A Coming Bear Market in Water?
By Jeff Clark
January 23, 2007
The snow is a lot harder this year than last.
I made this discovery as I tumbled down Squaw Valley's black-diamond KT-22 ski run, 8,200 feet up in the Sierra Mountains.
Like swallows returning to Capistrano, every year I return to this same mountain with the hopes of finally skiing down Squaw's toughest run in an upright position. And, also like the swallows of Capistrano, every year I find that I am ill equipped for cold weather activity.
Most of the time, it's only my ego that gets bruised. This year, however, it was my shoulder.
"We're seeing a lot more injuries this year," said the doctor as he strained to pop my dislocated shoulder back into place. "There's just not enough snow to cushion the falls."
It's true. Last year at this time, there was several feet of fluffy white powder sitting on top of the mountains, like whipped cream on a chocolate cake. That "Charmin-soft" layer of snow protected headfirst skiers like me against serious injuries.
This year, the lack of snow is creating a bull market in ski injuries.
And, in about five months, it'll create a bear market in something else – water.
You see, the entire state of California relies heavily on the Sierra snowmelt for water. No snow – means no snowmelt. And no snowmelt – means no water.
I'm not sure there's a way to invest in the bull market in injuries, but I'm confident we can profit off of a bear market in water.
Companies engaged in the moving, treating, and storing of water will probably do quite well. While businesses that are large consumers of water, such as agriculture and golf courses, will be hurt.
I'll be performing some research on this topic over the next few weeks, and I'll share some of my findings with you. For the time being, however, you might want to take a look at the PowerShares Water Resources Portfolio (PHO), which is up 22% since its inception a little over one year ago.
A diversified portfolio of water companies is a pretty safe way to play the whole "drought" theme. But if we pick through the holdings, I'm sure we can come up with two or three individual names with enormous potential.
And, if that doesn't pan out, then we can always invest in ACE bandages and heating pads.
Best regards and good trading,
Jeff Clark
