm, this LED lightning, this light-emitting diode. Chris did a lot of research on that. So there were several areas in that aspect of the book. One of the things I learned was how difficult it is to write about the bullion banking, fractional reserve banking and basic economics in a manner that hopefully as lively but more difficult is to write it in a manner that people want to read it and understand it because without an understanding of basic economics, and most people as soon as you say the word, it’s like taking a couple of sleeping pills. They’re ready just to nod off. I get that. But it’s critical to understand it to really have a solid basis or foundation to understand why precious metals are so critical especially during this time that we’re currently living

That is the biggest challenge. I think we rewrote those chapters like four, five times, tweaking them here, tweaking them there, trying to make them better, trying to make them more understanding, not over explain anything and not under-explaining anything. The nine months, I think, probably those three chapters were the ones that we just continually pounded again and again and again. Of course, you look at the Amazon feedback, most of it is very positive. There’s a few people that it’s hard to read or whatever and I get that. It’s not a book for a super intellect by any stretch of the imagination. We try to make it readable for everybody but there’s some people that would read it that would probably find it difficult. It is more of a textbook type of a book than perhaps a novel of some type but it’s not a novel. It’s about the silver market, it’s about money, it’s about monetary history, it’s about the economy.

It’s about why we’re where we are and what we can do about. It’s about choosing a mining company, how to analyze a mining company. It’s about how to set up a profile and a portfolio where you manage risks to reward, why top tier mining companies are more important in some ways than junior mining companies, why junior mining companies offer more exposure to risk than others. On and on it goes. Basically, with Chris’ help, it’s what I’ve accumulated in 40 years of experience that I put in a book. There’s a lot of heart and soul in it and certainly I wanted to leave, and I don’t like to use the word legacy, I’m just another human being, one of 7 billion on the planet, but I certainly devoted my life to understanding money, metals and mining and this book gave me the opportunity to present, I’d say, the cream of that into a format that hopefully will have fairly decent shelf life.

Mike Gleason: I think you’ve definitely struck a good balance there between the readability and the educational aspect of it. It is a fantastic piece of work. You guys did a very good job with that.

You touched on the miners there. As you more than anyone know the mining industry has had a rough go of it over the last few years given the extended period of low prices. But the mining stock seemed to have finally based out and maybe have rebounded from their low. So are you seeing a leading indicator of a new bold cycle in the physical metal perhaps? What about mining stocks? Is it safe to get back in?

David Morgan: I think it is safe. We’ve been a little more early there because this bottoming process is taking so long. A lot of the stuff that we had recommended is value oriented and it’s still value and now it’s better value because it’s lower in price. But your direct question, there’s a direct answer. On the premium service, all the videos that we do, we do a mining trip when we shoot a video of it or David Smith or Chris, we try to do a film and we post that to our premium members. Then I also do look over my shoulder trades where I use Camtasia software and “say look at this chart” or whatever. I can show anything with that from the desktop. I recently showed a chart of the HUI and how their bottoms are higher, the three bottoms that we’ve seen, each one has been subsequently higher than the last which is a small very visible uptrend which is unusual because gold and silver certainly have sold off this recently. It’s in this, what I call indecision pattern.

It’s in our channel formation. If it breaks out to the upside, we might be on our way although it probably take a couple more tries. If it breaks it downside, usually it only takes one trip to the downside unfortunately. Markets go down easier than they go up. If we were to break the channel, gold and or silver, you’d probably see a new low. It hasn’t happened yet. I don’t think it will. But the stocks are a great leading indicator in a bull market and right now the HUI is signaling that, it’s saying that the bottom is in and that we’re going higher. It doesn’t say we’re going higher tomorrow. It doesn’t say it’s going to be zooming up by the end of the year but it does indicate that the bottom is in and better times are ahead of us.

That’s how you read it. I don’t argue with the markets. That’s what it says right now. Could this be a false indicator? Yes. Do these work 100% of the time? No. But it’s a very reliable one. That’s what I’m going on to over several months and I think that, again, the worst is behind us. I certainly hope so at this point.

Mike Gleason: Prices on the physical seem to be at artificially low prices, well below the all in cost of production which you often write about. Around the last time you were on CEO of a primary silver miner called First Majestic, a very well-known one, had just urged other mining companies to follow his lead and hold back some of their production from the market, choosing instead to sell it later when prices were not depressed or suppressed, I guess we could say. Has the idea of putting a squeeze on all those leverage short sellers gotten any traction from other companies or it is mainly just First Majestic at this point?

