KS: What does that mean?

Treick: Economies will recover based on stimulus and it'll be some type of inflationary recovery. When that does happen, the market and companies will be caught flatfooted once again because so many projects that were intended to offset demand for commodities in the future will have been shelved. And so we'll go back to the scramble for capacity. That's how we're positioning for it. For investors it means that resource companies should do well going forward

KS: Any idea on the timing of this? Or what we should be looking for?

Treick: Well, you're seeing it already. The Chinese are taking advantage of these low commodity prices and they are building their stockpiles of these important tangible assets. They're looking inward because they're going to spend a lot on infrastructure and they're going to spend a lot on stimulus to make sure that they can continue to grow their economy to employ all those people. And instead of trying to sell low value-added items to the U.S. consumer, my guess is they're going to try to build stuff that they need within their country and then try to sell higher value-added items to the world and the U.S.

They're out there acquiring tangible asset stockpiles at good prices, right now. In the US it will likely take a generation of people before we want to spend and borrow money like we did leading up to 2008. The demand for credit and the demand for that type of consumption is probably gone for a long time. But that doesn't mean that that it won't occur in India, won't occur in China, won't occur in Brazil and even Russia and other places like that. They will probably be the drivers in terms of consumption.

In terms of timing, our belief is that commodity prices have seen the lows. Quantitative easing is now standard operating procedure. Using easy to print dollars to buy hard to find oil (or gold for that matter) put a floor under hard assets. This doesn't mean a buy and hold strategy will work in commodity based companies, what it does mean is that one should buy on weakness companies with strong balance sheets, valuable reserves managed by experienced operators.

KS: What advice would you give for retail investors looking warily at buying commodity stocks again?

Treick: The Chinese will eventually allow the Yuan to break the peg to the dollar. This would put renewed downward pressure on the U.S. dollar, and be positive for resource assets. So in terms of timing, it's our guess that as long as China maintains the majority of its reserve assets in dollar denominated instruments the incentive to change remains low. Global economies however, have begun to show signs of stabilization. When stabilization turns into growth, it is highly likely pressure will build for China to again revalue the yuan upwards.

When we are convinced that is about to happen, or is happening, we are going all in. So I would tell investors that this last year was as much a currency policy change as it was a collapse in credit. Companies with great resource assets and relatively little debt are still around. We have been focused on resource plays that pay big dividend yields. Could we have corrections? We hope so, because this is not the secular end for commodities, corrections should be bought.

About Oil & Gas Investments Bulletin
Keith Schaefer, Editor and Publisher of Oil & Gas Investments Bulletin, writes on oil and natural gas markets - and stocks - in a simple, easy to read manner

Courtesy: www.oilandgas-investments.com.