Soon You Could Profit From The One Resource We Can’t Live Without
Editor’s Note: Jim Rickards has published a third book entitled “The Big Drop: How to Grow Your Wealth During the Coming Collapse.” It’s available exclusively for readers of his monthly investment letter called Strategic Intelligence. Before you read today’s essay, please click here to see why it’s the resource every investor should have if they’re concerned about the future of the dollar.]
How much would you pay me for a glass of water?
The answer is, “It depends.” If you’re in your home and you have plentiful, clean running water from a pure artesian well, you would pay me nothing because you can get a glass for free.
If you’re in Beijing where the air is so dirty that day looks like night, residents wear respirator masks, and the government dumps cyanide in rivers, you would gladly pay $5.00 per liter at the hotel gift shop because you wouldn’t dare drink what comes from the tap.
There are even more extreme cases. What if you just emerged from three days in the desert, exposed to the elements with no food or water, and I’m standing there with a bag of ten gold coins and a liter of water.
I offer you the coins or the water, but not both, and there’s no other water near. You’re dying of thirst and the choice is yours. Most people would take the water. The implied price of the water based on the opportunity cost of not taking the gold is $12,000 per liter – but at least you’re still alive.
The point is that whether the price is free, $5.00 per liter or $12,000 per liter, you still need and want the water. This is an example of what economists call extreme inelasticity of demand. The change in price has little or no impact on your demand for water, so your demand is said to be inelastic. But, this raises another question.
If the demand for water is relatively inelastic to a change in the price of water, what is the price?
When we think of the price of gold, oil, copper or other commodities, we either have a good idea what the price is or can easily look it up on our computer terminals. There can be local variations and differences based on particular grades, but in general these commodities trade on global markets at global prices.
But, what is the world price of water?
Water is one of the simplest and most homogenous commodities. Water is just H20, a very simple molecule, much simpler than certain mineral ores that trade as commodities.
Yet, there is no global price for water. Water does not trade like a global commodity. Water pricing is local, political, regulated, opaque, and inefficient. The simplest commodity in the world has the most Byzantine pricing.
Water can be close to free if your farm has 19th century property rights on a small river in Colorado. It can be extremely expensive if you want golf courses in the desert, as they do in Dubai, and you produce the needed water with desalinization plants that run on expensive crude oil.
One reason water is priced locally, not globally, is that it is not available from a remote source except for expensive bottled water. Water is available only near its source, which can be a river, lake, aquifer, or desalinization plant. It is generally not transported long distances unless there is a natural downhill flow traced by a river or borne by an aqueduct.
It is extremely expensive to move water by truck, plane or vessel because of the amount of fuel needed to transport it. Water is quite heavy; heavier than oil or gasoline, which is one reason it takes so much fuel to move it.
This brings us to the greatest water conundrum of all. Water is not scarce. It is simply in the wrong places.
There is enough fresh water in The Great Lakes to flood the entire State of California up to a considerable depth. Yet California is suffering one of its greatest droughts in recorded history. That’s because, there is no way to get the water from Michigan to California.
Compare this to the situation with oil and gasoline. When we want to fill our cars with gas do we drill for oil in our backyards?
No, we drive to a local gas station and fill up the tank. That gasoline came off a truck, which originated in a refinery that could be a considerable distance from our local gas station. The refinery got the crude oil to produce the gasoline from a pipeline or a tanker. The oil itself could have come from Nigeria or Alaska.
The point is that the oil industry has had over 155 years, since the first commercially successful oil well was drilled in Titusville, Pennsylvania in 1859, to create the infrastructure of wells, pipeline, vessels, refineries and trucks that get oil from distant jungles to your gas tank.
Nothing comparable exists in the world of water, although many of the logistical challenges are similar.
On the supply side, water is plentiful. On the demand side, the price is inelastic. Those two facts have the makings of a dynamic, rapidly growing market. The only things standing in the way of exponential growth in water markets are politics, and lack of infrastructure. That’s about to change.
Extreme drought conditions everywhere from Beijing to Bakersfield, and the resulting loss of crops and economic growth are forcing politicians to come up with better solutions. New risk management tools are emerging to finance multi-billion dollar projects.
All the best,
P.S. If you haven’t heard, I’ve just released a new book called The Big Drop. It wasn’t a book I was intending to write. But it warns of a few critical dangers that every American should begin preparing for right now.
Here’s the catch — this book is not available for sale. Not anywhere in the world. Not online through Amazon. And not in any brick-and-mortar bookstore.
Instead, I’m on a nationwide campaign to spread the book far and wide… for FREE. Because every American deserves to know the truth about the imminent dangers facing their wealth.
That’s why I’ve gone ahead and reserved a free copy of my new book in your name. It’s on hold, waiting for your response. I just need your permission (and a valid U.S. postal address) to drop it in the mail.
Click here to fill out your address and contact info. If you accept the terms, the book will arrive at your doorstep in the next few weeks.