David Morgan: Well at this point, I would say it’s probably just First Majestic. But if you go back into history, Gold Corp had this situation, and of course it’s a gold company but they were holding back production and banking it in a vault. A shareholder in the early days, Gold Corp owned gold bullion and shares in the company itself. I was urging other silver mining companies to adopt a similar manner of doing business to actually. Two actually adopted it in a rather minor way. One is Silver Standard. They did that for a little while and Endeavor Silver also did it for a short time frame. But Keith (Neumeyer – CEO of First Majestic) is really the one in present day that’s done it, not only recently with what you outlined but also Ted Butler came out recently and urged people to write a letter, urged mining companies to write a letter to the CFTC and explain that these markets, the way that they are traded, are well outside of the realm of what the intent of the law is.

Keith did a great job. First Majestic, this is NYSC company, symbol AG, I own a stock by the way, I should get that in there. But it’s a step forward. Whether others would follow or not, I do not know. But I admire Keith. He’s always been, let’s say, outside of the box of most of the CEOs I’ve met in the space. That goes from top tier which his company definitely is to even the mid-tiers and the juniors, a lot of them just don’t really want to get involved. I get that. It’s easier to do nothing than to do something and there’s various reasons. I’m not going to tell anybody what they should do or shouldn’t do, but I really admire the fact that he stepped to the plate and did it. It’s a lead move. We’ll have to wait and see if it has any bearing as far as what the response will be from the authorities but I certainly love to see if he gets a response and what it is.

Mike Gleason: You certainly have to commend him for sticking his neck out in some way. I definitely like to see him recruit others in the mining space to do the same just so we can hopefully get away from some of the shenanigans that take place in these futures markets that are really hurting some real companies out there. You see it first hand, obviously we’ve got … mining companies have had a very difficult time or some of them anyway. Do you expect to see any more consolidation in that industry? What are you seeing there and what’s the mood like?

David Morgan: Well, the mood is pretty down. I mean, a lot of these miners have been suffering. Some have gone out of business. Some are moving together into one office space, two or three companies in Vancouver for the smaller companies. Thompson Creek is basically on care and maintenance although they don’t talk about it in those terms. I think they laid off like one third or two thirds, I forget which, of the workforce. You’re seeing a lot of consolidation, cutbacks, slimming in products. Then a lot of companies have high graded in order to stay in business. That’s typical in these downturns that companies, if they can, not all of them can, will go into the mine and they know where the grades vary and they’ll get the highest grade because it’s the richest ore and therefore your loss is less or maybe you’re still managing to eek out a small profit. But that weakens the overall ability of the company when things come back because your overall grade strength has been lessened because you high-graded.

There’s a lot of things in the industry that have been rather bleak for quite some time. I think we will see further weakness but not much longer. Again, I’m trying to be as objective as I can meaning that I think the bottom is in, I think the worst is probably behind us. I don’t think we have much further to go. So I think anyone’s that held on this long probably make it over the hump and will start seeing better times for the miners. Having said that, I could be wrong. It’s possible that with what’s going on in the greater picture, I’m sure you asked me during the interview, the bond markets and the Greek exit situation and all that is happening that we could see some weakness in the main commodities and also strength in the precious metals.
For example, you might see a weakness in some of the base metals, maybe moly(bdenum), maybe copper that’s shown a little bit of strength here, fall back off. Then some of the other softs in the commodities come off but food going up and moving up this problem with this bird flu again. There’s been a lot of depopulation, the chicken supply and the egg supply, that will cause prices to rise in eggs and chicken. So you’re going to see these things where, I don’t think I coined the term, but I certainly emphasized it that the dynamic change is primarily going from things that you need, what cause more and things that are debt based, will cost less or at least be able to be obtained. You can look at the housing market. It’s still bubble-ish in some sectors. Car loans are easy to get. Both of those are debt based purchases but food is not a debt based purchase in most cases. It’s buy and eat it. Food prices certainly are not going down. That’s a need.

Again, I’ll say it one more time, things that we need are probably going to cost more overall than things that we don’t necessarily need but we continue to purchase, especially our leverage will continue probably to at least vary and oscillate. The banks will give these loans or whatever. They’re getting lighter or easier to make purchases using credit that it has been for some time.

Mike Gleason: Touching on the bonds, I do want to ask you about that. Obviously all markets are tied together in some way or another and perhaps one of the linchpins is the bond markets and a lot of trading activities is dictated off of what happens there. Now, you had some interesting things to say about that when we were talking earlier at lunch. What is the bond market telling you right now? What are you seeing there?

