by Louis Basenese, Oxford Club Advisory Panelist
Wednesday, December 13, 2006: Issue #618
For quite some time, investors have been gleefully stampeding with the commodity bulls. And for good reason: The most commonly traded commodities continue to perform impressively.
Since 2001, consider the following:
- Gold is up 143%.
- Silver has jumped 219%.
- Platinum is up 180%.
- Uranium has skyrocketed 762% in barely five years.
- Even oil has risen 222%, despite the recent pullback.
However, the market’s preoccupation with standard-issue commodities is obscuring a more compelling opportunity.
I’m convinced that one commodity will go on the greatest run of all time. And, control of its supply will make the much-maligned OPEC cartel seem like a band of peacekeeping altruists.
Let me show you what I mean
Water Stocks The Ultimate Commodity Investment
Not everyone needs gold, silver or copper. And all it takes is one technological breakthrough to cure our oil addiction.
But the same can’t be said of fresh water. It’s our most precious commodity, and perhaps the only investment for which demand is insensitive to inflation, interest rate hikes, recession, war or changing consumer tastes.
Demand for water increases with each new addition to the global population. According to research from the U.S. Census Bureau, that translates into an up-tick of more than 140 people every minute – the equivalent of one Boeing 737 full of passengers.
Estimates vary, but with each person conservatively using 80 to 100 gallons of water per day, you start to get an idea of the crisis that lies ahead. Especially since there’s not a drop more on Earth than there was 2,000 years ago.
To be sure, from the comfort of the developed world, it’s easy not to think about water. It’s everywhere. And for the most part, it’s completely safe.
But don’t be fooled into a false sense of security. On a global scale, water is already scarce, and quickly becoming scarcer
A Looming Global Crisis
Some of the world’s fastest growing economies illustrate the impending crunch for water.
Take China, for instance. The country has roughly as much water as Canada, but 100 times more people using it. Naturally, this leads to per-capita water reserves of roughly a fourth the global average. And at any given time, more than 60% of China’s cities suffer from moderate to critical shortages.
In India, the situation is not much better. A few decades ago, farmers used oxen to haul water in buckets from just a few feet below the ground. Now, they are forced to pump it out from millions of “tube wells” that extend 1,000 feet below the surface.
All and all, while the global population has doubled to 6 billion since 1950, water usage of over the same period has tripled.
There are currently at least 80 countries in which water is in critical need. And many more will join these ranks in the next two decades, as Goldman Sachs projects water consumption to spike another 27% in that time.
The Perfect Fundamentals, But Limited Exposure
As all the data clearly suggests, we’re barreling toward a situation in which more and more people are competing for a limited resource. Tack on pollution, diseases and cyclical rain patterns, and the 2% of the earth’s water that is actually usable dwindles even further.
Given such a situation, basic economics confirms prices will go up. Case in point: the Water Services Regulation Authority (the economic regulator of the water and sewage industry in England and Wales) recently set the stage for multiple years of price increases – as high as 7%, if you factor in inflation.
As water becomes more precious, expect the price increases to become more dramatic, too. That’s why now is the time to start investing in water stocks.
Unfortunately, there’s no direct way to invest in water (at least not easily). Control of the majority of water is not in the hands of public companies. But there is an indirect way to amass substantial profits
Building A Fortune In Water Infrastructure
In emerging markets, there’s hardly enough infrastructure to facilitate widespread availability. Recent U.N. studies revealed that over 1 billion people lack easy access to drinking water. In less than 20 years, that number is expected to more than double to 2.7 billion.
In the developed world, I’m afraid the situation isn’t much better.
In the U.S., for example, municipal water systems are often in disrepair. Some of the infrastructure has been in place since before World War II (if not the 19th century), and the pumps and pipes are wearing out.
Moreover, about 85% of the nation’s 55,000 municipal water systems serve fewer than 3,300 homes each. Many of these towns have too few customers to afford infrastructure improvements.
As a result, many of them are now selling their systems to companies that can run them more efficiently. And, as time goes by, the big water companies will pay less and less for these acquisitions as municipalities get desperate to sell.
According to research from green-focused venture capital firm Hydrogen Ventures, $660 billion will be invested in water infrastructure in the next 20 years.
Companies that specialize in outsourced management of water services – engineering, design and construction of water treatment plants – stand to pile up loads of cash in the months and years ahead.
Today’s Investment U Crib Sheet
- Water infrastructure breakdown is today’s news Dilapidated water mains in the country’s major cities are in serious need of repair. Just this morning, the Chicago Tribune reported a water main burst in the city’s Northwest Side. It won’t be long before substantial replacement projects are underway across the country, outsourced, of course, to leading water infrastructure companies.
- In a recent Investment U issue, money manager Rick Rule revealed which commodities still present great upside potential. One of his top picks recommendations was water. Read the 2007 Commodities Forecast: Money Manager Rick Rule Reveals the Commodity Boom’s Top Remaining Investments.