Positioning for When Water Runs Out: Part I 26 comments
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If current trends continue, there is no doubt that there will be wars fought in the 21st century over water. Not oil. Not ideology. Not theology. Water. Survival.
It takes somewhere between the three pounds of grain the National Cattlemen's Beef Association estimates and the sixteen pounds some environmentalists and vegetarians claim to produce a pound of beef. I believe the truth lies closer to the cattlemen’s numbers – all the ranchers I know, and I know plenty, graze their cattle where they consume vast quantities of weeds and natural grasses. What business person wants to buy grain, adding to their cost of doing business?
On northern-clime ranches, covered in snow in winter, ranchers have to provide hay or other feed to keep their cattle alive. But often the supplemented feed is the garbage that is left after crops grown for human consumption have been extracted: things like almond hulls, tomato and other pomace, and a soybean meal that comes from the bean flakes remaining after the soy oil is extracted for those who demand only soy oil. (Before any busybody with a need to tell others how to live gets their knickers in a knot, I just enjoyed my soy hot chocolate this morning --- while contemplating what kind of steak to put on the grill tonight…)
Whether you like the cattlemen’s numbers or some other, one fact is inescapable – whether you are producing grain, meat, fruits or vegetables, you are using water – lots of water. Fully 50% of America’s fresh water goes to irrigate our crops and provide us with food. Do you like whole grain bread? I do. According to Kansas State University, which might know a thing or two about wheat, it takes 151 gallons of water to produce one pound of wheat.
Concerned about world overpopulation devouring every bit of remaining food like locusts? Then you are really concerned about the amount of available-for-use water. The earth is comprised of 70.8% water and 29.2% land, but salt water comprises 97.5% of all the water on earth, fresh water just 2.5% -- and roughly 2/3 of that is locked in polar and glacial ice! Humans will die if we consume salt water. More on this in Part II. Let’s look today at the world situation for fresh water.
I have cautioned here and here that the headlong rush to buy emerging markets based upon their well-ballyhooed prospects, without conducting due diligence as to the problems they face in realizing those prospects, is folly. Restricting my comments only to water…
China has 1/5 of the world's population. If life were fair, it would have 1/5 of the world’s water. It doesn’t -- China has just 1/14 of the world’s water supplies, and much of that is rank, dank, and polluted. You think oil is important? Try living without water. Or with water too polluted to drink. And problems have worsened considerably in recent years as the population burgeoned and factories dumped toxic pollutants into rivers and lakes. A Chinese bureaucrat recently noted that 90 percent of China's cities and 75 percent of its lakes suffer from some degree of water pollution. They have water – they just can’t drink it.
Thanks to the World Resources Institute we can compare the amount of Internal Renewable Water Resources (I.R.W.R.) on a per person basis from country to country. Even with some of the world’s largest rivers, China has just 2,173 cubic meters IRWR per person. By contrast, Japan, also a rather densely populated nation, has 3,372 cu M per capita, Vietnam has 4,568 -- and India has just 1,211, barely enough to sustain life after taking into account agriculture, industrial, and consumption.
Since India is the BRIC 2nd-most-favored by the most analysts, it’s worth discussing in this context that, with all that crystal-clear show runoff from the Himalayas into some of the world’s most renowned rivers, one would think that what water India has would be exceptional. One would be wrong. According to the World Health Organization, India discharges 95 percent of its untreated urban sewage directly into surface waters. Of India's 3,119 cities, only 209 have even partial sewage treatment facilities, and just eight have full facilities. Downstream, the polluted water is used for drinking, bathing, and washing...
Those nations blessed by geography, especially in the higher and lower latitudes, with lots of snow and big mountains to filter pure water, are more fortunate. Many in the middle latitudes are not so lucky (though some, comprising mostly rain forests, still are.) The entire Mideast, for instance, has sand -- lots of sand. And virtually no rainfall. This includes Israel, but as you’ll see in Part II, Israel has proven desalination technology – and the world’s biggest desalination plant – and is, characteristically, already planning well for its future.
I first published the map below, courtesy of ITT Industries, in the September 2006 issue of Investor’s Edge ®. Nothing has changed since then. Oil for water, anyone? 
