Tuesday, May 27, 2008

Water is the New Oil

“It is clear our nation is reliant upon big foreign oil. More and more of our imports come from overseas.”
- George W. Bush

"When the well is dry, we learn the worth of water."
- Benjamin Franklin

You can own oil, but you can’t own water. You can invest in oil and the industrial complex that finds, produces, refines and distributes it. You can invest in the industrial complex that finds, produces, treats and distributes water, but you can’t invest in water itself. Oil and its byproducts are toxic to life whereas water is essential to all life. Perhaps therein lies the origins of the difference to investors. Fresh water is, for the most part, not owned by anyone but is (in most cases) managed and distributed for the public good. The price you pay for public water is essentially the cost to transport, manage, treat, and distribute it to the tap in your home.

You can’t – at least not yet – buy water on any exchange in the world. As water supplies get tighter across the world, this could change. Water is the new oil – a precious commodity, increasingly harder to find, manage and distribute; and that supply is often subject to the whims of Mother Nature. Control of available water is subject to the whims of government. In some parts of the country, the availability of water is restricting the building of housing.

Some regions in the U.S. are learning the hard way – the Southeast is entering its third year of drought conditions. Lake Lanier, Atlanta’s main source of water is over 13 feet below normal, despite recent rainfall. See embedded drought map of the U.S. below. The world drought map doesn’t look any better.






Like oil, water must be transported from where it is found to where it will be used. Pipelines are commonly constructed to bring the water to a central collection and treatment plant. Once at the central plant, the water must be tested and brought up to potable standards. Only then is the water released into the municipal distribution system. You may have seen news stories about large consumer products companies and their quest for water to fill the millions of plastic bottles they sell each year – a lot of this water comes out of the municipal tap. You may also have seen stories about the treatment of sewage to return it to the potable water supply – this is happening now in Southern California http://www.nytimes.com/2008/08/10/magazine/10wastewater-t.html?em.

Investors can tap into the water pipeline at four main places: infrastructure, treatment of water entering the system, consumer products (bottled water) and treatment of water exiting the system (sewage treatment).

You can find stocks of companies involved in the various phases of water treatment and distribution but as readers of this blog know, I am a big believer in the diversification benefits afforded by Exchange Traded Funds (ETF). There are currently two ETFs concentrating on water – primarily transportation, delivery infrastructure and treatment.

1. PowerShares Water Resources Portfolio (ticker PHO)
http://www.powershares.com/home.aspx

2. Claymore S&P Global Water Index ETF (ticker CGW)
http://www.claymoresecurities.com/

PHO is more U.S. focused in its holdings while CGW is more international.

Investors can play the consumer products angle with stock in Coca-Cola – distributor of Dasani (ticker KO), Pepsi-Cola – distributor of Aquafina (ticker PEP) or Nestle – distributor of Poland Spring (ticker NESN). U.S. Consumers are paying more for bottled water per gallon than they are for gasoline ($1 for a 16 ounce bottle equates to $8 per gallon).

Asset allocation: these investments are primarily in stocks of companies involved in the water industrial complex - these are not a commodity play on the price of water.

Questions? kimm@sweetwaterinv.com

Thursday, May 22, 2008

A Journey With My Dad

(My father died May 10, 1999. Following is what I said at his memorial service. We still miss you Dad).

Reading: Genesis 22, verses 1-12

Where are we going dad?
Down to Callahan Creek? Are we?
Can we put our toes in the water? Can we?
Are we driving to Kalispel? Are we?
Can we swim in Flathead Lake? Can we?
Are we there yet dad?
Are we there?

Where are we going dad?
Are you walking to school with me? Are ya?
Did you pack me a lunch? Did ya?
Will you visit my classroom today? Will ya?
Are we there yet dad?
Are we there?

Where are we going dad?
Can we stop at Wall Drug? Can we?
Can we visit Frontier Town? Can we?
What’s a tourist trap dad? Huh?
Are we there yet dad?
Are we there?

Where are we going dad?
Are we going out on the boat? Are we?
Can I row the dinghy in the harbor? Can I?
Will we go fishing for salmon? Will we?
Are we there yet dad?
Are we there?

Where are we going dad?
Will you show me how to tune up the car? Will ya?
Can I use the car tonight? Can I?
Why are you laughing at me? Why?
Are we there yet dad?
Are we there?

Where are we going dad?
Are you coming to my basketball game? Are ya?
Why are you so absent? Why?
Why do you withhold your love? Why?
Are we there yet dad?
Are we there?

Where are we going dad?
What am I carrying on my back? What?
I can’t see it, why is it so heavy? Huh?
Did you give this to me? Did ya?
Are we there yet dad?
Are we there?

Where are we going dad?
Is life about anger? Is it?
Is life about hate? Is it?
Is life about love and forgiveness? Is it?
Why am I confused dad? Why?

I love you and I forgive you.

Where are we going dad?
Are we there yet dad?
Are we there?

Wednesday, May 7, 2008

The Great American Distraction

“Thou shalt not covet.”
- God (The 10 Commandments #10)

I had occasion to visit a large “consumer electronics” store recently. It is probably the largest store of its kind in my metro area. If it beeps, flashes, projects, broadcasts, computes, rings, networks, communicates or otherwise distracts one’s attention, this place has it. And how. It is the largest toy store in town.

When I go to places like this one – which isn’t often – I find myself asking questions: “How are the people buying all this stuff paying for it?” and “Is this something they need or is it just entertainment (either what they are buying or the time spent in the buying)?” and “How much of the stuff in here was made in America by American workers?”

The U.S. has become the world’s largest consumer market. Not coincidentally, the U.S. is also the world’s largest debtor nation. Our IOUs have found their way to every corner of the world.

It is not my intention to book the reader a ticket on a guilt trip. The U.S. is still the “land of the free” – it is not illegal to spend money in whatever manner one wishes.

However.

If you consume all you make – and more, by leveraging your income with credit cards and home equity loans – you will never become financially secure.

Too many Americans are scurrying in the Lemming Parade over the edge of the cliff following the bigger house, newer car and larger plasma TV into the abyss. Every one a distraction.

What is our own government telling us to do with that $600 tax rebate? “Go out and spend it.” I’ve already seen ads that promise to “double your tax rebate if you spend it in our store”. The vendor is willing to take a $600 hit to keep the goods flowing through his store. Do these messages sound a little desperate to you?

In the meantime, the Federal Reserve – supposedly independently in charge of monetary policy and primarily interested in price stability – has been slashing short-term interest rates attempting to mute the effects of a recession that has already begun. In theory, lower interest rates lead to growth in business and consumer spending. By the way, consumer spending is about 2/3rds of the U.S. economy. No wonder the government and the Fed are so desperate.

In the coming months you’ll be seeing a lot of articles and advice about the “New Frugality” – not spending and saving money will become hip here in the United Consumer States.

Questions? kimm@sweetwaterinv.com