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Water the Untapped Opportunity

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Every time I see the film The Big Short, I’m constantly pondering the prophetic remark that appears at the conclusion of the film. “Michael Burry is concentrating all of his trading on one commodity: water.”

The film ‘The Big Short,’ based on Michael Lewis’s book ‘The Big Short: Inside the Doomsday Machine,’ is about investors who predicted the credit and housing bubble collapse in 2008 and entered into trading activity to take advantage of their prediction, earning billions of dollars as a result. Dr. Michael Burry, who is portrayed by Christian Bale in The Big Short, is a real-life hedge fund manager who did just that.

Since the film’s release, Burry has become increasingly vocal about his investment views on water. Here is where my wheels started turning on the issue of water. Why is it that one of the few analysts and traders to correctly predict the housing bubble burst in 2008, and who made a good profit from that prediction, now focuses all of his attention on water? What can he possibly see when he thinks about it, and how can I get involved?

First and foremost, H2O is essential for life.

Every single person on this planet needs water to survive, which makes it a very valuable commodity. There are only a finite amount of freshwater resources available, and with the world’s population continuing to grow, the demand for water is only going to increase. I’m talking about the same guy that was correct on the 2008 financial crisis, so there must be something to back up his interest in water. This individual made billions by shorting the Subprime Loan market, so what kind of return or profit can he anticipate from investing in H2O? And this is where the heart of the issue lies: how can I get involved?

A few ways to get involved in water as an investment are:

-invest in companies that specialize in H2O treatment or transportation

-buy shares of utilities companies

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-look for exchange-traded funds (ETFs) that focus on water-related investments.

While these are all great methods, the better approach to this investment technique would be to hear what Dr. Michael Burry has to say on the subject himself. “I think agricultural land, particularly fertile farmland with access to water, will be quite valuable in the future,” he stated in a 2010 interview with Bloomberg. He also said that “Fresh, clean water is going to become increasingly scarce, and I think its value will continue to go up.”

So there you have it, coming from the man himself. Dr. Michael Burry is investing in H2O because he believes that it will become an increasingly valuable commodity

as time goes on due to the finite nature of freshwater resources. Water is political and litigious. “Water transportation is impossible because of both political and physical factors, so acquiring water rights didn’t make much sense to me unless I was pursuing a greater fool theory of investment; which was not my objective. What became apparent to me is that food is the most effective way to invest in water ……. With this method, it is possible to grow food in water-rich regions and transport it for sale in water-poor areas. This is the most peaceful way of distributing water, and it can be profitable over time, ensuring that this redistribution is permanent. A bottle of wine requires around 400 bottles of water to produce.”* Burry has found the H2O that is contained within food to be a new form of investment opportunity.

*https://greenbackd.com/2010/09/08/bloomberg-on-burry/

I never considered H2O from this viewpoint, and I’m sure that many of you never have either.

What I like about this approach is that it isn’t linked to a particular financial instrument such as a stock, ETF, or ETP. There isn’t any need for a chart to illustrate an intricate formula to deconstruct this fundamental truth: take water, grow food, and sell it in areas where H2O is scarce. Of course, there are always going to be inherent risks with any investment, and this is no different. Droughts can occur, which will obviously have an adverse effect on crop yields. Also, the price of oil can play a role in the cost of transporting food to water-scarce areas.

Investing in H2O is a unique opportunity,

and I think it’s one that is definitely worth considering. It’s an investment that can have a positive impact on the world, and it’s something that we all need to survive. Dr. Burry’s idea may provide and preserve wealth for people seeking alternative assets. The majority of the Earth’s surface is covered in water, with 70 percent of it being freshwater. 2.5% of the world’s water is used to grow crops and produce food that we consume. Furthermore, only 1% of freshwater is readily available because the other 99% is stored in glaciers and snowfields. That leaves approximately 0.007 percent of the planet’s water for 7 billion people to utilize.

According to the United Nations, water usage has increased by over twice the rate of global population growth in the last century. We use about 30% of the planet’s total available renewable supply of H2O. The U.N. predicts that, in just a few years, this percentage will be 70%. By 2025, 1.8 billion people will live in water-scarce areas, with two-thirds of the globe’s population living in water-stressed locations. According to a report from The American Society of Civil Engineers (ASCE), by 2020, there will be a $84.4 billion deficit in funding for water infrastructure growth. The report also states that by 2040, this number will rise to $106.5 billion.

This pattern offers the potential of investment possibilities in firms involved in the following sectors,

improving water supply. Activities such as water exploration, desalination, and wastewater treatment are included on the list. Firms which focus on H2O efficiency, such as those that make drought-resistant seeds or irrigation technology, are also interesting. And finally, firms that distribute and trade H2O can take advantage of pricing disparities around the globe.

If you can’t afford to buy lush farmland with H2O on site near the Amazonian rainforest but still want to participate in the activities listed above, investing in firms engaged in these industries might be an option for you. SJW Corp. (SJW), Middlesex Water Co. (MSEX), and York Water Co. (YORW) are water utilities that focus on providing clean water to their customers. Aqua America, Inc. (WTR) is another water utility with a nationwide reach. Calgon Carbon Corporation (CCC), Nalco Holding Company (NLC), and Severn Trent plc (SVTLY) all engage in water treatment activities.

