Water Crises
Water Crises: Water, Water Everywhere, but Enough to Drink?
by Kevin Kerr
Whiskey & Gunpowder
April 15, 2005
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.
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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 Greg's note: Kevin's on a hot streak - well, maybe not a streak, because he's alarmingly consistent. He's hit 17 of his last 19 commodity options trades, and his average gain, including losers, is only 70.3%. Look here to take a direct ride on the commodity bull market... http://www.agora-inc.com/reports/RTA/maniacF331/ Greg's final note: Sometime next week, Byron and I will unveil one of the newest Whiskey features (and here you thought this fine spirit - Whiskey - was immutable and perfect...) which we will tentatively call the Whiskey Rucksack. What is it? Simple - if you send me a reply with questions, answers, psychoanalysis, advice, criticism, or outright venom - and one of our editors finds your reply of merit or interest, we will post what you send us ( and a possible response ) in the Rucksack. Simple and fun. But don't worry - we won't publish your full name, because I sure know I wouldn't want my friends and family to know I had any part of this churlish letter - so I won't give up your secret, either! Here we go with the first Rucksack - reader JK sent this reply to Byron's second Wilson piece yesterday: "For a European view see: 'The Raven of Zurich' by Felix Somary."
Ironically, this book perches on my desk - solely because Chris Mayer recommended it in his last edition of Whiskey & Gunpowder. So I dug up a smart bit Felix penned about Wilson, and here you have it: "Wars can be ended by destruction or annexation. These are the simplest and most effective methods; but they do not conform with American psychology. When America concludes peace, it is inspired by two notions: the spread of a democratic political system, and the self-determination of peoples. Only too often those two noble principles directly contradict each other. "In accordance with tradition, the American always fights for democracy. He somehow expects that the victor (in this case the Russians) as well as the defeated (here the Germans and Japanese) will become democrats. But wars seldom have that outcome. The Americans try to install democratic regimes everywhere, and that is their most fatal weakness. "A democracy cannot be decreed from above. Swiss democracy required six hundred years to reach its full development, and everyone knows the very long history of the Anglo-Saxon constitution. It is more than one hundred years since a new democracy came into being; and the increasing influence of Marxism has a negative effect on the democratic spirit. Love of freedom is not innate in mankind: it flourishes only in times of peace, and under the favourable conditions afforded by widespread independence. The United States of America can happily congratulate itself, because it owes its constitution to a union of large property owners and free merchants in the eighteenth century, a time of philanthropy and a sense of world citizenship. Freedom of thought and of speech are the very heart of the independent individual; they mean nothing to the coolie or the muzhik, and alas nothing also to people in large masses in the big cities: the industrial workers, soldiers, and petty officials. Today really democratic countries amount to less than 10% of all the world's countries; and no other country seems ripe to try democracy. "American doctrine rests on the assumption that all men are born free. The sad experiences of our present world confirm the thesis of Aristotle and not the words of Archidamus: the large majority of humankind seem to have been born slaves. Even when they have been liberated, they soon revert to servitude, and gratitude to their liberators is the exception rather than the rule. "The American crusading spirit is responsible for the tendency to try planning democracies everywhere. Who in the United States is capable of understanding the policy of the great French statesman Cardinal Richelieu, who as a Cardinal in the Catholic Church nonetheless made an alliance with the Protestant powers of Europe in order to combat Catholicism in Germany; and who simultaneously fought Protestantism in France? And Bismarck followed the same political line when he encouraged democracy in France, because that in his view was the least dangerous and externally the weakest form of government. "The iron rule of all statesmen should be: have weak governments on your own frontiers, and strong ones surrounding the frontiers of your enemies. "Totally disregarding this principle, President Wilson established on the Russian borders over a half dozen weak so-called democratic governments. The same happened in Korea after the Second World War. Only one arrow in the quiver! "Tradition and schoolboy memories play all too great a role in American foreign policy. The fight against kings, aristocracy and the Catholic Church retains its popularity even in our times; American is conservative-and has radical traditions. It proclaims its non-belligerence as if it were the Holy Alliance; but when it is engaged in conflict, it has the instinct of a revolutionary, which has been reinforced by school teachings. The people with the highest standard of living in the world try with all their might to be the leaders of the Left-but that position is now occupied by the power that until 1917 was the leader of the Right. And the Right today is leaderless." | 
