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July 25, 2008

Silver - Euphoria
by David Morgan

This week we took a look back into a recent issue of The Morgan Report and decided to reprint an answer we received from one of our subscribers. It seems many including us are frustrated with what is going on with the junior mining sector. In our opinion we are far from over this major bull market, but we are still in the skeptical phase where many are of the opinion that the mining sector stocks and in particular the junior mining stocks are through.

From a few months ago I received the following question, subscribers have direct access in the members only section.

Dear Mr. Morgan:

Congratulations on a great call for March. Gold hasn't gone down greatly but junior stocks certainly have! You said 12-18months ago that in the 2nd part of the bull market it's the large caps that increase dramatically and that it's only in the last part of the precious metals bull market that the juniors have their day.

At the time I didn't fully believe you, as I had never experienced such a thing before. Did these types of market conditions prevail in the late '70s in that bull market period? If so how long did these conditions last? What would you suggest for those subscribers who didn't fully believe you 12 months ago and have invested in junior stocks?

Foreseeing or believing that this scenario would come to pass at a time when juniors were flying high 18 months ago was difficult. However, I thank you for your warnings.

Editor's Response to Part A: Let me be a bit more specific. First, the junior market does do well in the initial stages of a new bull market. This is pretty much self-evident. Many companies with merit and many without merit did rise in price dramatically during the first leg up in the precious metals bull market. Also, let me be clear that exceptions can always be found; we are speaking in general terms here. The bull market was similar in the 1970s and I have written about it in the past. Once we enter the optimistic phase of this market, which right now I am forecasting to begin around the August to September 2008 timeframe, we will see the junior sector perk up.

However, some junior mining companies may have run out of money and/or given up. Near the end of the cycle where we enter the most lucrative but also the most dangerous phase of the market, the "euphoric" phase, we will see the junior market absolutely fly. The reason is psychological -- people love cheap stocks, and many of the best companies in the industry will be trading well over $50 per share and many well above that. Those who are very late to the party will buy stocks based upon the "story" surrounding the stock and also the price.

During this euphoric mania it is possible to see penny stocks go from prices under a dollar to $10, $20, and even $30 per share. This is the exception, not the rule, but in general terms the junior market is so small and the amount of people flooding into the market so great that almost all "cheap" mining stocks get pushed higher.

The key is to not get too greedy, and take profits off the table -- do not expect to sell at the exact top. As I have taught all along, especially for those who trade the futures market, it is always better to sell into strength. The euphoria lasts a very short time, usually a matter of weeks. At that time, it will be most difficult for me to not only remain objective but also to put up with the amount of e-mails that I will receive telling me I am wrong, the market is "different" this time, and I have become a traitor to the cause by even suggesting selling. However, I am fully prepared and plan to do the very best job possible, regardless of how much flack will be flying my way at the top. I still expect the ultimate top to be in the 2010-2012 timeframe, subject to change, as we get closer.

It is an honor to be,

David Morgan
Silver-Investor.com

Mr. Morgan has followed the silver market daily for over thirty years. Much of this Web site, www.silver-investor.com, is devoted to education about the precious metals.

Mr. Morgan has been published in The Herald Tribune, Futures magazine, The Gold Newsletter, Resource Consultants, Resource World, Investment Rarities, The Idaho Observer, Barron's, and The Wall Street Journal. Mr. Morgan does weekly Money, Metals and Mining Review for Kitco. He is hosted monthly on Financial Sense with Jim Puplava. Mr. Morgan was published in the Global Investor regarding Ten Rules of Silver Investing, which you can receive for free. His book Get the Skinny on Silver Investing is available on Amazon or the link provided. His private Internet-only newsletter, The Morgan Report, is $129.99 annually. To suscribe to the Morgan Report click here.

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Because individual investment objectives vary, this Summary should not be construed as advice to meet the particular needs of the reader. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice. Any action taken as a result of reading this independent market research is solely the responsibility of the reader. Stone Investment Group is not and does not profess to be a professional investment advisor, and strongly encourages all readers to consult with their own personal financial advisors, attorneys, and accountants before making any investment decision. Stone Investment Group and/or independent consultants or members of their families may have a position in the securities mentioned. Investing and speculation are inherently risky and should not be taken without professional advice. By your act of reading this independent market research letter, you fully and explicitly agree that Stone Investment Group will not be held liable or responsible for any decisions you make regarding any information discussed herein.

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