“Investments Don’t Get Any Simpler Than This”
- Did you hear about the water rights Saudi Arabia bought in Arizona?
- Your chance at a unique investment play on the world’s most water-stressed nation
- Why Chuck Butler doesn’t buy Janet Yellen’s latest hawk-talk
- Why Jim Rickards will tune out the job numbers tomorrow
- Three more costly embarrassments for the Pentagon
- Social Security’s broken promises and financial education
Hmmm… Saudi Arabia’s government might be starting to feel the pinch from low oil prices.
As Jim Rickards explained in this space last month, the Saudi princes have a sweet spot for the price of crude — between $50-60 a barrel. That’s where they want to keep it from now until 2017.
The thinking is that range is low enough to put U.S. frackers out of business… but still high enough to keep adequate revenue flowing into government coffers.
As we check our screens this morning, the price of Brent crude — the global benchmark — is $48.69 a barrel. It’s generally traded a tad under $50 since mid-September. Maybe that’s not quite enough to keep the Saudi government funded in the style to which it’s become accustomed.
So here’s how the Saudi Arabian government plans to make up some of the shortfall — charging business customers more for the water they use.
Residential rates will be left alone — can’t risk stirring up the masses, you know — but rates for industrial and other large corporate users will be jacked up 125%, according to local media cited by Reuters earlier this week.
“The media reports did not say how much money the government might save by raising water prices,” the newswire said. “The move could help to limit energy use, because much of the desert country’s water is produced by desalination plants.”
Desalination — the process of turning salt water into fresh — consumes immense amounts of the energy Saudi Arabia produces.
Iowa State professor Michael Low, a specialist in Middle Eastern and environmental history, estimates 15% of the oil Saudi Arabia produces is used for desalination. “Without desalinization,” he says, “there is no possibility that any major cities in Saudi Arabia could exist.”
Hold that thought…
Saudi Arabia sits smack in the middle of the most “water stressed” locations on the planet.
On this map, water is most plentiful in the dark-green nations. It’s most scarce in the red area.
And the scarcity is only growing worse. During the 1980s and ’90s, Saudi Arabia built a system of farms with sprinklers drawing water from aquifers beneath the earth. It grew enough wheat to feed most of the Arabian Peninsula. But the aquifers are running dry, and the farms are no more.
“For the first time,” Bloomberg reported this week, “Saudi Arabia will rely almost completely on wheat imports in 2016, a reversal from its policy of self-sufficiency.”
Saudi Arabia is so thirsty it’s tapping water beneath the earth in… Arizona.
Last year, Saudi Arabia’s largest dairy, Almarai, bought a massive farm about 90 miles from Phoenix. There it’s planted thousands of acres of alfalfa to make hay. The hay is shipped to Saudi Arabia to feed dairy cows.
“[Almarai] got about 15 water wells when they purchased the property,” investigative reporter Nathan Halverson tells NPR. “Now, each one of those wells can pump about 1.5 billion gallons of water. It’s an incredible amount of water they’re going to be drawing up from that aquifer underground.”
“We in Arizona,” complains Arizona Republic columnist E.J. Montini, “are exporting our most precious resource — water — to Saudi Arabia in the form of alfalfa hay.”
“Investments don’t get any simpler than selling water in the desert,” says the aforementioned Jim Rickards.
Which brings us back to desalination — the practice without which Saudi Arabia’s major cities couldn’t exist.
Jim is hip to a private equity deal that’s raising money to buy three mobile desalination plants in the kingdom. “You’ll profit each time water is purchased,” Jim says. Investors stand to collect an average annual return of 25%. Simple.
It’s at this point we must issue a caveat: The investment opportunity Jim brings to our attention today is indeed simple. But it is not accessible to everyone. You must be an accredited investor. If you don’t know what that means, don’t even bother clicking on the link. (Yes, we know the SEC loosened the regulations last Friday, as we noted… but this deal was in the works before the agency took action.)
Even if you are an accredited investor, you must be willing to tie up your money for at least three years — perhaps much longer.
As we write, there are only 34 slots available to learn about this exclusive venture capital deal. Some of them might have been filled by the time we publish today. So if you have any interest at all, it behooves you to check out Jim’s invitation right away.
To the publicly traded markets… where every major index is in the red. At last check, the S&P 500 is down six points, at 2,095.
Gold is inching perilously close to $1,100 — the bid now $1,105. Treasury rates continue to creep up, the 10-year now 2.25%.
It’s the dollar that’s riding high this week — propelled by Fed chair Janet Yellen’s hawkish talk on Capitol Hill referenced here yesterday. The euro sits near six-month lows this morning, at $1.087.
Our friend Chuck Butler at EverBank Global Markets isn’t buying the talk of a December rate increase at the Fed.
“You see, December is historically a slow, low-volume, skeleton-desk month, where not much goes on, because no one is around,” he explains. “The markets will already be on high alert and have a lot of concern about what happens when the Fed hikes rates, and the markets are as thin as Boston Blackie’s pencil-thin mustache.
“In my opinion, it would be far easier for the Fed to pass up a December rate hike and move it to next year than to sit and watch the potential horrors unfold before them when they hike rates.”
Meanwhile, Jim Rickards urges us to tune out the media noise about the unemployment numbers when they come out tomorrow.
