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In this issue... Stick this stock in your water pipe (but don't smoke it), The narrowing gap between First and Third World economies, Plus, Bill Bonner on Obama's Zombie Healthcare and the "JP Goldman caste"... The Daily Reckoning | Tuesday, March 23, 2010 Life in Nicaragua Not Just for Sandinistas Anymore Eric Fry Reporting from 2,475 miles north of Leon, Nicaragua... In lieu of our habitual diatribe about the dangers of frothy stock markets and the comforts of shiny metals, we will turn the podium over to Chris Mayer, editor of Mayer's Special Situations. Chris is lounging in the tropical comfort of Leon, Nicaragua - a location we North Americans would disparage as a "Third World" city. But according to Chris' account, this Third World city possesses many delights that First World cities would envy. Indeed, Chris' account feels somewhat ironic, given the fact that the world's largest economy just took one giant step over the weekend toward the kinds of socialist practices that never seemed to work in the Third World. (That's right; health care is free now...for everybody. Isn't that great!) So now the US has universal health care to go along with its rising taxes, bloated public sector, nationalized mortgage industry, crony capitalist bailout schemes and institutionalized contempt for free enterprise. These kinds of practices never seemed to work in the Third World...or in any other world. But maybe this time will be different. Whatever the result of America's radical, new dalliance with government-dominated everything, the distinction between First World and Third World has become much less distinct. In fact, this distinction is well on its way to becoming an historical artifact. So please enjoy Chris' first-hand account from the Third World...and let the reader decide where the First World ends and these "lesser" worlds begin: "Greetings from Leon, Nicaragua, which is about an hour drive northwest of Managua. Leon is the second largest city in the country and was the old capital for more than 200 years, before Managua became the capital, in 1851. I'm staying with a friend of mine from college and his family, who moved down here five years ago. "He lives very well here for not much money. This house in which I am staying is a comfortable 4,000 square feet with everything you could want in a house - a big kitchen with granite countertops, beautiful ceramic tiles throughout, an open courtyard, balconies overflowing with pink flowers and vines, a red tile roof - all done in the Spanish- influenced style you find throughout South and Central America. It's bright and airy and not at all humid. So even though it is 90 degrees here, we have the windows open and feel fine. "It would cost you about $200,000 or so for this house. If you got the lot and built it yourself, it might cost you $150,000. This is a nice location, too, in a quiet neighborhood. I'm within walking distance of central Leon with its central park and the largest cathedral in Central America. "You could live extravagantly here for $2,000 a month - enough to have hired help like a maid, which would cost you about $100 a month. Last night, we went to dinner. We waked down the little narrow streets of Leon (the city was founded by Spanish conquistador Francisco Hernandez de Cordoba in the 1500s). We had nacatamales - meat, peppers, rice and more mixed in with corn meal and cooked in banana leaves - for $1.50 each. They were delicious. These were big tamales, a solid meal all by themselves. And my friend adds that these were the high-end version. There are cheaper versions in the city. "Labor is very cheap here. Food is cheap. Some things are not so cheap. I was shocked to find that gasoline is $4 a gallon. For the wages people earn here, that is a lot of money. Brand-name US products are expensive here, too. If you want to buy a pair of jeans, it will cost at least 30% more than in the US. "Still, the overall cost of living here is very low. And there is a lot to like about Nicaragua besides that. There is plenty of fresh fruit and great beaches and wonderful cultural experiences - all the things you'd want to enjoy as a tourist or expat. "Later today, I'll head down to Rancho Santana, which is in the southern part of the country, near the city of Rivas. Rancho Santana is a development project owned by an affiliate of my publisher Agora Financial. There are about 20 readers coming down for what we've called 'Chill Weekend,' to enjoy the beaches and views and explore the area. I have not visited Rancho Santana before, but I am told that it, too, is very beautiful, and is attracting a growing population of year-round expat residents. "Nevertheless, when most people think of Nicaragua, they don't think of any of these things. They probably think of the Sandinistas and President Daniel Ortega and the problems of the 1980s. Ortega is on his second stint as president, which began in 2007, after being out of power since 1990. Politics, as usual, is a risk in this otherwise idyllic setting. It is a situation to keep an eye on because Ortega seems to want to follow the model laid out by Hugo Chavez in Venezuela. But Ortega is not that popular here anymore (he has the support of about a third of the vote) and holds onto power only because the opposition party is split. "Beyond the politics, the region's geology has also had its effects. A massive earthquake in 1972 destroyed most of Managua, from which it has yet to recover. Even in Leon, repeated earthquakes and eruptions from the Momotombo Volcano forced the city inland from the shores of Lake Managua in 1610. Nicaragua is full of volcanoes. In fact, there is one that is smoldering now in Lake Nicaragua. "'We have it all here,' my friend told me. 