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Water: Hottest commodity to invest in

November 21, 2007 17:35 IST
When it comes to absolutely critical commodities, there's no question that this one is at the top of the list. By a long way.

You need it. I need it. Every single person in the world needs it. It's without doubt the most precious commodity on the face of the planet. No matter what country you live in...or whether you're rich or poor...there is nothing more important to basic human survival.

For all the talk about oil, natural gas, and even electricity, those resources pale in comparison to this essential commodity - one that we can't live without, and whose demand will never decline. In fact, thanks to population growth and global warming, demand is actually set to increase markedly over the coming years.

But the world is struggling to cope with a very serious shortage in 80 countries around the globe - one that is approaching "crisis" level. Even in America's own backyard.

We're talking about investing in water - a $460 billion global market, and an investment sector that some analysts have dubbed "blue gold," because of the immense profit potential this resource holds.

Water, Water Everywhere...Or Is There?

When you pour a glass of water or take a shower, you expect that once you turn on the tap, clear, fresh water will flow out. In America, we take this for granted. But the fact is...water is becoming very scarce - and may be destined to become the most sought-after commodity in history.

Just take a look at the facts:

The International Food Policy Research Institute says that by 2020, the world will have an additional two billion people, who will require 20% more water than is currently available.

Within 50 years over half the global population will be living with water shortages. In fact, water shortages currently affect 80 countries and will affect 4 billion people by 2050.

The water level of the Dead Sea has fallen 66 feet in the past 100 years and is now losing about 3 feet each year.

At current consumption rates, New Delhi will run out of ground water by 2015. The country has drilled more than 21 million wells that now pull over 200 cubic kilometers of water out of the earth - and it's still not enough.

Two-thirds of China already faces water shortages.

The list goes on. And don't bet on anyone suddenly discovering any more water either. Like land, we have a fixed, finite amount. There is absolutely no way to make more water and no substitute for it, regardless of price. It can't be increased by technological breakthrough or scientific discovery.

As Jeffrey Sachs, director of the United Nations Millennium Project, bluntly states: "The world is running out of water. We need a radical plan to tackle shortages that threaten the ability of humanity to feed itself."

Did You Know?

The average person uses 232 gallons of water each day! That number includes the amount of water used to produce the food we consume, the water we drink, the water we use for household purposes, and the water we bathe with.

The Investing In Water Twin Killing: Global Warming And Population Growth

Global warming and rampant population growth are the two main drivers of today's water-related problems.

In June 2006, the National Academy of Sciences said Earth is now the hottest it's been for 400 years, with the surface temperature of the earth having risen by 1 degree Fahrenheit over last 100 years. While that's not much in practical terms, it's enough to trigger substantial changes in the world's water resources and wreak havoc on eco-systems, erode shorelines, dry aquifers, and cause massive water shortages across the world. For example:

Time magazine says: "Mount Kilimanjaro has lost 75% of its ice cap." And it could lose all its ice by 2020.

In 2005, the British Antarctic Society said the West Antarctic Ice Sheet could be melting, which could cause seawater to rise 16 feet globally.

The Dead Sea water level has fallen more than 66 feet in the past 100 years, and is now losing about three feet each year.

At current consumption rates, New Delhi will run out of ground water by 2015.

Lake Chad in Africa is now 1/20th the size that it was 35 years ago. On top of that, you have massive global population growth...

What Is An Aquifer?

If you dig a hole on the beach, it eventually begins to fill up with water. This is basically an aquifer. Obviously, there's no underground river running to the hole you've just dug; instead, you've just dug down to where the earth is saturated with water, which then releases the groundwater into the hole. With immense population growth, aquifers can run dry, create sinkholes, or become contaminated.

Population Overload...Water Undersupply

In 1900, there were roughly 1.6 billion people on the planet. Today, there are 6.5 billion. Since 1940 alone, annual global population growth has risen by 1.5% to 2%, while global water use has increased by an average 2.5% to 3%.

But here's the problem: 97.5% of the world's water is seawater, unfit for human consumption. That leaves just 2.5% of fresh water resources. Moreover, only about 0.1% of all water is actually available to use. Most of it is locked up in glaciers, groundwater, and soil.