So who does have abundant water?
Russia, half-covered with snow much of the year, has a surfeit of riches with 30,001 cubic meters IRWR per person, nearly 15 times that of China. Maybe the Russians should be beefing up their border with China instead of blackmailing Europe over natural gas shipments. All that fresh, clean water in Siberia has to look pretty good to China, a nation that, relative to its population, didn’t have much to begin with and has soiled, sullied, dirtied, and polluted what little remains.
Australia may have some of the driest deserts on earth, but on a per capita basis, their small population gives them 25,185 cu M of water per inhabitant, nearly as much as Russia. Chile, with the absolute driest spot on earth, also has the snowpack of Patagonia, yielding 56,706 cu M. And among the water heavyweights who had better start thinking about upgrading their homeland defense are Norway and New Zealand, with some 85,000 per capita, Canada with 91,000, Guyana and Suriname with about 300,000 each, and the undisputed champ, Iceland, with 599,944 cu M per person.
The U.S. has nearly 10,000 -- not bad, considering we are ransacking the aquifers that took millions of years to fill in order to create false oases in the desert so this generation can have swimming pools in Las Vegas and Phoenix. With this kind of developer-fueled profligacy, our grandchildren will reap the dust-bowl rewards. But, for now, we can whistle past the graveyard.
Who stands to benefit?
Which companies are working to clean up our water supplies, help us use less in agriculture and other uses, and prevent the loss via transport? I’ll talk about most of the possible beneficiaries in Part II, which I’ll be writing when I return to the office tomorrow night. With 97.5% of the world’s water comprised of salt water, we may well get our biggest bang for the buck in companies in that arena. But there are companies working in the fresh-water world that will benefit mightily from their technologies and experience today.
I can’t possibly do justice to these fine companies in the little space remaining. But I can introduce you to them and discuss them in greater depth in the coming months. Also, a caveat – if you are a regular follower you know that we are mostly in income and cash equivalents with lesser positions in precious metals and inverse ETFs. We are not currently recommending any of the fine companies that follow. We are recommending that you do your research now, however, so you are comfortable with the products and prospects of these firms and are therefore comfortable pouncing on them at what I believe will be lower prices.
First up is TETRA-TECH (TTEK). This company does it all: consulting, engineering, program management, construction and technical services, all focused on resource management and infrastructure. It is involved in the Big three going forward: water, environmental and alternative energy services.
PENTAIR (PNR) has two primary business segments: Water and Technical Products. The Water Group is provides both products and systems used to move, store, and treat water. (The Technical Products Group is mostly about thermal management, designing standard and custom enclosures for electronics and electrical components.)
I don’t want this to get too lengthy, so the last one I’ll mention today is ITT. It is not a pure play but, rather, a conglomerate (sorry! “Multi-industry company”) that is in three primary areas. Fluid Technology includes water and wastewater treatment systems, the pumps that make it all work, and related technologies. Motion & Flow Control provides products and services for the defense, aerospace, industrial, transportation, computer, telecom and marine industries. And Defense Electronics & Services is a high-tech government contractor that deals with certain electronic systems and components, communications systems and engineering and applied research. All are on the cusp of what the nation needs going forward.
Some people think because my firm currently, and uncharacteristically, has hedged short positions in order to protect our clients’ assets, we are somehow not interested in the long side. Au contraire! Now is the time to be selecting the great firms that we believe will be available at even better prices during the dog days of summer.
I’ll discuss my top “ag” and water play, LNN, a couple fine ETFs, and a whole bunch more, when I return to the office tomorrow night.
Full Disclosure: We are not long any of these securities – yet. But we’re salivating at the prospect of buying them even cheaper.
The Fine Print: As Registered Investment Advisors, we take our responsibility seriously to advise that, since we do not know your personal financial situation, the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.
Past performance is no guarantee of future results, and it should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong. Finally, we will always disclose whether we own or are buying the investments we write about.
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This article has 26 comments:
It is really a pleasure to read Provocative Yet thoughtful Presentations. Especially after reading one of the Worst I've ever read.