The “expert consensus” is counting on the wonks at the Bureau of Labor Statistics to tell us 190,000 new jobs were created during October.
Jim calls that an “irrelevant data point.” Here, he says, is what’s relevant — the yearlong trend…
“Job creation peaked last November and has been in a steep decline ever since,” says Jim. “That’s roughly in line with an S&P 500 index that hit 2,075 on Dec. 5, 2014 (when the November 2014 employment report was released) and is essentially unchanged at 2,095 now.
“In short, the economy looks like it stalled out last November and has been moving sideways (with volatility) ever since. The October employment report will be roughly consistent with this trend.
“More to the point, even a stronger-than-expected employment report won’t signal a rate increase by the Federal Reserve… The reason is that employment is only one of three triggers that Janet Yellen laid out in her May 22, 2015, speech in Providence, Rhode Island. (That’s the speech where she revealed her playbook on when a rate hike is coming.) The other two triggers are inflation of 2% and growth of 2.5%. On those two criteria, the news is bad and getting worse for the Fed hawks.”
Your government in action, again: For whatever reason, the Defense Department is having a miserable run of publicity this week.
On Monday, we told the tale of the $43 million gas station it built in Afghanistan — something that should have been built for $500,000. This morning, we see word of no fewer than three new and costly embarrassments.
For starters, “Pentagon Farmed out Its Coding to Russia,” says the headline from a report by the Center for Public Integrity. “The Pentagon was tipped off in 2011 by a longtime Army contractor that Russian computer programmers were helping to write computer software for sensitive U.S. military communications systems, setting in motion a four-year federal investigation that ended this week with a multimillion-dollar fine against two firms involved in the work.”
Allegedly, the Russians worked for one-third the rate of U.S. programmers with the proper security clearances. At least once, code written by the Russians was infected with viruses when loaded onto the network of the Defense Information Systems Agency.
Then there’s the newest ISIS division, what it calls its “Third Armored Brigade,” shown off in more than a dozen new photographs…
ISIS’ newest division, bought and paid for by you…
“The highly choreographed images,” reports Voactiv, “show ISIS fighters riding around the desert in Iraqi Light Armored Vehicles (ILAVs), a Humvee built in the U.S. and sold exclusively — at around $350,000 a pop — to the Iraqi military beginning in 2006.”
Presumably, this is some of the stuff ISIS seized last year when it overran cities like Mosul and the “Iraqi army” trained up by the Americans turned tail…
But hey, at least we can feel good about the troops — at a taxpayer cost of $9 million.
That’s how much Senate investigators say the Pentagon spent over the last four years on “paid patriotism.” All those giant American flags, military family reunions and such at NFL games? That was state-sponsored advertising, says a new report issued by Arizona senators John McCain and Jeff Flake.
Speaking of waste, how much did the cover art on the Senate report cost?
“While the spending is largely on events at NFL games, there were contracts with teams from all major sports, as well as MLS, auto racing and college football,” says a summary at the sports website Deadspin. The NFL team that collected the most money — $879,000 — was the Atlanta Falcons.
Of course, the dollar amounts are paltry for both the leagues and the government. “But people deserve to know when advertisements are advertisements,” says Deadspin’s Barry Petchesky, “and that sports leagues that so eagerly trumpet their patriotism are making sure they get some cash for their efforts.”
One more reason to snicker at the president saying his is “the most transparent administration in history”…
“A ban on cash,” a reader continues his reflections from yesterday, “probably will be the death knell for digital currencies already in existence outside the control of central banks.
“Bitcoin comes to mind. What purpose would it serve if there were no cash to convert to and from Bitcoin?
“The only potential societal positive I could image is the damage that would be inflicted against drug- and gun-running cartels. How will they stay in business and under law enforcement radar if they can no longer conduct an all-cash business?
“Then there are those pesky little disaster concerns. What happens if, say, North Korea or some other unfriendly detonates a nuke in low orbit above North America and takes out the power grid, or the sun gets rambunctious and does the same? No power grid = no banking = no access to your digital currency to buy what you need.”
“Seems strange to me that government keeps saying the Social Security we paid into from our earnings is going broke,” a reader muses.
“Yet we never hear that the handouts our hard-earned tax dollars pay for in food stamps, welfare, free health care, free housing, free this and free that are going broke?”
The 5: If there were “trust funds” set up for those programs, rest assured they’d get raided too.
“To those who wail about the fact that many thought that their retirement would be ‘socially secure,’ I concur,” writes another.
“High schools did not teach adequate personal financial management ‘back then,’ but we were introduced to the ‘cradle to grave’ philosophy by FDR. Therefore, many who did not have the advantage of a college education acted on whatever information they could acquire.
“I suspect that today’s educational system is somewhat better, but many students remain brainwashed by the emphases on ‘political correctness’ and dependence on the government for too much, instead of self-sufficiency. I suggest that educational courses be introduced concerning ‘financial history from the 1940s to the present, and how we got to where we are.’”
The 5: Careful what you wish for. That could easily be twisted into an exercise in class envy…
The 5 Min. Forecast
P.S. As we get ready to hit “send,” we’re down to 31 available slots in which you can learn about the exclusive venture capital deal Jim Rickards brought to our attention today.
Again, accredited investors only, please. But if you qualify and you want to learn more, here’s where to go.