by guest editor Kevin Kerr
For many people when they think of natural resources and commodities, immediately gold and oil come up as the most important on the planet. They certainly tend to get the most attention. But does that really make them the most valuable?
One commodity stands head and shoulders above all others as far as demand goes, and unfortunately it is in short supply. Yet ironically it covers about 71 percent of the Earth’s surface.
Water, Water Everywhere,
While it’s true that much of the planet’s surface is water, clean potable water is extremely rare. The majority is salt water or extremely polluted fresh water.
|Less than 1 percent of the world’s fresh water is readily accessible for human consumption. Courtesy of Mahersoutdoor.blogspot.com|
Since almost all life form cannot survive more than about three days without clean, fresh water, this makes it one of the most sought after and essential commodities there is.
And as the global population grows, this problem of a lack of clean potable water only gets worse.
What’s more, the statistics on diseases found in water are extremely disturbing …
It is estimated that around 1.8 million people die every year from diarrheal diseases, including cholera and E coli, just from contaminated water. To put it in better perspective: That’s around 4,900 people who die each day, and 90 percent of those are children under age five!
In fact, according to the World Health Organization (WHO) water-related diseases are the leading cause of death for children under the age of five. WHO also reports that 1.1 billion people worldwide lack access to clean water — that’s about 1 in 6 on the entire planet. And as the global population explodes, I expect those numbers to climb dramatically.
So it’s easy to understand why a quick solution must be found to quench the thirst of our ever-expanding planet’s population.
Reports by the UN and other sources claim that human use of water has increased more than 35-fold over the past three centuries. And now, in the emerging markets alone, we have seen a sudden burst of a new rapidly growing middle class, which simply never existed before. Mainly in places like China and India.
All these people certainly want clean water. But beyond that they also want many items that use a lot of water: Modern appliances, better foods, and much more.
Consider this: The average American uses a whopping 80-100 gallons of water at home each day, compared to the average African family, which uses about five gallons, according to UN statistics.
|In the U.S. much of our water goes to flushing toilets and washing our clothes. Courtesy of American Waterworks Assoc.|
We Americans run our dishwashers, washing machines, and faucets, often oblivious to how much water we use and how easily accessible it is to us.
Basically, as long as we can turn on the tap and it works, we’re fine! We have never truly worried about what is seemingly a never-ending supply of cheap and clean fresh water.
Meanwhile, millions of women and children in other parts of the world sometime spend several hours a day collecting water from contaminated rivers, lakes and open wells. Often it is a game of Russian Roulette.
People can’t live without water, but on the other hand, many of them will die from it if they drink it and bathe in it. It’s truly a double-edge sword.
Then there is the additional cost of …
A Crumbling Infrastructure
The Environmental Protection Agency (EPA) estimates that water is the third single largest expenditure in our entire economy. That means that it falls just behind defense and Social Security.
However, much of the infrastructure in American and elsewhere needs a complete upgrade simply to meet the growing demand as well as for sustainability and sanitary reasons.
|Some estimates predict that we lose up to 60 billion gallons of water every day just through old leaky pipes. Photo courtesy of activerain.com.|
And the EPA reports that the U.S. water systems alone need hundreds of billions of dollars in upgrades and repairs.
Most people do not consider water to be a commodity like many of our other vital resources such as agriculture and energy. That’s mainly because it’s not traded on a futures exchange and because in the West we have considered clean potable water to be a right, not a privilege.
Those days are over …
Clean potable water is becoming more expensive, more scarce, and more important than ever for both drinking and growing crops.
As you can see, having enough useable water is a matter of our very global survival.
So how can you take advantage of this incredible market and the opportunities it affords? Actually there are quite a few ways.
Anticipating all this future scarcity, many money managers invest directly in water supplies by purchasing shares of companies like PICO (PICO) and Limoneira (LMNR), which are basically farming and real estate holding companies. The attraction is mostly for their water rights.
But I think these approaches are very tricky and too tough to accurately estimate the real value of their water holdings.
Stock in companies that are involved in clean water supplies is another idea. One example is Molycorp (MCP).
Molycorp has designed a revolutionary water filtration system to purify the world’s most heavily polluted drinking water sources. This technology was borne from a joint development effort with the U.S. Army for use in man-portable devices that provide soldiers with clean drinking water regardless of the water source.
In my opinion, though, there are far better ways to take advantage of the critical demand in the water market …
You could consider an exchange traded fund (ETF). One I like happens to be the largest water ETF available.
The PowerShares Water Resources Portfolio (PHO) is based on the Palisades Water Index™ (Index). This Index seeks to identify a group of companies that focus on the provision of potable water, the treatment of water, and the technology and services that are directly related to water consumption.
And if you are looking to leverage your investment for even bigger possible gains, you could use options on ETFs.
No matter which vehicle you decide is the best for this market, rest assured the growing urgent need of the world’s population for clean potable water will continue. And that’s not going to change anytime soon!
Yours for resource profits,
Kevin Kerr has successfully traded commodities professionally for the last 22+ years. His unparalleled expertise in commodity and resource futures, options, and equity trading, has made him a regular contributor to news outlets like CNBC, CNN, FOX News, CBS Evening News, Nightly Business Report and many others.