Be it as it may, Corn Ethanol production is also making its presence known on the USA's water supply as is Shale Gas Extraction if the NYT is to be believed. And, of course, there is the waste of Billions of Gallons annually because of the crumbling Infrastructure under our Major cities, most of which hasn't seen construction/reconstru... since those Cities were Built.
If I hadn't zoned in on the Water headline, I would have missed your writings entirely, and If I wasn't Geared to Investigating every SA Editor's Pick, I would have missed your recommendation of GGN.
I am profoundly grateful to have found A real Gem amongst the Rubble.
No one knows how much they pay for water.
This resource can't be managed or conserved since it has no "price." Gas is a problem - $3+ a gallon. Electricity here in NJ is a problem - $0.15/kwh. Beer just got more expensive. But water isn't expensive -- it's almost free.
As ten people how much they pay for a gallon of water from their tap -- I'll bet that none of them know the price.
So I agree that the opportunities are in water infrastructure. But not in water shortages since there can be no conservation without price signals.
Water is political and the politicians feel it is plentiful and free. The future is the hands of legislatures that lack the moral fortitude to protect the future of their constituencies. The alternatives to ground water are few and costly. Excellent and timely article.
While I was there, a drilling company was called in to make a new well because the old one was contaminated by pesticides. They went down over 200 feet before finding water.
I hear the same story over and over again. Groundwater is not so renewable as people think it is and it is disappearing quickly. On the prairie, where well water is the primary source for livestock and crops, this evaporating resource spells disaster for the future of food supplies. We cannot underestimate the consequences of decades of water mismanagement on food production itself.
I want to challenge you on your comments about the lack of rainfall in the mid-east and Israel though.
Having lived in the mid-east for a long period of time I can attest that there actually is tremendous rainfall, however it only comes during the "Rainy season". Jordan has made quite a lot of progress by damming Wadi's (dry riverbeds) and capturing runoff in the rainy season to offset the lack of precipitation during dry times. Israel itself has made similar investments in water capture.
The media typically presents these areas as totally bone-dry, sandy and forlorn of vegetation but nothing could be further from the truth.
When it rains there, it pours. Unfortunately the soil is often so dry that the rain cannot penetrate the earth. The soil is so dry that any moisture that falls simply runs off the surface.
I experienced this effect first hand when I visited a Wadi near Ashkelon on a beautiful, bright sunny day. While it had been dry and rainless in Ashkelon, it was raining heavily in Jerusalem. The Wadi suddenly filled and was engorged out of the blue and a veritable river formed over an hours period before my eyes. Yet not a drop of rain fell in that region.
The fresh water is there to be had but engineering is needed to capture the resource before it disappears into the Mediterranean.
Currently, even the So Called "drinking water" in the various big cities is subject to contamination from various trace amounts of speed, heroin, meth, "whatever the current drug of the day is" and various and sundry Prescription Medicines all of which find their way into the system via the Toilet. These cannot be filtered out by any means of which I know about.
I imagine that in Jersey, with your close connection to New York City, this problem maybe bigger than you know about. I do know that Chicago's system was found to be so contaminated in the Past Year.
There are Legal Battles ongoing between various Western States regarding access to Water Tables and to the various rivers flowing through multiple States, Like the Colorado River.
The Chinese have more contamination than we do, but we are trying our best to catch up.
money can be made beyond infrastructure. ask KO et. al.
On Jun 24 08:24 PM rooferguy wrote:
> Water is a political infrastructure play. Unfortunately, not relevant
> to the ordinary populace for one very simple reason:
>
> No one knows how much they pay for water.
>
> This resource can't be managed or conserved since it has no "price."
> Gas is a problem - $3+ a gallon. Electricity here in NJ is a problem
> - $0.15/kwh. Beer just got more expensive. But water isn't expensive
> -- it's almost free.
>
> As ten people how much they pay for a gallon of water from their
> tap -- I'll bet that none of them know the price.
>
> So I agree that the opportunities are in water infrastructure. But
> not in water shortages since there can be no conservation without
> price signals.
TBoone has bought extensive Water Rights as an investment.
If you have time read anything by Sandra Postel. She is an acknowledged expert on water problems, and she produces a remarkably easy (academic) read on the subject.
