NEWS / Foreign Exchange

The Ultimate Liquid Asset

By Ivan D. Martchev

Contaminated water is a global tragedy; deadlier than AIDS or cancer; deadlier than genocide; deadlier even than war.

If you think oil is a must-have liquid, think about water??¦

Fresh, clean water is the only element in the world that has no substitute at any price.

Fortune Magazine predicts: "Water promises to be to the 21st century what oil was to the 20th century: the precious commodity that determines the wealth of nations."

Under-the-radar investments in ???Blue??? Gold will generate life-changing wealth??¦

For starters, the US economy is poised for a slowdown that some commentators think can lead to a recession, which isn??™t the base case here. (See SRI, 14 March 2007, "Stay Cool"). But the reason that no one is certain of the outcome of this slowdown is that no one knows what??™s actually going on, especially quantitatively.

Everyone knows that the housing sector in the US is rapidly weakening and, most importantly, that the lending practices during the past four years have created some kind of credit bubble waiting to be deflated. But because of the endless financial engineering that's taken place (through the securitization of loans, etc.), no one knows who holds what, what??™s the real credit rating in these instruments (where different kind of loans have been packaged and repackaged into collateralized debt obligations, etc.) and what??™s the actual size of the various markets involved in the securitization scheme.

Consequently, the assumption being made by the majority of market participants is that the risk has been spread around and, therefore, any potential adjustment won??™t be as painful as before. But given the lack of real knowledge regarding the situation, this remains more or less a speculation, no matter how truthful it may be.

The Japanese carry trade has also been a worrisome development for the market. Although it??™s undoubtedly a serious potential problem for investors, no one has really been able to accurately quantify it. Therefore, assorted talking heads are ???inventing??? the numbers and their significance.

The speculative situation in China??”as mentioned above??”also belongs to the great unknowns. Although we have anecdotal evidence, we??™re in no position to quantify them and, therefore, to position our investments accordingly.

Geopolitics, long a big question mark in my book that a lot of investors still try to ignore, remain a great unknown as developments around the world indicate a much-bleaker outlook than many people allowed themselves to think possible not long ago.

As these unknowns perpetuate uncertainty, investors will remain trigger-happy and ready to sell at a moment??™s notice. For the time being, though, global markets are trying to recapture the February highs.

At this point in the game, the best strategy seems to be a less-aggressive one (on the long as well as the short side). Patience should prove helpful as you wait for a more-aggressive buying opportunity.

At the same time, though, having a well-diversified portfolio to strategically benefit from long-term investment themes--an approach followed in The Silk Road Investor--is important for long-term players.