David Morgan: Well, interest rates are reciprocal of the bonds’ price. As interest rates go higher, bond prices go down. We have seen the bond market selloff meaning that the interest rates are forced higher. In fact, the German bond is at 0.9% now. It hasn’t sold off as hard as it has recently until October of 1998 when the hedge fund long term capital management imploded. Early on in my speaking career, I talked about the trillion dollar bet which is a movie all about the long term capital management fiasco. So that’s a big indicator.

The other one of course is Mario Draghi (head of the European Central Bank) talking about spooking the markets because he talked about preparing for higher volatility. That’s due to the Greek situation. The inflation in Europe, is that part of it? Yeah, it could be. But certainly this debt crisis with Greece, is really boiling over. I mean, everyone knows that they’re missing this payment with the IMF and that’s something that hasn’t happened ever as far as I know. All these things, Mike, are coming to the fore. The debt markets are the problem. They continue to grow and yet at this point in time, they are probably the most unsafe place you could be for your money.

I want to digress for a moment because I’ve been through so far this bull market, that I think will continue to be a bull market eventually. But I went through the full cycle in the 1970’s to 1980. And the best move you’ve possibly could have made and I didn’t do it, but at hindsight’s 20/20, is that you sold your gold in January of 1980 and you bought the long bond. I think it was like 20% or so at the time and you held that for 30 years. You could not have done anything smarter than that. But you know what, no tree goes off the sky, kicking the can down the road, eventually you’ll run out of road and this is the time where you got to rethink that fabulous move that some people made that’s wearing out.

Bonds were supposed to be the safest investment you can make. But all these sovereign debts, which means nation states cannot pay back their bond debt. Because of that fact, you have to really rethink if bond investment is safe or not safe. Most of the bond market revolves around big money. It’s bank to bank, nation state to nation state. I mean, Germany doesn’t want to Greek default because they’ve loaned them all this money. That’s a nation state. What happens in the next round in my very studied view will be it won’t be corporate debt that fails, it won’t be real estate debt that fails, although both of those could be repercussions, it will be governments that fail.

And how does a government fail? A government fails when its sovereign debt cannot be paid. This is what is taking place with Greece as we speak. What are the ramifications? Can a nation state with, what 12 million people, I think that’s correct, fail? But that systemic risk that triggers what happens in Germany, which triggers what happens in the rest of the Euro market, does that trigger what happens in London and does that trigger what happens in New York? You bet it does. They’re all interconnected. Because they’re all interconnected, a small failure like 12 million people that can’t pay back the debt that they owe could have repercussions far greater than just that one country. So that’s what we’re facing. That means that we’re in a situation that’s far more precarious than we were in 2008.

Mike Gleason: One of the other things we were talking about offline was just the fact that we do have kind of two camps right now, the inflation camp and the deflation camp. I know you travel on all these conferences and you run into a lot of smart people who have a lot of really informed decisions and opinions on what’s going to happen there. Where do you fall on that? What do you think the way out of this is? Are we going to have a deflating default or are we going to have an inflationary event here that takes place? Where do you come in on that?

David Morgan: Well, there’s really two main ways to have a depression. There is a debt liquidating depression, which is what we saw on the 1930’s. And there is a hyper inflationary depression. Before I give you my final answer, I’ll discuss the likeliness of both of them. In both those cases, you have high unemployment. You have high uncertainty about the economy. You have a high mistrust of government or government officials or authority in general. You have the general malaise of the populous. You start to see areas of need or want that are not fulfilled very easily. For example, you’ll find shortages in certain supply lines, supply chains. So those things all happen it’s a hyper inflationary depression or a debt liquidating depression. The main difference is that in a debt liquidating depression, there’s a huge contraction in money the supply and that money is more valuable than ever.

In a hyper inflationary depression, the situation is that the government that holds the debt is able to try to print its way out of it. Meaning that the money becomes worth less, worth less and then more or less worthless, where the trust of the people is actually null and void. People don’t trust the currency anymore. It fails. The side I lean toward is that that’s the way we’re going to go, but I rule out hyperinflation. You do not need a hyperinflation of a currency crisis. That’s not a requirement. I do not believe in a hyperinflation because of the bond market. As interest rates are forced higher, the bond prices go down which deflationary.

However, it’s a trust issue. People will move to what they trust the most which the first thing that they trust the most is physical greenbacks or the checking account or the money market account. So they’ll move out of all of their asset classes that will be stocks, that will be bonds, that will be master limited partnerships, it will be anything that you could sell to somebody through a broker that you could sell and turn to cash. That will be the first run. The run will be the cash. This comes to the extra pyramid which you can look up on the internet, I’ve discussed it many times. That will be perceived safety. However, that isn’t the safest place you’ll go. So as more there are more debt defaults or more happen, there’s a likelihood that there’ll be a certain amount of that cash that runs to gold. Gold and silver are at the tip of the extra pyramid meaning, it’s liquidity of all time and there’s no counter party risk whatsoever.

