Water Crises: Water, Water Everywhere, but Enough to Drink?

Kevin Kerr wonders why everyone is so concerned about oil prices when there are several likely pollution and Water Crises likely to hit in the next ten years or so. After all, not everyone needs oil, but everyone drinks water.

Oil prices are out of control. Just go to the gas station. I have been talking about oil prices going to these levels since 1998, and now everyone and their mother is suddenly an expert. It’s absolutely insane when we get this many positive supply reports showing distinct builds in crude supplies, yet the market continues to rise with indignation.

This is no longer simple supply-and-demand pressure; this is big investment bank money and pure speculative greed. I was listening to an analyst who normally covers the T-bond market talking about the API reports and inventory numbers; he acted like he had been looking at them all his life. That is, until someone asked him a question, and he didn’t have prepared remarks. He looked like a deer in headlights. What a joke.

This guy wouldn’t know a basket of crude from a basket of eggs. There should be a big sign by the crude oil pit right now reading, “Danger: Thin Ice.” I have read everything from predictions of Armageddon in the Middle East to an account of Paul Tudor Jones’ and George Soros’ trading positions. I have to interrupt here, I really do.

OK… There may just be Armageddon in the future for the Middle East, and yes, crude may go to $105 soon. However, all those bold predictions aside, let me assure you that nobody knows Paul Tudor Jones’ exact position, period. Take it from me.

Bellwether was Paul Tudor Jones’ floor operation back in the ’80s on the CEC (the old floor in the World Trade Center). I worked with them every day in the U.S. dollar index pit and in the New York cotton pit. In fact, I learned how to read the Commitments of Traders report from PTJ’s senior floor trader for cotton. Let me just say that he is a deeply complex trader, and trying to guess if he is net long or short is like picking all seven numbers in the lottery twice. Not going to happen.

What’s my point? If you are trading in the energy markets, stop trying to figure out what everyone else is doing. Don’t read too much into the Commitments of Traders report. It’s very subjective. Pick your position, and stick to it.

Most especially, begin to look at markets not everyone and their brother is looking at in hopes of being the guru of the moment. Next month, if it’s cattle, they will be the experts du jour in that, too.

Be afraid. Be very afraid.

Now for something really scary… What is a major power source, necessary to all life on the planet and in desperately short supply? Well, yes, oil, but there is a much more important one…

Water! H2O. Agua…

Safe water is scarce, and demand is surging for cultivators of nature’s most important resource. Yes, oil is important, but not as important as staying alive. Water is something we take for granted, and it’s a growing problem that nobody talks about at length.

Reports from the World Health Organization show an epidemic problem: A staggering 2.6 billion people — 40% of the world — do not have even the most basic sanitation, and more than 1 billion people still drink unsafe water. This can cause a range of diseases and even death.

The water industry is very complex. The list of companies is long, from water suppliers and bottlers to technology and equipment firms.

Water Crises: Water Bathes the World

Water pushed through hydroelectric dams is one of the world’s most efficient and harmless forms of electricity generation. Water is also vital in cleanliness, manufacturing, drinking… and the list goes on ad infinitum.

Just look around. How much water do you personally use in a day? And think about how much water you don’t even realize you use. Without water, we as humans die within about two weeks, as evidenced by the recent death of Terri Schiavo. I must imagine it was not the most comfortable way to go.

Want another example of the devastating impact of nonpotable water? Look at the Christmas tsunami in Asia. Many thousands of deaths could have been prevented had there been fresh water supplies.

Water Crises: But Nobody Trades Water!

Wrong. The explosion of the world’s population and the dwindling supply of fresh water on the planet is sending out alarm bells for the greatest commodity play of all time.

Make no mistake: Water is an increasingly vital commodity. And that hasn’t gone unnoticed by worldwide capital markets.

Very few people know about the Dow Jones U.S. Water Index.

In the past year, it’s up a whopping 18.6% and climbing:

The index lists only 23 companies, but rest assured there are many, many others.

Surprisingly, many experts contend that the way to play water isn’t just through U.S. utilities — analysts feel utilities are overvalued, just like everything else.

So where do we go when things are too expensive at home? Yes, you guessed it:

China! With about 1.3 billion people, China comprises more than one-sixth of the world’s population, if not more. The sheer numbers are staggering. And while not everyone there drives a car, everyone does drink water…

Think about that for a moment. The demand for resources such as water is simply astronomical. Current statistics estimate at least 700 million people in the China drink unprocessed, disease-ridden water. The result is health-related problems on an unprecedented scale. Forget about oil demand in China for a minute. Water is the real issue.

Water Crises: Water Crisis Facts

Here is a list of water crisis facts, provided by Summit Global Management:

  • World Health Organization says that 60,000 children die each day from lack of water and/or dirty water, by far the largest health problem in the world
  • Only 20% of the world’s population currently enjoys the benefits of running water
  • Every year, according to the World Bank, the amount of global water polluted equals the water consumed: Fresh water is disappearing much faster than rapid population growth
  • Since the turn of the last century, the U.S. population increased 200%, while per capita water usage shot up 500-800%, depending on the region
  • It takes 1,000 tons of water to produce 1 ton of grain; agriculture consumes 75% of the world’s fresh water. [The] World Water Council says we will be 17% short of necessary water to feed the global population by 2020…
  • The largest users of water in California, in decreasing order of size, are alfalfa growers, cattle ranchers, cotton farmers, rice farmers and, lastly, the city of Los Angeles
  • In the United States there are 58,000 water utilities, 90% of which serve less than 4,000 homes and have operating budgets of less than $2 million
  • About 500,000 tons of pollutants pour into U.S. rivers and lakes each day
  • California accounts for 20% of all irrigation and 10% of all fresh water use in the entire United States.

The global sanitation target will be missed by half a billion people — most of them in rural Africa and Asia — allowing waste and disease to spread, spreading misery and death to millions of children and adults.

Looking back to China, various international companies that provide a wide variety of services are in the best positions to assist the country with its water problems. These are investments I am looking at closely for my service Resource Trader Alert.

The real value is going to be in the contracts that are going to the large companies that can design, build and operate water-processing facilities and reclamation or recycling plants. A few of these companies are based in the United States and Europe, such as SUEZ SA, in France, and RWE, in Germany.

Opportunities exist in the United States, if you pick the right players. The U.S. water infrastructure, much like the oil refinery situation, is falling apart. The EPA and others estimate up to $1 trillion will have to be spent upgrading U.S. water infrastructure over the next few years. That will fall into the hands of only a few key players in the water market, and for those that are chosen, the rewards for shareholders could be substantial.

Water Crises: A Problem Only Going to Get Worse

The world’s population is growing at a rate of 1.3% per year, according to the Population Resource Center. This is an alarming rate.

While the big news today is oil and the market is in a frenzy, it may be best to look at opportunities in a sleeping giant. Don’t throw the baby out with the bath water; in fact, don’t throw the bath water out at all: We may need to drink it.

I am looking closely at five players (besides the ones I have already mentioned here) that I feel will reap the benefits of the inevitable water and pollution crises of the next 10 years. I would love to share them with you. I hope you will join me at Resource Trader Alert.

In the meantime, I am going to leave Paul Tudor Jones’ and George Soros’ positions for other “experts” to figure out. I will be setting up for the next big thing: the coming water debacle.

Yours for resource profits,

Kevin S. Kerr
Editor, Resource Trader Alert
April 15, 2005