'Earthquakes, tsunamis, hurricanes, volcanoes...' There is, however, another thing Nicaragua has in abundance, and Chris has been at the forefront of helping readers profit from its increasing value and scarcity. He has the details for us in today's column... The Daily Reckoning Presents Water is Too Cheap, Part II Chris Mayer Water is too cheap in the US...and it is also too cheap in the global stock markets. These are the main thoughts I took away from the Gabelli Water Investment Summit in New York earlier this year. The most eye-opening presentation was by Nick DeBenedictis, the CEO of Aqua America, which is the second largest investor-owned water utility in the country. (It trades on the NYSE under the ticker WTR.) DeBenedictis told us about a city that "wondered why it couldn't put fires out anymore." The reason was the pipes were so old and clogged that there was only two inches for water flow. You're never going to get enough water flow out of a pipe that size to put out a fire. "That's not even enough to take a shower," DeBenedictis said. Speaking of showers, DeBenedictis told us about another water system where people wondered why they couldn't take a shower and wash the dishes at the same time. Again, an old dilapidated water system was the culprit. "This is Middle America," he said. "It can't afford the pension for the police, much less new pipes." When a water system gets bad enough and the public finances strained enough, then a city will look to sell it. Sometimes, it is so bad and has so many problems that the municipality will sell it at any price. "We've picked up some for $1," DeBenedictis said. "They just wanted to give it away." Or as Don Correll, CEO of American Water Works (the largest investor- owned utility in the US) put it, "We're seeing financial distress in municipalities today that we've never seen in our lifetime... The more we keep printing money and running deficits, the more we'll turn toward private investment." That means more opportunities for the investor- owned water utilities. Water is still too cheap in America. We subsidize water and hold it to an artificially low price. Most people pay a fraction for water compared with what they pay to an electric or telephone utility. But based on what I see and hear about the quality of our water systems, we're going to have to pay up soon. As the Dennis Doll, CEO of Middlesex Water Co. said, "Many of these systems are disasters waiting to happen." It's also going to affect us in ways you may not think of. It's more than just the health and safety of our drinking water and the care of our wastewater - though that ought to be reason enough for concern. Our water supply will also dictate our choice of energy sources. (It takes water to make energy and energy to make water. This area of overlap is known as the energy-water nexus. It will be much more important in the 21st century than ever before.) For instance, the renewable biofuels targets put out by the US Department of Energy are "completely dependent upon water supplies that simply do not exist at this point," according to Summit. California's goal of producing 1 billion gallons of ethanol per year, for example, will consume 2.5 trillion gallons of water. That's more than "all the water from the Sacramento River Delta that currently goes to Southern California and Central Valley farmers combined." So what does all this mean for an investor? The water utilities look interesting again. Some are starting to enjoy rate increases. I like SJW Corp., a stock I recommended a few years ago. It's now back below the price where I originally recommended it. SJW owns excess land and trades below its takeover value. Another good one is Aqua America, as the stock has not rallied much from the bottom and it has many opportunities to grow. Both stocks pay decent dividends. The other stocks I'm following in this space are the many industrials that make the pipes, pumps, valves and other goods that support water. This has been a good place to fish for stocks. As Summit's research over the last 30 years shows, "These businesses have tended to outperform other industrial sectors." Chris Mayer for The Daily Reckoning Joel's Note: Although he's been way ahead of the curve on the water investment theme, hydro profit potential is