Investing In Water

Why The World's Most Critical Commodity Is Running Dry… And Your Chance To Get Rich From "The Oil Of The 21st Century": Population Growth, Global Warming And Crumbling Infrastructures Form Potent Cocktail That Poses Grave Supply Shortage And Threatens World Health…

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

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."

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…

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.

The World's Biggest Health Problem… And The Best Investment Opportunity Of The 21st Century

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.

Fortune magazine says: "Water promises to be to the 21st century what oil was to the 20th century: The precious commodity that determines the wealth of nations." Even Vanity Fair has hopped on the bandwagon, running a major water article in the April 2007 issue.

But what comes as a shock to many people is that the water shortage problems are happening right here in America. And if you know where to look for the real investment gems, you can take advantage in a big way.

The most compelling and lucrative idea right now is lying deep in the desert of the American Southwest.

America's Water Woes: The Thirst Begins

Much of the discussion about U.S. water shortages involves states that are not only drought-prone, but which are also experiencing rapid population growth. For example, the Southwest is home to some of the most arid desert in the world. Nevada is the driest American state. And compounding the issue is the fact that Nevada and Arizona are also two of the fastest-growing states in America.

The facts tell the story:

• Since 1990, the population of Nevada has surged over 107%. That's greater than the retirees who migrated to Florida. Nevada has been the fastest-growing U.S. state for 19 straight years.
  
  
• Over the next 20 years, Nevada's growth rate projected at an astounding 74%. Las Vegas will triple in population by the middle of the 21st century.

On top of that…

• In 1922, the Colorado River divided 17.5 million acre-feet of river water among six southwestern states. Today, it averages only 11.7 million acre-feet per year… for an ever-increasing population.
  
  
• Every drop of the Colorado River is now used 17 times, herded through 49 dams and dozens of pipelines and canals, until drying up from excess use before ever reaching the Gulf of Mexico, its original destination.
  
  
• Water tables in Phoenix have dropped 400 feet in the last 50 years.
  
  
• In Mesquite, Nevada, officials say that at current growth rates, the city will run out of water in three to five years.
  
  
• The water table under California's San Joaquin Valley has dropped nearly ten meters in some spots in the last 50 years.
  
  
• The Ogallala aquifer, which stretches 800 miles from the Texas panhandle to South Dakota, "… is being depleted eight times faster than nature can replenish it," according to Maude Barlow in her book Blue Gold.

Simply put, there isn't enough water for everyone. CNN says: "The drought gripping the West could be the biggest in 500 years, with effects in the Colorado River basin considerably worse than during the Dust Bowl years."

The U.S. government says the water infrastructure problem is potentially the #1 internal problem that America faces today, and reports that a majority of states will face water shortages over the next decade - not including droughts.

That's because the water infrastructure itself is archaic. For instance, the Hoover Dam, which pumps water to Las Vegas, Los Angeles and many other cities in southern California, is 70 years old. And with the torrid population growth in Arizona, Nevada and California, the Colorado River is struggling to keep up with demand.

In addition, because much of the infrastructure has been in place since World War II, it's not surprising to learn that many systems across the U.S. are in disrepair. And older cities like Washington, D.C., New York, Chicago and Los Angeles have water pipes that are 80-100 years old.

As a result, the American Society of Civil Engineers estimates that over the next two decades, it will take $1 trillion to repair or replace these worn out pipes.

With water the last utility to be deregulated, the U.S. government knows it has to privatize the industry in order to tackle the massive problems and changes needed. That's why astute water companies are acquiring municipal and regional water systems, dams and waterways, and signing lucrative operating contracts. They're gradually replacing pipes, pumps, and filters, as well as modernizing sewage treatment plants. Some, like General Electric, are also developing technologies such as desalination - a process that purifies seawater so that it's drinkable. However, there are only 7,500 such plants worldwide - and most are in the Middle East.

