A Commodity More Precious Than Oil and Gold

Today's comment is by long-time member of our Council of Experts, Robert Vrijhof. He is President of the asset management firm Weber, Hartmann, Vrijhof & Partners (WHVP) in Zurich. He's also a member of The Sovereign Society's Council of Experts and a longtime speaker at Sovereign Society events.

Dear A-Letter Reader,

When you live in an industrialized country like the U.S., Canada or Switzerland, you usually don't think about running out of water.

You go about your life, taking regular showers and baths, using your washing machines and dishwashers, flushing toilets and drinking the recommended six to eight glasses of water a day. You never think about water being a luxury - it's become a "must-have."

But the truth is that water is a rare resource in many parts of the world.

Experts at UNESCO (United Nations Educational, Scientific and Cultural Organization) are saying the need for water will double by the year 2050. Water will therefore get even more precious in the years to come.

Water Stats Make a Splash on World Economy

The statistics surrounding water are a bit frightening - if you consider that every living being on earth needs water to sustain itself. For example:

• Although our world is covered by a lot of water, approx 70%, only 3% of this is fresh water.
  
  
• 50 of the larges cities in China have a serious problem getting fresh water to their citizens.
  
  
• Mexico City brings fresh water into town from a distance of over 100 miles.
  
  
• Roughly one sixth of the world's population (or 1.1 billion people) do not have access to safe water, according to Water Aid.
  

Water - the Often Overlooked Commodity

Water is one of the big investment themes all our experts at my company, WHVP, have been watching.

Worldwide, the water industry has an estimated turnover of approximately US$340 - 370 billion each year. All our investment experts expect a significant increase in these numbers in the near future.

As the demand for water picks up over the next few years (as emerging markets develop), and supply remains constant, water could face severe shortages. When that happens, water will become the new "hot" commodity for investors - similar to how oil or gold is now.

In certain emerging markets, the local authorities must build the infrastructure to ensure their people eventually have fresh water. Certain parts of the world like Africa, Asia and India to name a few, will have to invest gigantic sums of money so they can provide fresh water to their people.

You're Not Off the Hook if You
Live in the U.S. or Europe

You might think that the U.S. and Europe have an ample supply of water. That's true for the time being, you should be aware that the systems that are being used are very old.

Last year, the WWF (Worldwide Fund for Nature) reported that London wastes 300 Olympic swimming pools' worth of water every single day, just from leaks from ageing water mains.

This means developed nations will need to make large investments in the future to restructure these old water infrastructures.

In the U.S., I predict you will see significant new regulations coming in before 2011 regarding water. Right now, these regulations include the Surface Water Treatment Rule, Disinfection Byproduct Rule and Ground Water Disinfection Rule to name just a few.

This will lead to more pressure on the water industry and lead to higher investments and eventually prices - which will in turn lead to profits for you, if you start investing in water right now.

If you're looking for ways to invest in the coming shortages, look at water distribution, water technology, water filtration and water infrastructure companies.

Let me tell you that there are many interesting water stocks out there, with favorable P/E ratios in my opinion.

However, if you need more convincing, I can tell you that the water stocks we're following have outperformed the MSCI world index by approximately 15% since August of 2006.

ROBERT VRIJHOF, Senior Partner & President
WHVP
Schaffhauserstrasse 418
CH-8050 Zurich
Switzerland
Tel: +41 44 315 77 77 (01141 44 315 7777 from US)
Fax: +41 44 315 77 78 (01141 44 315 7778 from US)
Homepage: www.whvp.ch

"Foreigners Dump Record U.S. Securities"

It's long been speculated just how much pain foreign investors are willing to take before they throw in the towel and sell their U.S. dollar denominated securities.

Well, apparently foreign investors are now crying "Uncle!" This headline from the well-respected Ned Davis Research says it all: "Foreigners Dump Record U.S. Securities."

Perhaps the tipping point arrived since the sub-prime credit crunch correction hit in August. According to Davis' analysis of U.S. Treasury data, foreign investors sold a record US$34.9 billion worth of long-term U.S. securities in August.

You could argue that this month's market correction caused foreigners to dump their U.S. securities. But I'd say the relentless slide of the buck played a big role in this asset reallocation decision too.

Overseas investors still showed a small appetite for U.S. fixed-income securities. Net purchases of bonds "inched up to US$5.8 billion." But foreigners also unloaded US$40.6 billion worth of U.S. stocks - the most ever!

