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A Coming Bear Market in Water?

By Jeff Clark
Tuesday, 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




Market Notes
Nasdaq 100 essentially flat for the past 10 weeks.
 
Canadian dollar hits new 14-month low... trading data shows massive short positions held by large speculators.
 
Major investment banks JP Morgan and Deutsche Bank hit new highs.
 
Earnings today: Johnson & Johnson, D.R. Horton, Bank of America, and DuPont.
Market Watch
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52-Wk
S&P 500 1221.53 +1.3% +10.1%
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52-Wk
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China 44.42 -1.4% -0.6%
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52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
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Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
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Media 13.64 +0.5% +26.0%
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Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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