SBS and DGW are legitimate (at least in their public descriptions of themselves) stock picks in this arena. I bought both for myself and my grandchildren.)
verweile.com/514_html/.../ offers a set of slides from a lecture relating to global water problems. Perhaps the data there will serve to underwrite the value of Mr.Shaefer's comments.
On Jun 25 11:48 AM one eye wrote:
> Water has been rationed in California before and will be again. Georgia
> had its own draught related rationing as Lakes and Rivers went dry.
>
>
> TBoone has bought extensive Water Rights as an investment.
Bankruptcy? who is going to go Bankrupt: A Lake, a River, the Water Table?
My only concern is, when investing in water rights, what happens when the government decides that the public interest is best served by taking away one's investment?
Have you looked at Veolia (VE) yet? They are a French water utility that I've had the unfortunately pleasure of holding over the past 18 months, but seem like a good value here. What do you think about VE?
Much of the Western world still takes water for granted, and such low pricing (governments have failed to account for the true cost of sustainable water supplies) for such a vital resource has only made our concern more lacking. With more diversified water sources including water recycling and desalination, this view is already changing, fast.
I want to challenge you on your comments about the lack of rainfall
in the mid-east and Israel though....When it rains there, it pours. Unfortunately the soil is often so dry that the rain cannot penetrate the earth.
JS: Thanks for the reminder, cameroni. I have experienced those same gully (or wadi) wumpers in both Qatar and Iraq. If only there were a way to capture it, store it, and transport it where it's needed, eh? Which is one reason -- the primary ones being strategic, of course -- that Israel built the world's biggest desalination plant right there where you were, at Ashkelon. They seem to be voting with their wallets where they believe their future water supply, especially a secure water supply that can't be poisoned up-river, lies.
JS reply -- Because it isn't my map -- it's ITT's and is a map of NATIONS that have problems! But I agree with you that California has big water problems.
Now what follows is purely my opinion, as a California native who now resides on the Nevada side of Lake Tahoe: Most of California's water problems are caused by politicians, not Mother Nature. Selecting which voting constituencies get water and which water-intensive crops get subsidized water, rather than letting nature and the marketplace determine that, is what makes the California drought years far worse than they need to be. I have hiked to the top of Mt. McKinley and to the bottom of Death Valley, and paddled or hiked along the Klamath, the American, the Yuba, the Sacramento, the Feather, and the Kings Rivers. I live at Tahoe and own property at the inland-saltwater Salton Sea. California is blessed with fast-flowing, snow-runoff rivers that should be able to support the agricultural base and urban populations that consume most of the water. As far as enlightened water use in California, two words sum it all up, however: "Chinatown, Jake."
Your series about water was excellent. Very informative.
Sincerely,
H. Court Young
If Obama tries to stomp on Individual States, the Writing will truly be on the Wall. The Senate Is Not filibuster Proof, not if the percentages in the House Hold true in the Senate.
This Tuesday, the Supreme Court votes on Reverse Racial Discrimination. What's her name may be deadmeat if the Court Rules against her and just 2 other Appelate Court Justices.
Try opening it. Fran is warning us that the Federal Government can remove a citizen's rights if it so chooses, be it your right as a shareholder or as a consumer of water.
On Jun 25 10:28 PM one eye wrote:
> Fran: What inspired you to include a comment which has no bearing
> whatsoever to the discussion?
>
> Bankruptcy? who is going to go Bankrupt: A Lake, a River, the Water
> Table?
If you want our water you have not only to conquer and occupy the country (a serious issue when the nearest stepping off point is 1200 miles away and called Australia) - think massive energy costs apart from anything else - you then have to transport said water in sufficient quantities to wherever the hell you think you want to take it. Think even more massive and expensive energy costs.
We have tried to find ways to sell the stuff in the past but there was never a price that anyone would be prepared to pay that would make the thing pay, and it wont matter how high the price of water rises, I'm betting that it will always hit quantity and energy restraints before it will be of any value whatever to military invasion.
Second point. Any nation capable of projecting force across 1200 miles and occupying us would need more than our GNP poured into the military even to contemplate resisting. But by the time we get to anyone seriously thinking about it, they will not be able to mount that kind of force because of the other liquid problem, oil.