There were other dubious milestones in the TIC data:

In August, "official institutions" (aka central banks) sold the most U.S. Treasuries ever. However, the U.K. and Caribbean Banking havens were still buying.

Japan and China, the two biggest foreign owners of Treasury bonds pared back their holdings by a combined US$33.6 billion in August. Perhaps both nations are tired of hearing Washington's constant bashing about their undervalued currencies...so they are retaliating in kind!

Foreigners also sold a record US$1.2 billion in corporate bonds, mostly coming out of private investor portfolios. Add to this the US$34.5 billion that domestic investors moved offshore into long-term foreign securities in August, and a record US$69 billion worth of investment cash departed this country.

That's more than three times the net capital outflow of US$19.5 billion recorded just the month before.

Perhaps I'm not well qualified to weigh in on what this record outflow of foreign investment cash means to the already distressed U.S. dollar. I'll leave such complicated currency analysis to luminaries such as Jack Crooks, and our new Director of Currency Services Sean Hyman, to divine.

For decades, foreigners saw U.S. securities as the ultimate safe haven, can't miss investment. However, now the once mighty dollar is in headlong retreat against most major (and many minor) foreign currencies. So perhaps foreign investors have become more concerned with the return OF their money, than the return ON their money!

MIKE BURNICK, Senior Editor & Global Markets Analyst

EDITOR'S NOTE: Things really are getting ugly out there when foreigners start dumping US$40.6 BILLION worth of U.S. stocks in a single month. It seems the savviest investors are taking what's left of their money and investing in stronger economies offshore. You can take your money and invest in stronger economies offshore too - even if you've never invested offshore before EVER.

Just last week, Mike recommended a basket of the hottest emerging market ETFs to his Global Market Investor subscribers. Each of these dynamite ETFs allow you to invest in the high-flying economies like China and Turkey, without leaving the familiarity of the U.S. exchanges like the NYSE. Click here to find out how you can jump on this emerging market bandwagon.

Privacy & Rights

Beware! The Scam Artists Are
Selling Illegal Passports!

As I said yesterday, an EU passport is extremely useful. But that's exactly why it's so difficult to secure one.

Since it's difficult to secure EU citizenship, it's not surprising that some shady promoters offer sham strategies to get your own EU passport. Last May, I exposed one program that was selling passports from unnamed EU countries for prices as low as US$9,900.

Now, I've discovered a website offering economic citizenship from the EU country, Lithuania. The website claims that:

"The Republic of Lithuania has a specific Citizenship-by-Investment Programme, its legislation provides for the possibility of granting citizenship be [sic] means of naturalization to people who have achieved particularly good results for the country in their work in science, economics, arts, culture, and sport in the Republic of Lithuania, or who have invested a large sum of money in the Republic of Lithuania which benefited the economy and created jobs in the country. There is no set amount of money that needs to be invested, so success depends upon the economic result and the number of jobs created. The normal requirements, including the renunciation of the applicant's existing citizenship, are not applied."

According to this website, you can buy your own Lithuanian citizenship and passport for prices starting at €25,000 (US$35,456).

This would be a great deal. But the company behind the website didn't answer my inquiries about the program's legal basis. So, I asked the Lithuanian embassy in Washington, D.C. about it. I received the following response from the embassy:

"There is no such law permitting an individual to purchase Lithuanian citizenship and passport for such items are not goods to be sold or bought. We believe the service that company provides does not have legal basis. On rare occasions, persons who by some act contributed to the well-being of Lithuania and its citizens can get Lithuanian citizenship by a special presidential decree."

How often does this occur? Apparently, no such honorary passports have been issued since 2004. That's not exactly a reliable way to get a Lithuanian passport!

Avoid any company that tries to sell you a passport from a country where there's no legal provision for such a sale. These shady dealers are likely selling you stolen, counterfeited or illegally issued documents.

In all cases, authorities can cancel and confiscate illegal passports. Worse, if you're caught using one, you may face fines and even prison for possessing illegal travel documents. Avoid such passports at all costs!

Fortunately, there are economic citizenship programs that do have a basis in law, and provide a legitimate means to obtain a second passport.

I'll be discussing these programs at the upcoming Sovereign Society Offshore Advantage Academy in The Bahamas Nov. 7-10, 2007. For more information, click here.

MARK NESTMANN, Privacy Expert & President,
The Nestmann Group
www.nestmann.com