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Water The Ultimate Liquid Asset

Commodities / Water Sector Feb 27, 2008 - 01:59 PM GMT

By: Money_and_Markets

Commodities

Best Financial Markets Analysis Article Sean Brodrick writes: Two centuries ago, people in New England were harvesting a resource for practically nothing and selling it at a fat profit in such distant locales as Calcutta, Martinique and Havana.

As the wheel of history turns around, it may be time to start harvesting and selling that resource again.


I'm talking about water — the ultimate liquid asset.

If you believe, correctly, that gold, oil and wheat are some of the most valuable commodities on Earth, think about water for a moment!

Today, I want to tell you more about this valuable natural resource ... its colorful history as an investment vehicle ... and how you can capitalize on what just may turn out to be the most lucrative commodity of the 21st Century.

From Financial Ruin and Debtors' Prison To Fabulous Fortune and a Place in History

I learned about the ice business in a fascinating book — The Frozen Water Trade — by Gavin Weightman. It's a story of one man, Frederic Tudor, and his obsessive pursuit of what his friends and even family viewed as sheer lunacy.

Frederic Tudor knew the value of a good water investment!
Frederic Tudor knew the value of a good water investment!

Tudor was certain that he could sell Massachusetts ice in the tropics at a high profit. He eventually succeeded ... but endured financial ruin, sea-going catastrophes, multiple trips to debtors' prison and even a mental breakdown on his way to a fabulous fortune and a place in history.

In the early 1800s, the harvest was what sailors in the trade called “frozen water” — more commonly known as ice.

It grew into such a thriving business that battles were fought in court over who owned the ice in winter-locked ponds and rivers. The ice was harvested by horse-drawn plows and men wielding chisels, often by the light of the moon (the colder the temperature, the better the ice harvest).

Properly stored, winter ice could last through a long sea voyage into tropical climates and all summer long. In fact, under the right conditions, ice could last for years .

Some interesting facts ...

  • Transplanted British, French and Spanish colonists in the tropics were the first to put ice cubes in their drinks. Next time you have a cocktail on the rocks, hoist a toast to those hardy pioneers.
  • It wasn't until the frozen water trade began that the idea of ice boxes came about ... an idea that made its way into every American household and continues with today's refrigerator.
  • Though forgotten today, icemen made deliveries in parts of the United States until the 1950s. My friend Dennis Dunn, who was born in Detroit in 1946, remembers well the horse-drawn ice wagon making deliveries on his street. Refrigeration was invented in the 1800s, but only became common in American homes with municipal electrification in the 1920s and '30s. Still, many stubborn consumers clung to their "ice boxes."

Ice from New England was sold in Calcutta for 50 years till eventually electrification killed the frozen water trade.

But, once again ...

The Wheels of History Are Turning!

And once again, a resource that many take for granted — water — is becoming very valuable. Did you know ...

  • Parts of Georgia and North Carolina could actually run out of water this year, unless they get torrential rains. The situation is so bad that Georgia is trying to move its border with Tennessee to annex part of the Tennessee River.
  • A water crisis is also building in California. The Los Angeles region has enough natural water resources to support one million people; the population today is closing in on 20 million. According to the California Department of Water Resources, if more supplies aren't found by 2020, the region will face a shortfall nearly as great as the total amount consumed today.
  • The UN reports that the Himalayan glaciers that are the sources of Asia's biggest rivers — the Ganges, Indus, Brahmaputra, Yangtze, Mekong, Salween and Yellow Rivers — could disappear by 2035 as temperatures rise. About 2.4 billion people depend on that water.
  • Less than 15% of the Chinese population has access to clean drinking water; China's government will spend $128 billion on water infrastructure in the next five years.
  • It's not just the third world that's in water trouble. The EPA says that 25% of U.S. water pipes are in poor shape, and by 2020, 45% of U.S. water utilities will need repair. Many municipalities are turning to private water companies to upgrade their water systems.
  • Americans spend more on bottled water than they do on movie tickets or the latest gadgets — a whopping $15 billion last year. And as much as U.S. consumers complain about the rising cost of gasoline, they willingly shell out two or three times that for an equivalent amount of bottled water!
Melting glaciers in the Bhutan-Himalaya
Melting glaciers in the Bhutan-Himalaya

It seems like water is once again going to become a very profitable commodity. After all, water cannot be duplicated and has no substitute. What's more, demand for water is inelastic — as prices rise, consumption does not decrease.

In short, as water prices rise, there is a mighty river of profits, just waiting to be tapped ...

Aim for a Gusher of Profits in the Looming Worldwide Water Shortage

There are a number of ways you could invest in water. Here are two profitable ideas.

First, you could buy one of the stocks of companies that make bottled water. PepsiCo (PEP) has America's top-selling bottled water, Aquafina, with 13% of total bottled water sales. Coca-Cola (KO) comes in at #2 — its Dasani brand holds 11% of the market.

PHO is rising off its lows and could head much higher.Pepsi and Coke are already well-known as defensive stocks — good places to stash your investing cash during economic weakness. It turns out they're also a good way to ride a potential rising tide of bottled water sales.

Second, you could buy one of the water ETFs that hold a basket of stocks of companies involved in the production, treatment and distribution of water.

There are a bunch of these. An example would be PowerShares Water Resources Portfolio (PHO). It holds everything from French water distribution giant Veolia Environment to drilling and construction firm Layne Christensen. In fact, I recently recommended this ETF to my Red-Hot Resources subscribers.

Bottom line: Just like gold, oil, and wheat, water is a commodity that should see steady price acceleration ahead. If you're thirsty for profits, consider investing in good ol' H2O.

Yours for trading profits,

Sean

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

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