The New Color of Money
Water is required for the infrastructure, technology and energy used to make, store, ship and monitor every product, making it the single most essential variable to investments over the next decade. That is why water is called blue gold. Investors must keep this in mind.
Wall Street continuously tosses out prognostications from one end of the spectrum to the other. However, there is one trend in the world today that I believe impacts virtually every sector and investment. In fact, I believe it is the lifeblood to any portfolio regardless of interest rates or the direction of the stock markets. In fact, you cannot manufacture any product or extract any natural resource without it. Water is the most essential item and most important variable to investments over the next decade. In their 2015 Research Investment Committee annual outlook, Bank of America Merrill Lynch estimates that increased global water demand could lead to a water market worth over $1 trillion by 2020.
Water may seem a variable too fantastic or encompassing to apply to a portfolio, but there is no doubt that water will impact the prices of other commodities, which impacts the profits of companies and investors. There are many types of investments that can benefit from the water impact. Regardless of the long-term ramifications, there will be short-term swings in the markets for both sides of the water issue, which creates opportunities in any market or environment.
Consider that it takes approximately 62,600 gallons of water to make one ton of steel, 8.5 gallons of purified water to make one 32mb silicone computer chip, 1,850 gallons of water to make one barrel of refined oil, 1,800 gallons of water to make one pair of denim jeans and 34 gallons of water to make one cup of coffee. For comparison, consider that the average person uses 50 gallons of water per day. Statistics are according to www.epa.gov.
Now just think of one factory or office building and the amount of steel and other metals used to build the structure, the number of computer chips being utilized, the amount of clothing worn and cups of coffee or soda consumed by the people in the building.
Besides the infrastructure and technology involved in all industries, producing energy involves large quantities of water. Regardless of the type of energy you support (oil, gas, coal, solar, nuclear, wind or geothermal), water is key to all of them. Water, therefore, may be the single most constant and continuous variable that will drive prices of natural resources and the costs to manufacture products higher over the next decade or more. Understanding how effectively a company has accounted for the impact of the escalating global water shock can help an investor evaluate that company’s future profitability and/or viability. For example, at the turn of the 21st century, it was important to evaluate a company’s strategy to utilize the internet and B2B commerce to market and sell products. Look at the two largest U.S. retail leaders before the web, Sears, and Kmart, vs. today’s retail leaders like eBay and Amazon. The difference to investors over the past decade from the first group to the latter is exponentially different.
Today there are numerous books, sites and blogs discussing the problems of decreasing water supply in our rivers, lakes and aquifers, yet you may not realize that this is not just a problem in areas like Mexico and Sudan; Brazil, one of the most water-rich countries, is facing a water crisis due to drought and pollution. Then there are many legal battles over water supply that people in states like Georgia, California, Texas and Colorado know all too well. When you consider the importance of water, you realize why it is called blue gold. Contact us if you would like to learn more strategies for investing in water.
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