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SJW is a conglomerate with four branches: San Jose Water Company, SJW Land Company, SJWTX Inc., and Texas Water Alliance Limited. The companies have an interest in developing new H20 projects as well as acquiring and developing land.

SJW Group (SJW)

SJW

SJW

Chart courtesy of yahoo 5/9/22

MSEX is a water and wastewater utility provider for municipalities and private clients in New Jersey and Delaware.

Middlesex Water Company (MSEX)

These stocks have shown consistent and substantial gains over the previous five years, suggesting that they may be sleeping giants. If the commodity of water keeps on growing in secondary industries, Dr. Burry’s prospects and fortune-hunting enterprises involving H2O have a chance of coming true in the same way as his bet on the collapse of the subprime loan market.

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One Industry Is Earning Historic Profits As China’s Economy Slows. Testing Covid

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Covid

The Chinese government’s zero-Covid strategy of endless testing and lockdowns has been devastating to the country’s economy and has had a significant impact on company revenues, but it has been a boon for test manufacturers.
Twelve of the most successful COVID testing companies in China have lately reported enormous leaps in both their revenues and their net profits for the first six months of this year.
Andon Health, a company that distributes Covid test kits in both the domestic and international markets, announced that its net profit in the first half of 2022 surged by 27,728%, reaching a total of 15.24 billion yuan ($2.2 billion). It was the highest growth rate achieved by any publicly traded corporation operating in mainland China.

During this time, the company’s revenue increased by 3,989%.

The company not only benefits from China’s aggressive testing campaign at home, but also from the huge demand in the United States, as its iHealth Lab had recently won US government contracts for supplying antigen rapid tests. China’s aggressive testing campaign at home has helped the company tremendously.
Because of the robust demand in the global Covid testing market, the net income of Assure Tech, a diagnostic company based in Hangzhou, increased by 1,324%.
Other manufacturers of tests reported gains in net profit for the first half of the year that ranged from 55% to 376% higher than the previous year.

The Chinese economy has been severely harmed as a result of the never-ending Covid testings, the back-and-forth government-enforced lockdowns, and the border restrictions. The increase in GDP during the second quarter was only 0.4%, making it the worst pace in almost two years. The majority of the world’s largest investment banks have reduced their full-year growth projections for China to 3% or less, which is far less than the stated target of 5.5% that the government established earlier this year.
In addition to this, Chinese businesses have experienced one of the worst earnings recessions in their history. More than half of the 4,800 firms that are listed in Shanghai, Shenzhen, and Beijing reported a decrease in their net profit for the first half of the year. This is almost as bad as the beginning of 2020, when the majority of companies reported their worst earnings season ever.

But diagnostic companies are one of the biggest moneymakers during the pandemic. They are benefiting from the enormous demand for testing as Beijing maintains its zero-Covid policy, which involves forced quarantines, mass mandatory testings, and snap lockdowns. This policy has resulted in an enormous demand for testing.
According to the government, 11.5 billion tests have been carried out in China as of April 2022, commencing when the epidemic first appeared and continuing until that month.
It is possible that this number has greatly increased since then, as analysts working for Soochow Securities recently calculated that 10.8 billion tests had been carried out during the three months spanning April, May, and June.
The costs could end up being a significant burden on the finances of the Chinese government, which have already taken a beating due to the decline in property sales. In the month of May, officials in Beijing made it quite apparent that the costs for routine Covid testing were to be borne by the provincial and city governments.

According to a prediction made by Goldman Sachs earlier this year, the direct cost of conducting Covid tests could reach a total of 200 billion yuan ($30.1 billion) from May until the end of the year if it is assumed that large cities in China, which are home to thirty percent of the country’s population, will perform the tests twice a week.
According to Goldman Sachs, the figure may increase even further if the remaining 70 percent of the population is tested as well as if the costs of putting up testing facilities and quarantine centers are taken into account.

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Asia’s Video Game Giants Are Developing New Formats And Markets

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Video Game

Sony, NetEase, and Tencent, Asia’s largest video game developers, continue their purchase and investment sprees as they push into new forms and, in the case of the Chinese giants, expand internationally to alleviate harsher regulation at home.

Each company’s strategy differs.

NetEase bought French game developer Quantic Dream last week, establishing its first European studio. NetEase has Japanese and U.S. gaming studios.

Tencent, which has invested in smaller gaming studios worldwide, bought a share in FromSoftware. Sony invested alongside Tencent.

Sony bought Helsinki and Berlin’s Savage Game Studios last week.

Recent mergers and acquisitions in gaming starting off 2022. In January, Microsoft offered $68.7 billion for Activision Blizzard. Soon later, Sony announced plans to buy Bungie for $3.6 billion.

Three Asian gaming companies have diverse M&A objectives.
Sony’s PlayStation has reigned for years.
Console gaming’s business model has altered. It’s not enough to sell games and hardware. It’s about milking income from games through continuous updates and subscriptions.

