David Morgan's Ten Rules of Silver Investing

Ellis Martin: Many years ago you were asked to write the ten rules of silver investing. Let’s start with that today. Rule Number One, when all else fails, there is silver . . . ?

David Morgan: I was asked to write the ten rules of silver investing for a book titled, Investing Rules. Rule Number One states, “When all else fails, there’s silver.” No one likes to be a prophet of doom, but the simple truth is that silver is the world’s money of last resort. Should a severe economic collapse occur, leaving paper assets worthless, silver would be the primary currency for purchases of goods and services (gold will be a store of major wealth but would be priced too high for day-to-day use). Thus every investor should own some physical silver and store a portion of it where it’s accessible in an emergency.

I wrote that, and it’s as valid today as it was when I wrote it. I haven’t reviewed these in a very long time. If I had to assert one rule of silver investing it would be to buy physical silver. The truth of the matter is, in the absolute worst-case conditions you would want some silver. As I just said, the reason silver is important in a currency crisis is that you’re not going to buy gas with a one- or half-ounce gold coin—it’s going to have too much value.

Silver has been money more often, for longer periods of time, in more places in the world than gold has. And that is because it’s the merchant-class metal, because most of the time in your daily transactions, what are you buying? You’re not buying your car or your house; the car is perhaps a purchase you make every five years, the house sometimes once in a generation. But it’s the silver that passes hands on a daily basis.

Certainly I am a gold advocate. Indeed, as I say in this Number One rule, it’s a way to preserve large amounts of wealth in a very small space and that’s great and all investors should recognize that fact. But if you’re really thinking outside the envelope, silver is absolutely the place you should be for part of your money.

Mr. Martin: We’re not just talking about obtaining physical silver for investment purposes. You’re saying it is also the best metal currency to use in the case of complete economic collapse, in order to obtain either a loaf of bread or a gallon of gas?

Mr. Morgan: Right; it’s more liquid. It’s simple because, you know, $0.25 in today’s money is worth about 14 times. It’s worth $2.50, $3.00, maybe three and a half bucks. So a quarter in silver would probably buy you a couple of loaves of bread or a gallon of gas now in today’s economy. But I want to emphasize, too, that this is absolutely the worst-case scenario. Do I see the worst-case scenario taking place? I don’t think so.

But that doesn’t mean you shouldn’t buy silver. I mean there are lots of other reasons to buy silver. If you go the other extreme—the best-case scenario—the world gets turned around and we start having prosperity everywhere and it’s the best global economy that’s ever happened in the history of mankind. Okay, so let’s take that extreme.

In that case, silver would still make an absolutely excellent investment. Most likely far superior to gold from the aspect that there would be such a boom in industry and such a boom in commerce that there would be so much more silver used by the average person because everyone would have an iPod or two, a flat-screen TV, a couple of computers, another car or a washing machine, more electronic devices. So there would be this huge boom to the silver market. Thus, silver is as much a good-time investment as it is during uncertain economic times.

Mr. Martin: You still have these massive economies like China and India gearing up outside of the U.S., although not quite as much as previously. We could take a look at the last 16 months or so and say that this is just a huge contraction before this massive mega-bubble hits.

Mr. Morgan: This idea of destruction (collapse) is a normal part of life. I wanted to comment on that. Oftentimes, things have to die for other things to grow. An example might be the history of the radio for example. We still have radios today, but the tube style radio had to give way to the transistor radio, and the eight-track tape gave way to the cassette tape, which gave way to the CD. Industries die out and it’s not like the end of the world. That is just part of the normal business cycle.

Now what we’re talking about is much grander-scale—the dying of an economic system that no longer is working properly because basically they’ve built it on a lie. The lie is that you can get something for nothing, that you can print wealth. It can’t be done. So that is where we are on a global scale, particularly from the United States’ dollar perspective. This is a shift that takes place every few centuries, and I believe very strongly that’s where we are right now.

In order to rebuild a system that’s built on truth and honesty and integrity that can get us going really in the direction that we need to go, we need to see the current system reach its ultimate conclusion. I think the global economy is basically tied together, but that doesn’t mean there aren’t going to be great inventions during a downturn. People find better ways of doing things, greater efficiencies, that kind of thing . . . so it’s not an all-or-nothing situation.

I just want to get the impression across that the cycle of life is one thing that might be going down while others are going up, so to speak. It is not all negativity. Sometimes something dying is a good thing, from the aspect that something better (bigger, smaller, better, stronger, etc.) comes along to replace it. In fact, that’s kind of the American enterprise system the way it used to be. Unfortunately, it’s been so corrupted that we are having these problems we are experiencing.

Mr. Martin: David, you know I’m a subscriber to your Web site, and I was on there this morning. I noticed that around 2,000 jobs were leaving the Midwest and heading down to Mexico. Refrigerators from that company aren’t NOT going to be built; they just won’t be built here in the U.S. anymore.

Mr. Morgan: I’ve given the analogy that Great Britain, using the pound sterling, was once the superpower of the world, and they overspent just like America has today. The power shifted from Great Britain to America in the last century. That was a big shift economically, and now we’re seeing it shift again—out of America into China and India for the most part.

The problem is that since it’s all based on the U.S. dollar primarily, then the dollar is the problem. I believe the U.S. will try to print itself out of this mess, and that will affect everybody, as U.S. dollars become worth less and less and less until they become worthless. And that affects business activity everywhere. I believe that could happen, but in the meantime, things continue on, and it is just that a shift takes place. The major productive capacity that was the U.S. worldwide probably up till 1965 or so is moving east.