Market Commentary for the week of November 20, 2023

Cornucopia

As the world gets ready to celebrate the holiday season and the New Year it’s also significant to point out the disparities that exist when considering the distribution of natural “gifts” that exist on the planet.  The allocation of natural resources such as food, energy, raw materials, and the industrial capacity to utilize them is not always an equitable equation.

Water-related investing, in particular, is a compellingly misunderstood and under-reported phenomenon.  And yet, the danger of this commodity’s scarcity and/or depletion is one of the most significant headlines of our times.  Further, the investment opportunities related to water recovery, purification, and delivery might be the most impactful capital gains notion of this century.

For several decades, I have been deeply involved in this topic, and others, in the field of “sustainable” socially responsible investing (SRI).  Our Global Water Resources portfolio concept, for example, has a record of significant outperformance compared to its peers.  My research has concentrated upon safe provision of potable water, water treatment (desalinization), and the businesses that are devoted now and in the future to technology in service to these human needs.  Our recommended equity basket contains about 43 companies, various capitalizations, and multiple geographic locations.  Water related businesses run the gamut from Utilities, Consumer Discretionary, Technology, and Basic Materials.  The criteria for inclusion focuses on earnings, price, and relative strength.  The next few decades might represent our best investment alternative amongst the many in our portfolio. 

While pundits are foretelling a global crisis in water access, we believe the essence of the problem is most unique to specific geographic regions.  Comparing water withdrawal rates in various parts of the world, we note an uneven distribution of the problem, the most disturbing of which is in Africa and South America.  Those problems are directly related to poor infrastructure and ineffective government oversight.

In fact, the infrastructure situation is particularly vexing.  Most water systems worldwide were built in the last century and before.  While miles of canals and containment stations need rebuilding now, recent weather catastrophes have made the public painfully aware of the effects of climate change and a disastrous collapse of land and concrete which abut them.

Less is definitely not more

Because mankind depends upon water for survival and commerce there must be a greater sense of urgency to modernize the systems that protect retrieval and potability.

Nearly 80 percent of the planet is comprised of water but less than 1 percent is fresh water or easily accessible.  The remaining supplies are either frozen in (evaporating) oceans or contaminated by industrial and agricultural pollution.  The United Nations posits that only about 10 percent of that 1 percent is fresh product suitable for personal use.

The real problem is that demand has risen while standards have dropped.  Water consumption is multiplying as the population expands.  The need for drinking water could double in the next generation.  Who will step up to remediate the problem; which government, business, or charity will succeed at de-stressing the dual crises of poor quality and limited access?

Water is required to provide for the production of goods and services, as well as sufficient drinking quantities.  (Parenthetically, if countries do begin a transition to nuclear power plants as their abrupt choice for “alternatives”, then additional sources of water will be required as cooling agents).  It is increasingly clear that the future will require more of this precious gift, not less.  If your tap is full and your access is unabated, think about those who must do without when you sit for your celebratory gatherings this holiday season, and be grateful.

                                                                     Happy Thanksgiving

Market Commentary for the week of November 6, 2023

From peaks to valleys…and back again

There will always be ups and downs in the financial markets.  As with anything cyclical, there are evolutions that occur over time.  And time, after all, is the most significant variable in investing.  It is the “denominator” for all calculations.  It is also what accounts for trends, whether they be cultural, financial, or political.

Nobody can predict the future with absolute certainty.  But we can measure and “quantify” the variables that precede this moment in time  to try and extrapolate the probability of those variables, or others, from happening again.

Buying investments successfully is all about integrating time, price, and duration to make a reasonable hypothesis about the potential for capital appreciation.

Defining the intricacy of how “things” interact with other “things” is the essence of successful portfolio management.  It is not an exact science but rather the art of blending instinct with experience and raw data.

The “pundits” say…..

Given that, we are in an unusual confluence of factors in the world today.  There are few periods in history when the globe was awakening from a pandemic, regions of cultural conflict were erupting into violence, and the immediacy of hunger and poverty lay mere miles from innumerable borders.

It is true that basic human behaviors are eternal: the desire for security and opportunity; the protection of family and property; the need to work; spiritual passion.  These needs never extinguish.

Thus, we look at today’s market landscape as a sign that despite the turmoil and volatility things are as they should be.  Perhaps not as we would like, but cyclical, evolving, and identifiable nonetheless.

For example, there is quite a bit of consternation about interest rates and consumer prices.  As these two data points intersect and parallel rise upwards, our government and central banks try their best to arrest the trends.  But I would argue that higher prices and high interest rates are a fleetingly cyclical manifestation of positive  economic developments stemming from a two year lockdown on commerce due to Covid 19.  While the pendulum of these events might currently be skewed too much in the extreme, one can view the opportunity to benefit from these integers as historic and proportional.  When was the last time you could “park” cash at a 5% return?  A slower economy never offered you that chance.

Inflation, too, is impactful for commodity prices and certain equities.  When pricing power was limited….only a decade ago…leveraging assets was impossible.  Although we acknowledge a spiral of price gouging, this too is an opportunity for corporations to collect returns on stagnant profits that nearly shut many of them down during the pandemic.  High unemployment and devastating profit decline brought about a fear in the financial markets over the last two years during which many portfolios suffered.  Once again, the element of time  lends us perspective about what we think we are seeing versus what is actually happening.  One must be able to see the forest from the trees.

Today we continue to advise clients that allocations are an evolving thing but the objective remains constant: invest in unwavering refrains and companies that benefit the greater needs of the human condition: food and water, energy, shelter and infrastructure, education, technology, healthcare.  And because of that advice our track record over the decades is second to none in securely managing the wealth of corporations, the affluent, and institutions.

Let the traders roll the dice, we prefer to take “crash” out of our vernacular.