You could liquidate a million dollar portfolio and stick it in the bank and feel very safe and then have what happened in Argentina happen to you. Meaning that you’ve got the million dollars in the bank and the bank won’t touch it. They’re not even going to do a bail in. No bail in. Well David, I thought you said there could be bail ins? It could but in this case there isn’t. However, the bank sends you a little notice that says you’re only allowed to withdraw $200 a week from your account. Your million dollars is safe and sound with us no problem, however the currency control mechanism set by the federal government now says that you’re allowed $200 a week. How would that sit with you? Not very well. At least I know it wouldn’t with me. This is exactly what took place. The idea’s exactly right. The amount isn’t correct but the idea is exactly what happened in Argentina.

These are things people should think through. You want to be outside of that before it happens. Will it happen? I don’t know. Could it happen? Absolutely. Could a bail in and a restriction on currency flows happen? Yes, both could happen. So the only way outside of that system is the money of all time. Coming back on point, and this is what I want to emphasize, we have never had a debt liquidating depression where the currency superseded and went on when it was not a gold backed system. Let me restate that more succinctly. Every time you had a non-backed currency and a depression, it has been of the inflationary variety. There is not one instance in history where it’s gone the other way. So to say that it will go the other way, you’re saying that 4,000 or 5,000 years of recorded history that for once that paper money will trump gold. I don’t think that will be the case.

It could be. I don’t rule it out. I don’t want to be consistent. As I’ve said, I’ve never ruled out completely that a debt liquidating depression could take place and that currency itself actually goes up in value and does better than gold. I really don’t believe that. I think you could have something of both happening at the same time and I’ll restate I just stated but didn’t probably emphasize enough, you could see a run in the cash and cash looks better than gold for a while but then the ultimate money and the smartest money moves into gold or at least hedges some of that cash into gold and gold market is so small that as that cash went from cash into the precious metals, you would see the metals come up and the dollar go down relative to each other. That’s what I really expect, a run to the dollar and then a run of the gold. That’s kind of what we’ve been witnessing anyway.

Again, the bond market can’t hold forever. Interest rates will be forced up by the market. The Fed had a lot of control but not ultimate control, the market does. And eventually we’re already seeing the crack start to take place in the bond markets, in the Euro and the Spanish bond market, the German bond market, the US bond market and the trust level starting to lessen. It’s just like going into a worthless paper currency. It doesn’t happen overnight. The 1913 dollar is now worth about 4 cents. That took over 100 years but at some point it becomes worthless. That’s where we’re heading toward. Does that mean absolute zero? No. We’ll get a resent before we hit absolute zero.

Mike Gleason: Well it’s certainly a crazy world financially. I’m glad that we have studied in smart people like yourself to help explain it all. We appreciate you coming on. It’s great insights as always. It was great to see you and thanks for paying us a visit in person this time.

David Morgan: Mike, my pleasure. Thank you.

Mike Gleason: Well, that will do it for this week. Thanks again to David Morgan. Again, the book is The Silver Manifesto. I strongly urge everyone to pick up a copy of it. If you’ve ever bought silver or thought about investing into bullion, mining stocks, ETFs, anything, whatsoever, this authoritative book on silver is truly second to none when it comes to the silver market. It’s available at for $27.95 as well as Amazon. Pick up your own copy today, you definitely won’t be disappointed.


David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?


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Why Physical Precious Metals Are Safer than Mining Stocks

Why Physical Precious Metals Are Safer than Mining Stocks
By David Smith of Money Metals Exchange

When investors first become interested in the precious metals, they may be drawn to invest in mining stocks.

The allure of making several times your money on an exploration company that hits a big strike can be tempting. Yes, a gold-silver producer (or an exploration stock) can sport larger gains during a bull run than the price of the underlying metal itself. This is part of a trade-off, because mining operations face all sorts of unique risks.

When you hold physical gold and silver, the price of the metal must go higher than what you paid for you to have profits on paper. And those profits would be no more or less than the actual rise in metals.

Mining Companies Face Management Risk, Political Risk, and More

Tailings Dam Failure – Photo Courtesy of Cariboo  Regional District Emergency Operations Centre

Tailings Dam Failure – Photo Courtesy of Cariboo
Regional District Emergency Operations Centre

A mining company’s stock price can be hurt by a management, which pays itself too much or doesn’t control operating costs. Natural disasters like floods, rock falls, or worker fatalities inside a mineshaft can cut into profits (and shareholder confidence).

