What's more valuable: a flawless, one-carat diamond or 1,000
gallons of fresh water?
I'm not trying to ask a trick question - because this question
really doesn't have an answer without some context. A newly
engaged woman probably wouldn't trade her diamond engagement ring
for Lake Superior - whereas a thirsty diamond merchant would
gladly trade 1,000 diamonds for a cold glass of tap water.
It might seem silly to compare the two, but in many ways the
difference between diamonds and
water
is a metaphor for all
resource investing
.
One is highly speculative, somewhat rare, controlled by a
handful of cartel-like corporations and governments, and the
other is very ordinary, common, and considered by most people to
be part of "public domain."
But of course, diamonds really aren't very rare - though
they're rarer than water. But even newlyweds would agree that
they're overpriced. That's almost entirely because of the
cartel-like market for diamonds. And when an asset is overpriced
for decades on end, it tends to bring new players into the
market.
Today, it's not just cartels running the global diamond trade.
Huge international mining outfits like
Rio Tinto (
RIO
)
and
BHP Billiton (
BHP
)
are in the mix along with De Beers.
But the real coup yet to come into the diamond market is the
artificial manufacturers. These diamonds are like "real" mined
diamonds in every way except that they're completely flawless
and, soon, will be much, much cheaper to produce.
Water, on the other hand, while extremely cheap on a per-unit
basis, is actually relatively expensive to create artificially.
It's cheap to pump the stuff out of the ground. But once that
stuff in the ground is gone, we might expect the price of water
to rise three fold or more.
Desalinated water (sea water turned to fresh water) costs
about $4 per 1,000 gallons. Compare that to even "expensive"
pumped water in dry areas like Texas - where it costs about $1.65
to pump 1,000 gallons.
The big input for desalinization is oil, whereas the cost
input for pumped aquifer water is electricity…
And as I said yesterday, the world's largest aquifer, the
Ogallala in the American Midwest, is being depleted. It's already
25% lower than it was 30 years ago.
If you want to invest in diamonds, I suggest looking into BHP
Billiton. They own diamond mines, and they're scrambling to sell
them today. They understand that artificial diamonds could make
their mines turn to liabilities overnight.
If you're interested in investing in water, that's a different
story. Because despite commonly held opinion, potable water
really isn't public domain - and unless you own water rights, or
own a company that owns water rights, you aren't likely to
prosper when water prices go up…