The Morgan Report Blog

Excerpts from the Silver Investor

by David Morgan, Silver-Investor.com, TheMorganReport.com, follow silverguru22 on Twitter, Subscribe to the silverguru Channel on You Tube

“When the physical silver supply is so tight it is difficult to get prompt delivery, the mining shares will gather increased interest and develop a life of their own.” -The Silver Investor

This is the second time I have quoted myself in more than 13 years of publishing on the Internet. The other quote, for those who are curious, is, “When you can lie about money, you can lie about anything.”

The reason for this month’s quote has little to do with your publisher; the point that is important to you is that more money can be made in “paper” silver than in physical silver. First, let us give some background. Every year we examine how a pure silver investment does, versus the same investment in the XAU or HUI. To the best of my memory, each year silver by itself (no leverage) has done better than either of those two indices.

For the record, our portfolio has done much better than physical silver but that does not mean that real silver can be overlooked. In fact, without demand for silver as an investment, none of the derivatives would do much-the mining shares, ETFs, futures, options, etc. The truth is, anything but real silver is a derivative.

As silver becomes harder to obtain (real or perceived) more people will be looking for alternatives, and this boils down to mining shares. Certainly, the ETFs will garner more interest from the professional, but the public that is coming in late will primarily buy mining shares.

At this juncture, the mining shares are undervalued relative to bullion, and this represents opportunity. However, the markets are in a state of flux due to many inputs, and the Japanese crisis will have profound impact over time. So, be careful, because the overall stock market remains uncertain.

Some of the biggest news this month is that Utah had both the House and Senate pass the bill that puts gold and silver back into circulation. Once the governor signs this bill into law, Utah would recognize gold and silver coins as legal tender.

House Bill 317 (HB317) makes the exchange of federally issued gold and silver coins an option for businesses and individuals, though it does not mandate it. The bill also requires gold and silver coins to be valued at their current market value.

According to Senate Majority Leader, Scott Jenkins, R-Plain City: “Our hope is to help stabilize the currency within our own state, long term.”

Those who have followed our work carefully from the beginning know we stated that the people end up determining what money is, eventually. We can all watch how this develops and what other states might enact similar bills.

Something else to bear in mind is the possibility of the legislature in Mexico to pass the silver “money” law, proposed by the efforts of Hugo Salinas Price and his group. In our view this may not only take place, but it may also have more traction to pass if Mexico sees that Utah had the power to sign this into law.

There is so much information about Japan and honestly we have a difficult time separating what is fact and what is not. My view is, first, human life is more valuable than any “economic” consequences; further, the people of Japan in my view are some of the most honorable on the planet.

Having said this, the damage to the nuclear power industry on a global basis cannot be determined at this time. My view on it has not changed from the January issue (those who can may want to review), meaning that the next generation of much safer nuclear power generation will continue in China. If the West determines to put this source of power on hold it will be very upsetting to the global economic system. The higher energy density per capita, that a nation, country, state, city, etc., obtains, the greater the creativity and benefits to the people.

As it stands at this moment, the type of reactor outlined in TMR in January is about the only clean, viable, cost effective, and SAFE way to continue making the human condition better. Unfortunately, the mainstream press has the “control” of the minds of most of the planet’s population, so the ultimate weighing of a factual debate most likely will not take place.

This month’s issue does focus primarily on the mining shares. Our last two recommendations went as high as a 30% gain and a 50% gain in one month. This took place as silver itself was up only 15%. ONLY 15%, in a month! What can I write that has not been stated before? Silver is a very exciting and volatile market. It re�mains undervalued longer term, but on a near-term basis could be forming some type of top.

Now for some Letters to the Editor…

Letter #1

I would like to get your input regarding the futures exchange. What do you think the likelihood is that the entire paper market will be shut down soon due to JP Morgan not being able to deliver the physical? if so, got any guess as to when that might happen ?

I was thinking about closing my futures account. ~ Ceech

Comment: Futures can always be settled in cash! It is in the contract all futures traders sign, but most don’t read.

It could happen, but you would get your cash settlement.

“When” is much more difficult; I would look for several (perhaps three) warnings:

  • 1.Increased margin;
  • 2.Much more drastic increase in margin;
  • 3.Limiting the number of new contracts that can be BOUGHT!

If I were to see something along those lines, all my paid members would be getting regular alerts from me.

Letter #2

Hi to Dave and all of staff. Want to take this opportunity to say thanks and I’m very excited about learning, reading, and listening to you for the past few years now. I leveraged three 1000-oz silver bars at $30 Jan 2011 through a broker; he calls me to sell at $32, sold it, then silver shot up to $36. It really bothered me much as to why I listened to him when my guts said don’t do it. I would love to learn how to trade on my own. Any recommendations as to where I can learn to be a great trader, like you? How will I now know when to get back into the silver market? I’m a new member, is this something you will warn us about or give us a heads up on when it’s a good opportunity to back up the truck?? Any advice you can give to a rookie!

Comment: I cannot give specifics. If you are on our Basic Plus trading service, you do get to see (over my shoulder) how I am looking at the markets. This could be of value to you; most think that it is. As for your trade, well, you did take a profit-that’s good.

I teach that trading should be part of your strategy and no more than 25% of the total. If you have $10,000 in the metals market, no more than $2500 would be devoted to trading; and that amount would be used a bit at a time, as not every trade works.

From a great deal of experience in these metals markets, just focusing on the stocks can do as well as trading part of your funds. In other words, trading takes time, effort, and discipline, and is worth the effort in some cases. Those who want to basically buy and hold are actually better served by the Basic service we provide.

Letter # 3

David, Would you recommend PSLV and PHYS over SLV and GLD? I ask because I have a self directed 401k at work and cannot buy physical silver in that (though I do own some physical).

I know paper is not as good as the metal… but wanted your thoughts, if any, on Sprott’s funds over the ETFs. Thanks-Rob

Comment: I greatly prefer Sprott’s.

Final Thoughts

We did a lot of coverage in the mining sector this month. Our gains have been excellent the past few months. As good as these gains have been we do expect even more in the future, but we may get knocked off the silver bull for some amount of time. Bull markets tend to shake off many on the way up, so stick with your conviction and even if some of your holdings go underwater, most quality companies will come back into profits for you in the future.

Until next time, wishing you health above wealth and wisdom beyond knowledge,

David Morgan

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