Last year wrote a small article on why we believe H2O is going to be a major trend moving forward. Now we are not talking about the bottled water trend that started in the 1990’s where millions of people started buying free tap water packaged in nice plastic bottles. We are talking about the access to clean drinking water for the billions of people who will be entering the global middle class. Today, according to UNICEF, at least 2.6 billion people lack adequate sanitation, while 1.1 billion people live without clean drinking water period. Water is the key component in all of our daily lives no matter where we live, not only for human use, but for energy, industry, agriculture, and livestock. Now if you look at the earth, you will notice that over 75% of our blue planet is water, the problem is only 3% of that water is fresh water.

Natural Resource Wars Will Soon Include Water

Over 260 river basins are shared by two or more countries and most of these rivers are without defined legal or institutional arrangements. Consider the Aral Sea for example, located in central Asia withKazakhstan in the north and Uzbekistan in the south. The name Aral Sea is actually translated into “Sea of Islands,” referring to 1,534 islands that once existed. As you can see from the pictures below, the Aral Sea is now down to 10% of its original size.

The same thing is happening in the Parana La Plata, Jordan, and the Danube. Areas that were once flourishing are now turning into deserts.

A report that was released by the Senate Foreign Relations Committee recently stated that rising water tensions could destabilize central and south Asia. The implications of a water shortage has already caused aggravated demand for agriculture and power generation according to the report. The report was even titled, “Avoiding Water Wars: Water Scarcity and Central Asia’s Growing Importance for Stability in Afghanistan and Pakistan.” The report discussed the 33 projects India currently has underway that could limit supply to Pakistan at crucial moments in the growing season. Without a doubt, water is going to be a huge issue along with oil throughout this century.

The States

In the U.S., the world’s largest body of freshwater, the Ogallala Aquifer, an underground lake that extends from the Colorado Rockies to South Dakota going all the way down to the Texas Panhandlewith a range of 50 to 300 feet deep, is the fresh water resource that has made America’s plains the “bread basket” of the world. Unfortunately, like an oil well, this won’t last forever. The Ogallala used to have an average depth of 240 feet, today its average depth is 80 feet. Recently a story was done about the Texas town of Happy, who has simply run out of water for its farms. What once was a booming town that relied on the Ogallala Aquifer, has now seen its depths of underground water fall to between 0-50 ft. Many wells are completely dry and farmers have been forced to hand over their land to the government’s Conservation Reserve Program (CRP) in exchange for grants. The U.S. Department of Agriculture recently said, “The Ogallala supply is going to run out and the plains will become uneconomical to farm.” 60 years is what the U.S. Department of Agriculture gives it, this is a scary thought when you think about the way we have built cities, towns, and homes around something that is unsustainable.

Consider the Colorado river as well, a river that USED to run into the Pacific. Not anymore, by the time the water fills the pools of Vegas and irrigates and provides drinking water throughout the west, not a drop makes it to the ocean. Of course we can’t help but comment on how it is the government who has centrally planned people to live in the middle of nowhere, to live in deserts. If a free market would have reigned, we would see a much more practical living condition with very little “middle of the desert living,” not only relying on cheap oil, but the relocation of water.

While researching the water crisis, came across studies about how in some places in Africa so much water has been pulled out of the ecosystem in order to bottle it and send it around the world, some towns have become deserts.

Smart Money believes that investors should focus on water companies with high-end technologies. For example, ones that remove salt from sea water. Currently, there are several companies on our radar, but none worth mentioning today because of the immediate volatility we see over the next few months, we only feel comfortable discussing inflation related companies. However, in the very near future, once we see how Greece, the expiration of QE2, and the debt ceiling play out, we may begin looking for a quality company that is tied heavily to the water industry.


As the world population grows, the water crisis will become front page news. According to the consulting company McKinsey and Company, by 2030 global water demand will be 40% greater than today’s “accessible, reliable, environmentally sustainable supply.” members should have no doubt that this is 100% tied into agriculture and food price inflation. 71% of global water withdrawals today go to irrigating our food. Plus, the U.S. government has screwed us with subsidies that are handed out to farmers who plant in areas that need an excessive amount of water. Subsidies are also handed out in misguided attempts to turn food into fuel, something that in our opinion is not only driving food costs up, but is WASTING precious water resources.

Like Oil, It Takes Water For Many Goods.

  • Cotton T-Shirt, 400 gallons
  •     Denim Jeans, 1,800 gallons
  •     Car, 39,090 gallons
  •     Board of Lumber, 5.4 gallons
  •     Barrel of Beer, 1,500 gallons
  •     Gallon of paint, 12 gallons
  •     One ton of steel, 62,000 gallons
  •     Piece of paper, 2.6 gallons

Consider how much water it takes to grow our food, feed our animals, and to ourselves, you can see why owning water companies is without a doubt a smart money trend.

[su_quote]The key is getting in at the right time, and though we would love to present a pick to you today, we feel that it is probably best to just hold off until later this year.[/su_quote]