The Commodity Trade Of Tomorrow: Trading H2O – Water (PHO, CGW, PIO)
Jared Levy: We can trade orange juice, coffee and even the weather. But the most important commodity of them all is off limits. I might be the only one who sees the danger lurking everywhere.
There only seems to be a handful of us who truly understand what is happening in Europe right now and how the wool is being pulled over the already blind eyes of the world’s citizens.
The situation in Europe is not curable without an extreme devaluation (or breakup) of the euro through monetary easing, which will, of course, lead to inflationary pressures.
We will see Europe fall into a deeper recession before things get better. But for now, I will ride the last of the bullish waves while preparing for the inevitable.
I spent a day earlier this week researching ideas for our upcoming resource conference in Toronto. If you haven’t heard about it, some of the greatest investing minds and companies are joining us. (You can learn more by clicking here.)
The search led me to a commodity that you are UNABLE to trade: water.
Even though we can’t buy or sell water yet, there are a handful of companies that allow you to take advantage of our insatiable appetite for this precious commodity. One stock in particular, which I showed my Option Strategies Weekly subscribers on Tuesday, has a firm grip on the water supply of the bulk of the United States as they provide water solutions for 30 states and two Canadian provinces.
More than ever, the world needs fresh potable water. A growing population here and abroad and changes to many Eastern cultures that are now demanding more proteins, crops and food are straining this precious resource.
For investors, this is a great way to take advantage of our undying thirst for H2O.
The Trade of Tomorrow
Isn’t it amazing that the one commodity we truly can’t live without is not traded on any exchange? Corn, wheat, sugar and every other edible commodity wouldn’t survive without it… and neither would we.
Modern humans use fresh, clean water for more than just sustenance. When we water our lawns, wash our cars, take a bath or shower, or wash our face, we are consuming copious amounts of it.
In fact, according to the U.S. Geological Survey, the average person uses about 80-100 gallons of water per day.
Less than 5% of our total water supply on Earth is fresh water.
While it may seem like plenty of drinking water is available, consider the facts:
- The average human needs about two quarts per day of drinking water to survive.
- The global population reached 7 billion people late last year.
- We need to consume at least 13.8 billion quarts of water daily, just to survive. That is the equivalent of 82 million barrels a day. (Using an oil comparison.)
According to the CIA, the world consumes over 96 million barrels of oil per day — just a bit higher than the bare minimum drinking water humans on Earth need to survive.
The reality is that it takes about 3,000 liters of water to produce enough food to satisfy one person’s daily dietary needs (farming, irrigation, etc.), not including all the other things we use fresh water for.
Believe it or not, our daily demand of fresh water is more like 121 BILLION BARRELS PER DAY, which dwarfs the amount of daily oil usage.
This is a serious commodity.
The nation’s drinking-water systems face staggering public investment needs over the next 20 years. Our drinking water systems face an annual shortfall of at least $11 billion in funding needed to replace aging facilities that are near the end of their useful life and to comply with existing and future federal water regulations.
The shortfall does not account for growth in the demand for drinking water over the next 20 years, of which there will be plenty.
Of the nearly 53,000 community water systems, approximately 83% serve 3,300 or fewer people.
Eighty-five percent (16,348 systems) of non-transient, non-community water systems and 97% (83,351) of transient non-community water systems serve 500 or fewer people. They are in serious danger and will need to be either repaired or combined with larger systems over the coming years.
The bottom line is that many of these systems need serious solutions and the company my subscribers were told about last week is the premier water services provider in the U.S.
The company is more of a “slow money” type trade, but it is still cheap and remains in a strong bullish channel. Furthermore, it is also a utility of sorts that has not only a dividend, but low correlation to the markets (low volatility), which is what we may want if things do get uglier.
While we see how earnings season shapes up, a play on the nation’s water industry can bring us some slow but serious gains over time.
Jared Levy is Co-Editor of Smart Investing Daily, a free e-letter dedicated to guiding investors through the world of finance in order to make smart investing decisions. His passion is teaching the public how to successfully trade and invest while keeping risk low. Jared has spent the past 15 years of his career in the finance and options industry, working as a retail money manager, a floor specialist for Fortune 1000 companies, and most recently a senior derivatives strategist. He was one of the Philadelphia Stock Exchange’s youngest-ever members to become a market maker on three major U.S. exchanges.
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