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Sony’s acquisition of Bungie demonstrates this approach.

“Their goal is to have enough content to motivate users to buy their proprietary hardware, pay a monthly charge for PS Plus, and buy the occasional digital game through the PlayStation Store,” said Tom Wijman, market head for games at research company Newzoo.

“Buying studios is the best way to assure exclusive content for their ecosystem, especially in response to Microsoft’s acquisition spree.”
Sony is expanding beyond consoles. Last week, the Japanese behemoth stated it is putting up a specialized section to handle mobile game production, a relatively new initiative for the corporation.

The mobile video game developer Savage Game Studios was also acquired.

Wijman: Sony is leaving its comfort zone to stay competitive.

Mobile gaming accounts for more than 50% of the gaming market, while consoles account for 27%. Sony wants more market share.

Sony’s acquisitions will boost its IP and game catalog as it expands into mobile gaming.
Tencent/NetEase

Tencent and NetEase face a tougher local market, increasing the importance of their international investments and acquisitions.

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Last year, Chinese censors limited the time under-18s could play online video games and froze new releases. In China, regulators must approve games for release and monetization. In April, approvals resumed.

Covid-19’s reappearance in China and subsequent lockdowns have hampered economic progress. Some of China’s internet heavyweights, including Tencent, had their worst quarter of revenue growth.

Tencent and NetEase have sought development abroad through acquisitions and investments.

Tencent and NetEase built their gaming businesses in China. Wijman said these two companies will speed their global expansion as their home market becomes more controlled.

Tencent owns or invests in Riot Games, developer of League of Legends.

NetEase focuses on purchasing high-profile IP. The Hangzhou-based firm can publish a Star Wars game after acquiring Quantic Dream. NetEase has Harry Potter and Lord of the Rings mobile games.

For the two giants, owning studios behind international major hits in gaming is a critical strategy.

NetEase has been less aggressive than Tencent in deals, although it’s stepped up in the last year.

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Both firms’ investment strategies include console ambitions. NetEase and Tencent grew by focusing on PC and mobile gaming, not consoles, which were outlawed in China until 2014.

Both companies are focusing on console gaming.

This year, NetEase hired a console veteran to oversee its Japanese gaming studio. TiMi Studio, a Tencent-owned developer, opened offices in Montreal and Seattle.

Both firms can gain console IP by acquiring and investing in other gaming studios.

Tighter regulation in China and the search for expansion could drive NetEase and Tencent’s investment and acquisition strategies.

If Chinese government regulation continues to squeeze NetEase and Tencent in their native markets, they may be interested in M&A, Wijman added. “Their global expansion plans just began.”

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Royal Caribbean is Installing SpaceX’s Starlink.

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Starlink

Royal Caribbean, which is a subsidiary of Celebrity Cruises and Silversea Cruises, recently made the announcement that it plans to equip its whole fleet of ships with the satellite internet service provided by SpaceX under the brand name Starlink (via TechCrunch). According to the corporation, the service will make the user’s experience of the internet when they are at sea both quicker and more reliable.

It appears like Royal Caribbean is making rapid progress in deploying Starlink; the company conducted a trial run of the service on one of its ships throughout the course of the summer, and on September 5th, it will formally debut the service, beginning with a ship dubbed the Celebrity Beyond. The business anticipates having the service completely implemented throughout its whole fleet by the beginning of the first quarter of 2023.

The announcement made by Royal Caribbean does not provide any technical details, such as the number of Starlink dishes that its ships would employ or the amount of bandwidth that will be shared among several thousand guests. Nevertheless, the business assures customers that they will have access to streaming services and will be able to engage in video chats.
Starlink Maritime, the internet service provided by SpaceX that is geared specifically at usage on boats, was just released earlier this summer. At the moment, it only covers coastal seas in some sections of North and South America (including the Caribbean), Europe, and the region around Australia and New Zealand; however, SpaceX has stated that it intends to cover the majority of the world’s oceans by the first quarter of 2023.

At the present, SpaceX has a lot of things going on with the Starlink project. Its collaboration with T-Mobile to transmit text messages and phone calls to mobile devices via second-generation satellites, which are scheduled for launch the following year, is perhaps the arrangement that is most readily apparent. Additionally, the company is collaborating with Hawaiian Airlines and the charter carrier JSX to provide in-flight Wi-Fi, which is an amenity that Delta (and most likely other airlines) are also investigating. A version of Starlink designed for recreational vehicles (RVs) was just released by the business, which is good news for those of us who live on land.

According to a more recent report, the cruise sector has been having a difficult time recuperating from the pandemic since it began. Cruise lines, like many other types of businesses, have struggled with staffing shortages, which has forced some of them to cancel voyages entirely. As financial authorities such as the Chair of the Federal Reserve, Jerome Powell, warn that efforts to combat inflation will “bring some pain to households and businesses,” another question that arises is whether or not people will continue to spend money on luxuries such as cruises in the face of these warnings.

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