The Rude Awakening
Vancouver, Canada
Thursday, July 26, 2007 ------------------------- - The price you pay for being thirsty - more liquid investments,
- When the elephants and buffalos enter the water, prices rise,
- Fancy lunches and falling gold in Vancouver, 4 days left for the Bulletin Board Elite and more…
------------------------- Chris Mayer, reporting from Vancouver, British Columbia… When I first recommended water stocks about a year ago, I got looks as if I had just recommended putting shaving cream on a hot dog. But today, not a week goes by in which I don't see a water story in a mainstream paper.Those big institutional investors may be a little late to the party, but they probably aren't too late to participate in some of the festivities. The global water industry continues to operate some compelling long-term investment opportunities. "I hate to tell you this, because I don't want you to get a big head," a friend of mine recently remarked." But the other day one of our consultants told me the smartest guys he knows are getting into water stocks." We were meeting at a local coffeehouse, sitting outside on one of those cool mornings you rarely find in the Washington, D.C. suburbs this time of year. He works for a large investment-consulting firm. This firm tells pension funds, endowments and similarly obese pools of money what to do with it all. These are the elephants and buffaloes of the investment world. Slow to move, but once they get behind an idea, they can really cause some thunder and move prices in the financial markets. But even without the buying power of these financial pachyderms, the water stocks we've been recommending should continue to provide market-beating investment returns. --- Bulletin Board Elite: Final 4 Days* --- The first time, I called it beginner's luck… When it happened again, I called it a coincidence… But after 9 stocks in a "secret" market one ace analyst was screening JUMPED to major exchanges - and major profits - in just a 12-month span, I knew he was hunting in the right place for huge gains. * While the deadline for this offer expires in just 4 days, we are legally required to cap its membership. Already over half the spots are filled. If you want in, act now.
Read on now for more information: Bulletin Board Elite ----------------------------------- Drink Up!
By Chris Mayer In the rising tide of market volatility, the sinking level of worldwide water supply provides a fundamentally sound investment theme. Simply put, water is precious, especially when you don't have it. The water theme has many facets. There are water pipe makers and filtration companies, irrigation equipment, water pumps and more. The facet I want to focus on here is just the basic resource itself - owning actual water - because the investment backdrop for a rising water price looks pretty good from here. The Financial Times recently highlighted the salient population-based facts. Take a look at this chart: 
The chart shows how water use has grown faster than population growth. In fact, annual world water use rose sixfold - more than double the rate of population growth. What does it mean? The FT opines, "One unavoidable consequence will be that the price of water will rise substantially." I would agree. When you study where population growth is greatest, you come to find out that it is in areas where water is most scarce. Look at the U.S., for example. The two fastest-growing populations in the country are those of Nevada and Arizona. Projections from the U.S. Census Bureau show that shouldn't change anytime soon. The American West is already a dry and arid place. This past spring was the sixth driest on record. In some states - such as Georgia, Alabama, Tennessee and Mississippi - it was the driest spring in 113 years. Drought conditions persist into summer in many parts of the country. About two-thirds of the Southwest is in some form of drought. Wildfires have devoured hundreds of thousands of acres of valuable timberland. (A recent fire in the Lake Tahoe basin was the worst in half a century.) Crop losses start to add up. And now drought threatens the Midwest, the heart of the ethanol boom and home to record levels of corn acreage.It should only get drier as the years roll by. No matter what you believe about what's causing this pretty little blue and green planet of ours to warm, it is warming. And everyone seems to agree that certain places will get drier and hotter. As the Financial Times noted: "By the year 2070, Stockholm and Oslo will have 'moved' in terms of weather to central Spain, while Mediterranean resorts will suffer conditions comparable to Saharan Africa today." Likewise, the already arid American West will get even drier and hotter. The year 2070 is a long way off, of course. I like to think of myself as a long-term investor, but I ain't that long term! Still, these trends provide a powerful backdrop for rising water prices. Right now, there are some absurd anomalies in water markets around the world, because governments provide, or heavily regulate, most of the water consumers use. So you have situations in which water costs 90% more in Barcelona than in Valencia (which is farther down the Spanish coast), even though water is far scarcer in Valencia than Barcelona.And you have absurdities such as those that occur in California. Farmers consume 80% of California's