By 2025, the world population is expected to rise to 9
billion. But the global demand for fresh water exceeds supply by 17% already, according to the Population Institute, with World Bank figures showing that water demand is doubling every 21 years.

This triggers an equally serious domino effect: Less food. As the global population swells, we're forced to send more water to the agriculture sector for food production. But agricultural crop production already claims 65% of all fresh water, compared to 25% for industry and 10% for households.

However, as demographic growth causes cities and industries to expand, the same water that was originally destined for farms is now being drained before it gets there.

This places an intense strain on the ecosystem, causing potential crop devastation, and food shortages. And if entire regions become unsuitable for crop production, both food and water will need to be shipped there.

But torrid population growth is causing another major problem...

Muddying The Waters...Literally

Right now, 2.5 billion people - about 40% of the global population - don't have access to clean water. In Latin America alone, about 15% of the population - roughly 76 million people - lack safe water, and 116 million don't have access to sanitation services.

The problem is that potable water is constantly diminished by huge population growth and pollution - to the point where just 20% of the world's population has access to running water.

USA Today backs up this gloomy combination, with the paper recently said that half the world's coastal regions - where one billion people live - have become overpopulated and are degrading through over-development and pollution." With half the world's rivers and lakes so severely polluted that they require treatment to provide drinkable water, you can see why clean water and sanitation are such serious issues. These statistics tell the story:

The World Health Organization estimates that 80% of all sickness in the world is attributable to unsafe water and sanitation.

Five million people dying each year from water-related diseases - many of them children. In fact, water-borne diseases kill one child every eight seconds.

Victoria Lake in Africa is under threat from millions of liters of untreated sewage and industrial waste dumped by cities in Kenya, Tanzania and Uganda.

Poland's rivers are so contaminated from chemicals, untreated sewage and agricultural runoff that 75% of their water is unfit even for industrial use.

Almost 50% of Moscow's water and sewage treatment plants are ineffective or malfunctioning. That means 75% of its population doesn't have access to clean water, according to the Russian Security Council. The city has to pump in water from the Volga River - 130 kilometers away.

One Billion Citizens Going Thirsty

In China, the country's population of over one billion is also causing major supply and demand problems:

China faces an annual water shortage of 40 billion cubic meters.

449 Chinese cities currently suffer water shortages - 110 of which have reached critical levels. Beijing, site of the 2008 Summer Olympics, is short one billion cubic meters of water every year.

According to Summit Global Management, "75% of China's drinking water is unsuitable for drinking and cooking, and 80% of China's seven major river systems no longer support fish."

China uses 30 more cubic kilometers of water than is replaced by rain. China's water reserves per capita are about one-quarter of the global average.

China is so desperate to tackle the problems that it's planning to invest $125 billion over the next 2-3 years to beef up its crumbling water infrastructure. It's also considering building a network of canals from the Yangtze River in the south to the cities of the north. The project could take more than 60 years and cost over $60 billion dollars - but the government has little option.

Simply put, water is the single largest health problem in the world.

There are 6.5 billion people who need it to survive every day. But with this number rising and only a fixed amount of water on the planet, the economic equation is simple: More people = more demand = less supply.

And that means as prices soar, the water industry is ripe for an extended bull market - a situation that could hand investors in water some massive moneymaking opportunities.

Already, investing in water is increasing in popularity. In the U.S., you can invest in several water-based ETFs. For example, the PowerShares Water Resources Portfolio (AMEX: PHO) is the only "pure" play on water. And had you invested back in July 2006, you'd be up over 25% by now.

Over the past three years, the Dow Jones U.S. Water Index ($DJUSWU) has surged around 80%. Since the beginning of 2005, it's outperformed the S&P 500 by over 20% - not including the hefty dividends many water companies pay. And between 2000 and 2005, water utility stocks returned 134.5%, while S&P 500 returns crept to a measly 2.7%, according to Global Summit Management. Water Investors who parked money in water utilities for a 10-year period were even happier, scooping a massive 446% from 1995 to 2005, while the S&P 500 earned 9% over the same period.

Excerpts from A Smart Profits Research Report
From the
Mt. Vernon Research Team