The New Water Realities

By Lee Bellinger / December 26, 2013

What You Need to Know
as an Investor and Prepper

By Seth Van Brocklin

  • New global water index reveals extent of rising water prices.
  • Inside: Investing in the world’s most water-rich country – a future agricultural superpower.

For all the scare-mongering and junk science surrounding unsubstantiated global warming projections, there is another environmental crisis that is very real and certain to affect the global economy. I am referring to the alarming depletion of readily accessible freshwater supplies.

The good news is that water scarcity is remediable through major infrastructure investments. Certain types of companies are positioned to profit from this. The bad news is that in the meantime, water supply problems will have ripple effects that lead to rising food prices and potential social and political unrest.

As a savvy investor, you should take into account the threats and opportunities related to water supplies when considering where to deploy capital. And as a savvy prepper, you should be taking steps to become more self-reliant when it comes to ensuring your own sustainable supplies of clean drinking water.

Track Global Water Prices
Key New Info Below

Water is a difficult natural resource to analyze. It doesn’t trade on the futures exchanges, and its price and supply-and-demand fundamentals vary from region to region.

However, earlier this year, Waterfund LLC and IBM launched the Rickards Real Cost Water Index. It aims to reflect the true cost of water production both globally and in particular geographic areas. According to the Rickards Real Cost Water Index, water prices globally advanced 31.2% from Q1 2008 to Q2 2013. They advanced 52.5% over that period in Southern California.

Waterfund, founded by Scott Rickards, aims to provide a financial benchmark for participants in the global water industry. One day, individual investors may be able to own an instrument through their brokerage accounts that is tied to the Real Cost Water Index. An exchange-traded product tied to water prices would help individuals and institutions hedge or speculate based on the supply dynamics of this crucial commodity.

According to Waterfund literature, “Water utilities face the most obvious financial risks from supply disruptions, but there is a long list of other industries in which water availability is critical, including the mining, beverage, chemical, and energy sectors, among many others.”

Water-Related Stocks on the Move

Most water-related stocks, along with the exchangetraded products that hold water-industry stocks, move fairly closely in line with the broader stock market. Water stocks don’t necessarily offer protection from an economic crisis caused by water shortages.

Nevertheless, some of these companies do stand to benefit from increased water infrastructure spending in the United States and elsewhere. In June, the Environmental Protection Agency released a survey showing that $384 billion in infrastructure improvements are needed for the nation’s drinking water systems. China’s desperate water situation will require even greater investment, which is why global investing makes sense in this area.

Guggenheim Global Water (CGW) has been in a powerful uptrend since 2009. Of its stock holdings, 69% are foreign, and many pay a reliable stream of dividends denominated in foreign currencies.

Are investors who try to jump into these water stocks now late to the party? Perhaps. That’s why you should consider other types of investments that are directly or indirectly related to water, such as food and agribusiness.

Water Overuse and Mismanagement
to Pressure Food Prices

Key U.S. water assets have been squandered and mismanaged for years due to reckless federal policies. For example, absurd green energy mandates mean that five billion bushels of corn are converted to fuel ethanol each year.

USDA scientists calculate it takes 2,500 gallons of water to grow a bushel of corn. That comes to 12.5 trillion gallons of water per year to produce ethanol. That is the equivalent of draining Lake Erie every ten years!

Except if they drained the Great Lakes, people might notice. So instead, they are draining the aquifers.

Dairy subsidies are another factor in creating incentives for reckless groundwater depletion. The government pays dairy farmers to produce far more milk than Americans consume. Dairy farming is as waterdependent as growing corn, requiring 2,000 gallons of water to produce one gallon of milk.

Decades of these government-mandated wasteful farming practices have helped devastate the High Plains aquifer that runs nearly border to border, from South Dakota all the way down to the Texas Panhandle. Wells that used to gush 1,600 gallons per minute (gpm) now trickle at 300 gpm. Experts say it would take hundreds, if not thousands of years of rain, to replenish the aquifer.

Squandered Water Resources
Present Potential Financial Gains

The High Plains aquifer provides about 30% of the groundwater used for irrigation in the United States. However, since the mid-1980s, withdrawals of water have been substantially more than the deposits. And since 2000, the rate of depletion has accelerated dramatically. The amount of water is less everywhere; from a decline of 2% in the Dakotas to over 39% in Texas.

As water tables drop, wells must be deepened. The deeper you have to go, the more costly the well and the pumping process. Water quality tends to deteriorate, too. Much of the very deep groundwater is full of silt.

What’s setting up is a series of mini water wars as farmers and suburbanites fight for access to the most essential of all natural resources. The laws of supply and demand will force water prices higher, which will stimulate investment in new infrastructure – but it will also stimulate food prices.

In the great food web, everything is interconnected. Scarcer water supplies mean less corn can be grown, which means it costs more to feed cows, which means your hamburger will get more expensive.

That’s where investing in agriculture can pay off. Owning farmland in an area with a plentiful, low-cost water supply can be a great investment. But that’s certainly not for everyone.

Investing Ideas
From Farmland to Agribusiness to Brazil

More accessible to most investors are agribusiness stocks. The Market Vectors Agribusiness ETF (MOO) holds 40 companies that trade on
13 exchanges worldwide. MOO specifically concentrates in five areas: agricultural chemicals, agricultural product operations, agricultural equipment, livestock operations, and ethanol/biofuel production.

One country that is making ethanol economically (using sugar cane) is Brazil. The resource-rich South American country is also sitting on the world’s largest water supplies. Investments in the Brazilian stock market are likely pay off long-term as the world increasingly turns to Brazil for energy and food. Asset manager Adrian Day, in his 2010 book Investing in Resources calls Brazil “the agricultural giant of the next 50 years or more.”

The iShares MSCI Brazil ETF (EWZ) has lagged since 2010. Put another way, now is the best buying opportunity in Brazilian stocks since 2009.

EWZ has total assets of $5.2 billion and charges 0.61% in annual expenses. By comparison, Vanguard Emerging Markets (VWO) sports an expense ratio of only 0.18%. It allocates 14.5% of its portfolio to Brazil, so it’s worth considering as a more cost-effective, though less direct play on Brazil.

Specific Steps You Should Take
to Prepare Your Household

Now let’s consider personal preparations. When food prices soar and water rationing comes, what will you do? If you prepare wisely now, you won’t have to panic later.

If you live in an area with a stable water supply (not being depleted) and the area isn’t vulnerable to droughts, then you’ll be much more secure in your water needs. Better yet, have access to multiple sources of water, such as your own personal well or a friend or neighbor’s, in case the regular water delivery system fails.

Here are four additional things you can do:

  1. Grow a garden. Everyone can grow some fresh food of their own – herbs, fruits, and/or vegetables. Not only is this food healthier and tastier than grocery store produce, it’s more economical.

  2. Store water. Having at least 28 gallons of stored drinking water per person is prudent. This amount would last about 2 weeks. One low-cost, super-easy water storage solution is 275 gallon plastic “totes.” These are typically used by farmers. Make sure you know what the tote has been used for, and clean it thoroughly before filling it with your emergency water supply.

  3. Collect rainwater. This isn’t feasible in all areas of the country due to low rainfall or environmental contamination, but in many areas rainwater can be collected, filtered, and boiled if need be so it’s safe to drink. Food-grade plastic barrels are an effective and affordable solution.

  4. Get a solar distiller. If you live by the ocean, consider getting an eco-distiller like the Eliodomestico. For $50, this clever device turns saltwater into fresh water at the rate of about 5 liters (1 gallon) per day. That’s not much water for daily living, but at least it’s enough for a modest drinking supply.

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