Secure Energy for Prosperity

Investing in a Resource-Constrained World (Part II)

Several commenters touched on water:

There are several water hoarding plays, such as PICO, which is buying land in Nevada and Arizona I believe. Boenning Scattergood publishes excellent research on the water sector, and some of it is freely available. They had a recent good call on Ameron.

I agree with Rogers, however, that when a crisis hits, you'll be lucky if they just hang you. And from both a moral and environmental perspective, this is in NO way a 'socially conscious' investment. On the contrary, free water rights for landowners is resulting in overuse of groundwater around the country and the world. Go look at the situation in Atlanta right now. There has been an ongoing fight between Georgia and Florida over river flows and groundwater for decades. It affected the oyster harvesters in Florida for a while, but now Atlanta is paying the price - you can't fill up your swimming pool there this summer due to water shortages.

One commenter mentioned water ETFs - these are a fools game, created purely for marketing purposes, with no coherent holdings. Many of them hold hoarding plays like PICO, as well as GE and Siemens, which are big in water but water is a small percentage of their business.

Basinwater (BWTR) is a black hole of bad governance and a money-losing product -- although it addresses an interesting market, which is the removal mercury and other contaminants from groundwater. Increased government regulations of such toxins will expand the market here for better capitalized competitors.

The opportunities abroad will be significant. Epure does water treatment in China -- worth taking a look at.

Peak Oil and Some Alternative Energy Investments

Your broad thesis regarding the importance of natural resource inputs for achieving fuel efficiency and energy diversity has not been raised strongly enough in the broader media - and certainly not in the 'green' media, which I believe has an internal contradiction it will soon need to reconcile over its opposition to most forms of mining.

I take exception to your argument for buying a Prius in the near-term. The marginal fuel savings are not significant enough to reduce our oil dependence, and most motorists will have to drive a lot to realize savings in a meaningful time period. Ironically, it is the people who drive the most, consuming the most oil and polluting the most, who will save the most by buying a hybrid.

I would agree that the development of the electric drive train and ultimately an all-electric or duel-fuel car would enable us to take advantage of a diversified energy supply over the next few decades. I look at the market for hybrids at this stage as merely a field test for engineers to improve the performance of electric car technology for future generations.

As we build out an electricity infrastructure diversified away from fossil fuels to solar, and possibly wind and nuclear, we will truly be able to get our vehicles off of fossil fuels. The reality today of course is that the grid is powered by natural gas, coal or nuclear -- so that's what you're running your plug-in hybrid on.

On an investment topic: Electric & hybrids cars require lightweight magnets for the electric motors. The motors require NEODYMIUM, which today come primarily from China (over 95% of it!).

The ramp-up in hybrid cars will increase demand for neodymium - and manufacturers are already concerned about diversifying their supply beyond China. There are no companies currently producing neodymium (and other rare earth elements) other than possibly Chevron.

LYNAS Corp (LYC.AX / LYSCF) expects production by YE2009. Several other exploration stage ventures claim neodymium reserves, although I do not buy these due to systematic over-valuation by speculators.

Another irony is that neodymium and rare earth production yields radioactive thorium, which is why both California and China have regulated and limited such mining and processing in the past. This risk of China cutting off supply -- either strategically or for health and environmental reasons -- is a huge risk to the supply of Nd for electric cars.