But there's a better way to invest in water for profits…

Water Wars & Water Rights

As Ismail Serageldin, vice president of the World Bank states: "The wars of the next century will be about water."

And fresh off an 11-year drought, states like Arizona, Nevada and California are now fiercely fighting for water and water rights. According to NPR, you can obtain a permit to drill an unregulated well in Arizona for a mere $160… and then do whatever you like with the water. Savvy businesses are gobbling up those permits - and triggering a huge legal scrap…

Canadian land developer Wind River Resources (trading on the Toronto Stock Exchange) is one of those companies. Trouble is… it plans on shipping the water straight out of Arizona to those thirsty folks in Mesquite, Nevada, who are willing to pay big bucks for the water.

While that's great news for Wind River - and other similar companies - Arizona isn't too thrilled with the idea. It has pressing water-shortage concerns, too. And situations like this are sparking an almighty tug-of-war in court over water rights.

In April 2007, government officials from America, Canada and Mexico held the two-day North American Future 2025 Project in Calgary, where they discussed how the continent should tackle its increasing water shortages and whether they can devise "creative" solutions to combat "profound changes" in the water industry in the U.S. and Mexico.

The OPEC Of Water?

This meeting followed the ratification of the World Water Treaty in 2006 between Canada and 25 other countries with vast water reserves. This is basically a water-based version of the OPEC oil cartel, with the countries forming a powerful alliance that would control the world supply of water.

This is good news for the U.S. An article in Canada's National Post states: "By 2010, Canada will be exporting large quantities of freshwater to the U.S., and by tanker to parched nations all over the globe."

And in her book Blue Gold, Maude Barlow reports: "Alaska has become the first jurisdiction in the world to permit the commercial export of bulk water." To support this, the Alaska Business Monthly says: "Everyone agrees water has 21st century potential as an export from Alaska."

This could be an important development, as the scrap for "blue gold" has already whipped up conflict around the globe between the "haves" and the "have-nots."

• In June 2006, Pakistanis fought with rifles, rocket launchers, and grenades after one group tried to divert an irrigation canal. Their desperation is understandable, considering 75% of the population doesn't have access to safe drinking water.
  
  
• Turkey is haggling with Syria and Iraq over 22 dams and reservoirs it is building along the Tigris and Euphrates rivers. Syria depends on the Euphrates as its main water source, while Iraq draws from it, too. But they've failed to strike a deal.
  
  
• Negotiations between Israel and Syria stalled over water access from the Sea of Galilee. The sea supplies over 40% of Israel's drinking water.
  
  
• Water treaties are delicately balanced in the Middle East. 97% of Egypt's water comes from outside its borders. Syria imports 79%; Sudan buys 77% of its water from neighbors. Iraq, even with billions of dollars in U.S construction assistance, must import 66% of its water.
  
  
• Africa could see wars waged in the next 25 years over water from the Nile, Niger and Volta rivers.

The Spigot Is Open And Ready To Pour Profits

It doesn't get any more serious than this. The supply and demand problems mentioned here pose life or death consequences for the world - with the situation not likely to improve anytime soon.

That means substantial profit potential is on tap for savvy investors who know how to take advantage of investing in water. And positioning yourself in companies that are fighting to solve the problems could be one of the greatest investments of the 21st century.

Right now, the companies in pole position to make significant returns are the ones that own water rights.

Since 1994, one company has specifically targeted water and water rights in the thirsty American Southwest. It's gobbled up land and water rights in this profit-packed region to such an extent that it now owns 1.3 million acres in Nevada, Colorado and Arizona. What's more… it's about to sell those rights for 1,285 times the original purchase price. That's a 102,000% profit that will immediately inject $408 million into its coffers. Another four major deals are already in the pipeline, so for full details on how to cash in, read the special "just released" report here

Good Investing,

The Mt. Vernon Research Team

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View the complete Investing In Water research report in PDF format.

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