not the only resource trend Chris has his eyes on. Long time readers will recognize his recent affinity for natural gas and, as you can probably guess, a-not so- recent penchant for precious metals. Of course, building wealth is only one part of the equation. You also need to know how to protect it. Unfortunately, millions of Americans are being taken for a ride right now. Are you losing your hard-fought gains to a government swindle (and we're not JUST talking about Obamacare, here)? If you're not sure, you might want to take a look at this whitepaper now: How Crooks Just Gained Access To Your Bank Account Bill Bonner Zombies Attack Economy in Hostile  Takeover Bill Bonner Reporting from Paris, France... Zombies Take Over US Health Care! "Obama assures his place in history," says the editorial in today's Financial Times. Poor fellow. He'll be remembered as the guy who let the zombies loose on the US health care industry. It wasn't a very good industry even before passage of the reform bill. Not because of the doctors and nurses; they're as competent as other professions. But they're forced to work under appalling conditions - with lawyers, lobbyists and regulators on their backs!  This new reform measure just increases the weight. Now, there'll be more parasites than ever. Health care is about to turn into a zombie industry...run by brain-dead bureaucrats and kept alive by infusions of blood from the taxpayer. "Obama should veto the bill," says an American friend. "He should go on TV and tell people that he wants real reform of the health care business...not a 1,000 page document full of bribes and boondoggles. That would really assure him a place in history." But that's not going to happen. Instead, the president will sign the bill, smile in triumph, and the health care sector will come under US government control. One by one, step by step, deficit by deficit...the feds take over the economy. Banks...mortgage finance...insurance...automobiles...passenger trains...and now health care. Stock market investors seem to like zombies. The Dow rose 43 points. Gold fell to under $1,100. What's wrong with investors? What do they think? Maybe each investor looks around and judges his fellow investors fools. He figures the fools will think health care 'reform' is a good thing. So he figures they'll buy stocks. Anticipating a rise, he buys too. Or, maybe he figures that the health care act will be such a disaster it will turn voters against the democrats... And maybe the republicans will come back into office... Who knows what he is thinking... Or if he is thinking at all...  "US starts to fall in line with other nations," is a headline in today's Financial Times. That is certainly true. The zombies are taking over everywhere. The US held out against them longer then most nations. But now it too is letting government employees run the health care business. George Wallace once compared the Democrats to the Republicans: "There's not a dime's worth of difference between them," he said. Now, there's not a dime's worth of difference between the world's feds. Whether they speak French or Polish or English they're all taking more and more control of their respective economies. And almost all are going broke. The latest figures from the IMF tell us that debt in the G7 nations will exceed 100% of GDP by 2014. Yes, they're all shuffling along together...towards bankruptcy. Taking over vital industries helps move them down the road. It turns the industries from sources of tax revenue into expense items. The US has spent $177 billion since it decided to take over Fannie Mae's mortgage finance business, for example. And how many billions has the US spent since it took over the nation's passenger rail system in '71? We couldn't find a figure...but it must be around $50 billion. Amtrak was sold to the public in '71 as an investment opportunity. With a monopoly on rail traffic between America's most populous cities...throughout the biggest economic boom in history...you'd think Amtrak couldn't help but make money. It was supposed to turn a profit in 1974. It didn't. Nor did it make a profit in 1975...or 1976...or 1977...1978...1979...1980...etc... All the way up to today. It never made a profit. It just lowered service levels and kept chugging along. And now the feds are still pumping more than $2 billion per year into the zombie railroad. All Aboard! And more thoughts... An Indian man, who had been living in California, went back to Bombay to attend the wedding of an old friend's son... He noticed that the bride's family was not of the same caste...but of a lower caste. He wasn't sure if he should say anything; perhaps customs had changed in the many years he had been away. Finally, he had a minute with his old friend, alone. "Is it now normal to marry a lower caste girl?" "What?" "I mean, I couldn't help noticing that your son is marrying a girl from a lower caste." "No...no... My son works for J.P. Morgan. She works for Goldman Sachs. Same caste." Regards, Bill Bonner, for The Daily Reckoning