STAFF NEWS & ANALYSIS
Water Scarcity Promotion Begins?
By Staff News & Analysis - April 06, 2010

An increase in the demand for water is presenting opportunities for those looking to invest in the alternative asset class, according to fund managers. Charlie Thomas, manager of the Jupiter Ecology Fund and the Jupiter Green Investment Trust, says water is arguably one of the biggest long-term investment opportunities at the moment. "The crux we have in the water sector is that long-term drivers are really good, there is not a day that goes by when there is not a piece of research from China about the lack of water," he said. Hugo Rogers, manager of the Thames River Water & Agriculture fund, said demand in the water sector is accelerating, driven by population growth and improving diets in emerging markets, particularly the consumption of more meat. "On average it takes about four kilograms of grain to produce one kilogram of meat so adding small quantities of protein into the diet has a large impact on agricultural and water resources," he said. Gore Browne Investment Management says about 70% of usable water is consumed by agriculture, 20% by urban use and 10% by industry. By 2050 the UN forecasts this will shift to 60% agricultural and 30% urban usage. – UK Telegraph

Dominant Social Theme: Not enough water to go around?

Free-Market Analysis: We still remember the beginning of the bottled water craze. We couldn't believe it. But such is the power of suggestion that in short order people were spending hundreds and thousands of dollars of a year buying designer water that was probably in some cases supplied and bottled locally. People are suggestible, after all, and likely no one saw a great deal of harm in it. It was all in good fun, just a "craze."

Odd as we are, we saw something else, of course. For us, the bottled water mania was a good deal more deceptive than it seemed, and fraught with intimations of more serious consequences yet to play out. We suspected the beginnings of an elite promotion, a dominant social theme that would end up – in an indeterminate numbers of years hence – in a generally accepted proclamation of a global water scarcity.

We still suspect this is one of the very next promotions of the elite. We think we hear it coming closer. There are signs, here and there. Log on to at least one top US financial site and you will likely confront an ad for a heavily promoted book on how water is soon to be in short supply. And we have been seeing more and more articles popping up (such as the one excerpted above) in the mainstream press reporting on how water is becoming an increasingly scarce and valuable resource.

This is how we have been taught the elite works, unfortunately. The Anglo-American power elite attempts to consolidate power and wealth through fear-based promotions. Global warming and peak oil would be two increasingly failed promotions that have been at the forefront of elite efforts in the past few years. But almost everything that the power elite has proposed to the general society over the past few decades has been aimed at amassing further control of the very basics of survival.

We are fairly certain that food and water are among the next dominant social themes that the elite will try to focus on, as weather and warming have dominated the past few years. While the idea that global warming is caused by manmade carbon dioxide is among the most ludicrous promotions ever presented, it nonetheless has retained some traction simply because of elite dominance. Energy and food scarcity-promotions are likely intended to build on this still-in-play global warming meme, along with water, thus providing a triumvirate of control of humanity's most basic resources.

Such promotions focus on imaginary, impending scarcities of one sort or another, and propose authoritarian solutions featuring statist organizations that have been specially constructed by the elite and are controlled by it. We have written about the above mechanism, one way or another, for years, but of late we think our modest message has more resonance because of the global warming scandal. One can actually see, if one is predisposed to confront the truth, how a handful of individuals, properly trained and compensated, can successfully promote almost any scarcity meme (virtually any message in fact) if they are placed in the proper positions of authority.

In the case of global warming, a very small group of individuals created what seems to us to be a phony but powerfully resonant message. The mainstream media provided "legitimate" information from "authoritative" sources, broadcasting the bogus message worldwide. The final step would have been for governments to pass laws institutionalizing the false scarcity. In fact, the legislative process continues despite the disrepute in which the global warming meme is now held. This is another sign of a power elite promotion – like the headless undead, they tend to move forward, legislatively (if it comes to that), no matter how much life and credibility they lack. Here's some more on the evolution of "valuable" water from the Telegraph article (excerpted above) and ways that investors can take advantage of the coming scarcity:

Despite the importance of water, however, Mr. Rogers said supply has been neglected: "For many years it has been treated as a free good and supplies have been taken for granted. As a result, aquifers are falling and reservoirs are running dry." With the supply and demand out of balance, Mr. Rogers said the price of water is rising, with this the only way to incentivise new supply and increase efficient use.