water. California's infamous alfalfa growers drink up 25% of the state's water. However, because of government subsidies, they pay between $2-20 per acre-foot for water - that's only about 10% of the water's full economic cost. There is little incentive to cut water use when rates are this low. [An acre-foot is basically what it takes to flood a plain of one acre to a depth of one foot. One acre-foot can supply enough water for one family of four for a whole year.] In Europe, the government still provides two-thirds of the water supply. In America, it's 85%. In Asia, it's 95%. Water has been too cheap for too long. And years of government ownership have, not surprisingly, led to neglect of these systems. In the U.K., "where the water sector is mainly privately owned," the FT says, "and prices probably reflect costs more accurately, prices are the third highest in the world - 66% above those in the U.S." We'll pay more for our water one way or another, or we won't have it. In certain Western states, you can see how much people pay for water by looking at contracts between the owner of water rights and utilities (and other end-users). The price per acre-foot is tens of thousands of dollars in some places. The price of water has nowhere to go but up, in my view - especially in those water-scarce regions. Somewhere, cash registers will ring. You'll want to own one of those cash registers - such as PICO Holdings (PICO: Nasdaq). PICO owns Vidler Water, which owns a portfolio of some 65,000 acre-feet of water rights, mainly in Nevada and Arizona. The company has carefully selected these water rights over the years. According to management: "The water rights owned by Vidler are typically the most economical supplies of new water in areas experiencing rapid growth." PICO recently began to build a pipeline to provide the fast-growing north valleys of Reno with about 8,000 acre-feet of water annually. So far, it's made deals to sell 117 acre-feet of water for $45,000 per acre-foot. "Despite the well-publicized decline in the housing market,"management continues, "demand for water to support growth and development in the north valleys of Reno continues to exceed the available supply for water." I estimate Vidler's water rights portfolio is worth around $550 million. That's conservative. PICO also owns the Nevada Land and Resource Co., which is the largest private andholder in the state of Nevada. It has undeveloped land and water rights (about 35,000 acre-feet) I estimate are worth around $250 million. In addition to its water and land assets, PICO owns a sizable investment portfolio of cash, bonds and European equities. All told, these assets come to around $340 million. That's a total of $1.14 billion, or $60 per share. I believe that is a good conservative net asset value. It could be worth much more. And it's not a static number. I'd expect the net asset value of PICO Holdings to grow over the years at a market-beating clip as water becomes more valuable. Drink up! [Joel's Note: Chris and Eric have been drumming up interest in water investments for about a year now. Some folk are diving in to these water plays and enjoying the profits…some are not. The following report outlines the massive opportunities available in this exciting sector. If you've been meaning to jump on board, this is probably your best starting point. Chris Mayer's Blue Gold Water Report ---------------------------------------------------------- Six Invisible Investments Wall Street's Elite Love To Own "[This strategy] has historically generated far better returns than the overall stock market and… continues to shine." - Barron's "There's big money to be made if you can identify the next targets and buy in before everyone else does…" - CNNMoney Wall Street's "Big Dogs" build fortunes using 6 hidden kinds of investments the rest of us rarely discover. Discover their secrets In This Special Report ----------------------------------------------------------- Rude Endnote: Our mates over at the 5-Minute Forecast, Addison and Ian, have been relaying some of the highlights from this year's Agora Financial Investment Symposium in Vancouver. Here we pick up Addison's commentary from about 52 seconds into yesterday's 5. "And as we prepared to write, 'and gold soared on the [continually worsening subprime] news,' wouldn't you know it, the yellow metal fell. Gold sold off in Hong Kong and London overnight, and continues to fall this morning in New York. This morning, it dropped to $672. " 'When a bear market appears on the horizon,' Bill Bonner told the audience here in Vancouver yesterday, 'the best thing an investor can do is often nothing. But holding cash in this market is not doing nothing. Holding cash, dollars, is in itself a position. You're investing in a very poorly performing currency market. If you truly seek to be out of the market, there is no better way of doing nothing than to buy gold.' " If you are attending the conference in Vancouver, we hope you're enjoying your luxurious suite at the Fairmont Hotel. If, like us, you are you are toiling away in another part of the world, be sure to check in with Addison and Ian for today's issue of the 5-Minute Forecast for all the juicy details. It will be arriving, no doubt, after it's editors have endured some manner of fancy banquette lunch at the Fairmont later today. Cheers, Joel Bowman
Rude Awakening | 
