August 9, 2013 Update

DJIA:15,498 S&P 500:1,697 NASDAQ:3,669 Gold:$1,311 Oil:$104.48 EURO:$1.34 YEN:96.47

The Commodity of Life

Most commodities that are traded today have been in existence, in one form or another, since Pangaea; the supercontinent that formed over 300mm years ago. Every commodities has a specific use in society and has been recycled throughout time (like industrious & precious metals, oil, rubber...etc.). Strange, however, is that water is not a commodity that is traded on an exchange. Nearly 70% of the world is comprised of water and only 2.5% of it is fresh. According to National Geographic, the 6.8B people who live on earth are only able to access 0.007% of the earth’s water. The demand is clearly higher than the supply, giving investors a perfect barrier of entry. Human beings cannot live without water, 60% of our bodies are filled with it. Water is the super commodity that provides life to every single traded product. In February of 2011, wheat rose to over $200 per metric ton as a result of severe droughts in China, India, Russia, and in the United States. A jump in wheat prices impacted food costs for consumers and companies, not to mention the pressure it placed on low income households. A water shortage has the ability to influence markets internationally. The accelerated expansion of the Chinese economy has caused the entire country to become extremely polluted, affecting every aspect of life. The Chinese government has recently confirmed the existence of ‘cancer villages,’ cities along the polluted Huaihe River that leave its people with a 50% increased probability of getting cancer due to the environmental hazards. Despite this finding, the government has yet to impose regulation to curb further pollution; officials are wasting no time in stopping the waste. In March of this year, over 2,200 pigs were found dead in one of China’s main water sources. That’s a lot of spoiled pork. China is the world’s biggest importer, as demand comes from high consumption and production rates, and one of the largest exporters. A driver of the explosive growth in the emerging markets was commodity exports, since many developed countries lack natural resources. Commodities are highly correlated to the broader economic growth of the economies that are large commodity producers. As clean water shortages begin to become a more severe issue, markets will continue to feel the drought and companies will face increased pressures on their bottom lines. The market for clean water is real, the demand is growing while the supply is shrinking. There will be a way to filter and recycle polluted water one day. How to invest in the super commodity, I am not certain. I do know, however, that clean water shortages will continue to put pressures on other markets. Therefore, investors in other markets will definitely feel the drought while those who own water will likely not end up as thirsty.

Domestic News

• Market UpdateFutures are trading down ahead of light data following yesterday’s gains. 
• Wholesale inventories will be released at 10:00, and are expected to decline 0.2% in June vs a 0.5% fall in May. 

International Updates

Asia

• Market Update Markets reacted well to news that the economic slowdown in China could be stabilizing as data on industrial production beat expectations and inflation proved to be tame.
• Japan’s national debt has officially passed ¥1 quadrillion for the first time, rising 1.7% QoQ. Japanese debt is now larger than the German, French, and UK economies combined. 

Europe

• Market Update Markets are mostly lower, despite good news in Asia.