"These rising prices become the revenues and profits of companies in the sector. These are companies that provide water and services, infrastructure and technological solutions. Globally there are plenty of opportunities to make equity investments in water and the risk-adjusted return profile of investment in water is very attractive with strong returns and lower risk," he said.

So where should those looking at the water sector invest? An obvious area in Britain is water utilities, such as Severn Trent, Thames Water and United Utilities. Mr. Rogers is also keen on US water utilities due to water shortages, which are pushing up the price of water in key states such as California.

Water utilities are not, however, the only way for investors to gain access to the sector. Mr James points to other services such as technology, which looks at how water is monitored, distributed and purified as well as the testing of water, something that Simon Gottelier, portfolio manager on the Impax Environmental Leaders fund, is also keen on.

Mr. Gottelier said there has been a boom in merger and acquisition activity in this area recently and points to French Company Veolia Environnement, which is included in the Impax fund's top 10 holdings. "Veolia Environnement is in the middle of restructuring and has started to perform a lot better this year than it has historically, given all the management upheaval. This month the stock is up 9% and year to date it is up 12%," he said. Mr. Gottelier also points to Perkin Elmer, a US water-quality testing company, whose stock is up 17% year to date.

All the buttons of an elite promotion are being pushed in the above article, it appears to us. The assertions of scarcity, the cheerful acknowledgement that money is to be made in what has suddenly become a "sector" and the recitation of funds and managers who have presciently caught the trend and climbed on board to participate in satisfying profits.

Unfortunately, it would seem obvious to many people reading this article that here is a place, finally, where one could be an early adopter. Surely not everyone is aware of the coming global water shortage, they might think. Finally, a chance to be "first in" or nearly so, and relish, eventually, the opportunity to chat about one's prescience at cocktail parties – one's words being accompanied by a delicious frisson of environmental awareness.

And yet we are not convinced (nor thrilled). Global warming sounded so very reasonable as well. The planet was warming. The data was not in dispute (it was a settled matter, we were told) and human beings would simply have to stop producing so much carbon dioxide. Cows were producing too much of it as well and might have to be slaughtered. Generally, the solution might involve eating less meat or even no meat. Or perhaps eating grass.

In any event, we are sure, if we applied ourselves (something our wives, in aggregate, understand we rarely do) that we would find there is much more to the water shortage story than is being told. We might find the aquifers that are draining are refilling after a while (much like oil wells sometime seem to refill). Or we might find there are efficient and cheap technologies out there that can remove salt from salt water to create an abundant supply of fresh water. There are all sorts of possibilities, and if the world is truly running out of water we would be very surprised if one of the globe's six billion residents couldn't come up with a solution.

But of course, the elite in their charmingly disingenuous way may make sure it never gets that far. No, we may not be hearing about solutions, or not innovative, product based ones. Instead, we will likely be exposed to more and more "scientific research" explaining why the world is running out of water (ignoring the Pacific Ocean of course, as well as Antarctica). Second, various think tanks will start broadcasting the tragedies taking place in various parts of the world where children do not have enough potable water (true, to be sure, but not perhaps for the reasons that will be indicated). Finally the UN will begin to issues emergency proclamations about an impending water shortage that will kill millions. It may be seen that global warming (assuming this meme is somehow rehabilitated) is responsible for the dreadful upcoming droughts. Rationing will be suggested. Laws will be proposed. Talk show guests will earnestly discuss the problem. Expensive home-machines will recycle urine.

It is certainly predictable and wearying enough for those who understand it. But of course there is money to be made from this meme, which is part of the Bell's brief. Ironically, the bet, therefore, is not on WHICH water-oriented company to invest in, but whether to invest at all. The fundamental investment choice in this day and age has to do with whether or not the Internet itself will expose power elite promotions and render them risible – and thus unserious.

After Thoughts

Unlike the 20th century, power elite promotions are increasingly foundering in the 21st as the Internet seems to expose them. The first area an investor ought to look into is whether or not the specific promotion he wishes to support is feasible long-term or is going to come under attack and lose credibility in the age of the Internet. This is yet another aspect of investing that the investor must struggle with, as if things were not already complex enough. Sorry to have to point it out.

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