Unexpected tax increases like the ones Mexico imposed last year on miners have been hard on producers. And it’s even more difficult for explorers, who by definition don’t show a profit until they either sell a deposit or somehow put it into production.

And mining companies face other political risks as well.

For example, Argentina’s economic mismanagement has resulted in bond defaults, currency exchange controls, and high inflation – all of which have placed headwinds in the way of mining companies who would otherwise be making a significant profit.

These factors can be a drag on the share price of the companies you hold – even if the price of gold and silver is rising at a fast clip.

Last year, a mining company in British Columbia had a tailings dam failure (the holding pond where mineral residue from the metals’ milling process is stored). A large opening dumped highly toxic waste into nearby streams and pristine lakes.

The accident posed a pollution risk to one of North America’s most prolific salmon streams. This copper-gold operation, a $17 dollar stock, lost 60% of its share value in just two days.

In another example, a mining company in Brazil, judged to have one of the richest deposits of PGMs (platinum and palladium) in the world, ran into construction cost overruns for its underground mine. The stock declined 99% from its high and has essentially gone bankrupt.

Higher Metals Prices Do Not Mean Higher Mining Stock Prices

Image2One of Canada’s few platinum group metals producers – albeit a high-cost operation – has dropped from $12/share to around 0.25 cents over the past 8 years, even as the price for palladium, its primary production metal, soared from $200 to a 12-year high of almost $900 per ounce! Even now, palladium trades near $800 an ounce.

A massive gold-silver-copper deposit which straddles the borders of Argentina and Chile and was supposed to be in operation by now, is in a state of “care and maintenance” while competing local interests decide whether or not it can be operated in an environmentally sustainable manner. The project owners are reportedly in the hole to the tune of $6-8 billion with no production in sight.

The list goes on and includes several major projects, which were simply nationalized (stolen) by hostile governments, off times after the owners had expended millions of dollars in exploration and development. You can guess what this sort of thing does to a company’s share price.

To be fair, it is possible to make money – sometimes a lot of it – with a well-run, profitable metals’ producer. But since 2006, mining shares as a group have actually underperformed metals’ prices.

As the next major bull leg gets underway into 2015-16, these stocks could begin to over-perform once again. Or you might have the good fortune of owning shares in a little-known exploration company that makes a big strike. One of these “lottery tickets” can return 10 – 20 times your money. But with less than one in 1,000 properties ever advancing to production stage, the odds against an investor are long indeed.

Buy the Physical Metal FIRST… Only Then Should You Consider Mining Stocks

Image3David Morgan of The Morgan Report has long counseled investors to buy physical metal first. After that, if you want to accept some added risk, consider picking up a few established producers and “streamers” – companies who help finance a producer in exchange for receiving some of its production stream later at a deep discount.

Then, if you are willing to take even more risk, consider placing a small amount of money you can afford to lose into a long-shot exploration play. (For those who are interested, The Morgan Report’s Asset Allocation Table is a great place to start looking for these kinds of stocks.)

When you buy physical precious metals – silver, gold, platinum, or palladium – the same suggestions and caveats that bear repeating apply:

  • Avoid commemorative, rare, “limited edition,” or “first-strike” coins.
  • Be absolutely certain that the people with whom you do business have
    established themselves as
    reputable and financially sound.
  • When you make a purchase, don’t automatically settle for the absolute
    lowest price as your sole
    criterion. Unusually low prices can even be a red flag.
  • Be wary of long delivery delays.
  • Remember that the premium you pay is generally not going to be returned
    to you when/if you sell back to
    a dealer. That’s why you should learn what a fair premium is in relation to
    the supply-demand situation
    prevailing when you are making a purchase.
  • Rather than trying to “buy the bottom,” consider dollar-cost averaging.

When you take delivery of your metals, be sure to place them in a secure place – perhaps several places, and keep that information largely to yourself. A somewhat humorous ancient Chinese saying – but one which holds more than a grain of truth, goes “Three people can keep a secret, but only if two are dead!”


davidsmithDavid Smith David Smith is Senior Analyst for and is a regular contributor to Money Metals Exchange. For the last 15 years, he has investigated precious metals mines and exploration sites all over Argentina, Chile, Mexico, China, Canada, and the U.S. and shared his findings and investment wisdom with readers, radio listeners, and audiences at North American investment conferences.


David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?


Join The Morgan Report Free for 30 Days *
* 30 Day Trial applies to new user sign ups only!
Offer does not apply to Premium Memberships.

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