Liquid Assets


By Jeremy Office Special to The Pineapple In the August 2013 edition of the Maclendon Monthly, we wrote about Maslow’s hierarchy of needs. At the foundation of this hierarchy are your physiological needs—your needs for human survival, one of which is water. We are in a growing world of constant consumption. Natural resources, although they seem abundant, are being depleted every day at a faster pace. We continuously hear and read about the impending peak oil scenario and how we are investing billions of dollars in alternative energy, but what are we doing to preserve our other resources? Of all the natural resources we have available, the most important to mankind is water. Water covers about 70% of planet, but only about 2% is drinkable. The rest is seawater and frozen glaciers. This super commodity is also the resource we’re most likely to take for granted. Every morning I wake up, brush my teeth and take a shower, but I don’t even think about how essential clean water is to my daily life. The U.S. Geological Survey estimates that on average each person uses an average of 80–100 gallons of clean water per day. Here in the United States, you rarely hear about the water crisis that is affecting other regions of the world. We sometimes tune out the bad news that doesn’t directly affect us, but in reality, as the world’s population grows, drought conditions are becoming more severe throughout many parts of the world. As long-term investors, we look for trends and themes that could play out over the coming decades. Urbanization in emerging markets will increase demand higher for clean water, putting strain on existing facilities and infrastructure. According to the World Bank, demand for water will increase 40% within the next 20 years. A shortage of water resources could increase conflicts in the future. Population growth and climate change will only make the problem worse. As the global economy grows, so will its thirst for water. Recently, we have seen a rise in the demand for investments that capitalize on the need for clean water. As investors realize the need for water-related infrastructure, we believe that water investments will become more popular. One area of possible investment would be water treatment, or more specifically, desalination. According to the International Desalination Association, from 2001 through 2011 the industrial capacity of desalinated water expanded 276% to 6.7 billion cubic meters (237 billion cubic feet) a day. China, which is in desperate need of clean water for its growing economy, plans to more than triple its production to 2.2 million cubic meters a day by 2015, according to the Chinese National Development and Reform Commission. The water will supply 15% of the needs of China’s factories along its eastern seaboard. Desalination plants will provide clean water to at least 100 million people in the country by 2020. Another area of investment is within the water infrastructure: pipelines and pumps. Half the water pipelines in the United States are in poor condition. According to the EPA, nearly 44% of water pipelines are over 40 years old and 9% are over 80 years old. Water infrastructure spending is expected to reach $41.5 billion in 2020, while infrastructure needs will grow to $125.9 billion—representing an $84.4 billion funding gap that could present an opportunity to investors. These numbers only represent the needs within the United States. The needs in emerging markets and undeveloped countries present a much larger potential for investment. The agriculture industry is the largest consumer of water worldwide. Water is used to feed livestock and water our crops. It is essential to feeding our nation. As climate change threatens our global food supply, there needs to be a way to ensure the efficient delivery of water to our crops. Irrigation delivery and monitoring systems could be an area of interest as water becomes scarcer and its price goes up. We believe that as time goes on, discussions about investing in water will become more prevalent. We simply have not made accommodations for the increased demand. The lack of infrastructure development, growing population and essential need for clean water will force investors to see the potential in investing in water. It is not only an investment in water, but an investment to our survival. After reading this, I hope that as you wake up each morning you don’t take for granted that hot shower or glass of water. Maybe you’ll turn off the water while brushing your teeth and be a little more cognizant of your consumption. It can only help. Jeremy Office, Ph.D, CFP, CIMA, MBA is Principal at Maclendon Wealth Management in Delray Beach and specializes in portfolio construction, strategic asset and liability management, and long term planning relating to financial matters as well as real estate, income tax, insurance and estate planning. He is also Managing Partner of SJO Worldwide a venture capital company. • 855.MAC.WEALTH