Thursday, January 29, 2009

Reinflation play: Obama, China and Zinc. CZX.v, CDNX, TSX, DXY

Obama is pushing for a new stimulus plan, House has voted for 819 billion US Dollars plan. Idea is to spend its way out of depression. All his infrastructure play will come to the basic supply and demand economic situation. Increasing supply in dollars from one bailout to another and decreasing supply in basic commodities. Mines are closing every week now, projects are put on shelves due to lack of financing. Will it be short sighted as it happen before? We believe so and next play after explosive recent Gold run, will be run in industrial commodities. First time is coming for Silver with its both monetary and industrial investment qualities, second time will be for Dr Copper pronounce that recovery is near. Zinc as a commodity is often overlooked and is not a main stream idea for Inflation play as others. Dull and Dirty, nothing is really exiting about it. This is why we like it now. At around 50 cents per lb we are at the same level as last recessional low in 2003. What could be the next catalyst in order that money will start to flow in Zinc plays? China could come back sooner then everyone is expecting:

Last recession in 2003 Zinc rocketed from 0.5 USD to over 2 dollars per lb in short couple of years. This time mines are hit very hard and closing production reducing the supply. Bailout liquidity is making its way in financial system, Chinese and Russian leaders are blaming West on recent crises and Mr Putin is questioning the status of US Dollar as reserve currency. Very logical in this situation is Chinese quest for resources in order to secure its growth opportunities. They are buying metals into strategic reserves and they started to buy stakes in Juniors. This week announcement by Tongling Nonferrous Metals Group Holdings about strategic partnership with Canada Zinc Metals CZX.v could be groundbreaking in a sense that real industrial money finally finding its way into Canadian junior market. Speculators and Hedge funds hot money left the sector last Autumn and bargains are everywhere if you agree with our Inflation outlook on recent Reflation Efforts over the world. Mr Market's gloomy mode has suppressed the prices of juniors to levels not seen in years, some of them were trading below cash flow value just three weeks ago. It will be justified for some companies without real properties of merit or overburden with debt, but other will prosper with strong management and access to financing. We will continue to monitor the situation in the sector and taking this particular development as confirmation of our view on undervaluation of Juniors with resources in stable political situation.

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