California is seeing a marked improvement in the availability of water supplies, which has led several water agencies, including San Diego and Orange counties, to declare an end to drought conditions.
The gains are significant. The early February survey, conducted by the California Department of Water Resources, indicated that the statewide snow pack stood at 173% of the February 2 average. This is a critical measurement as the snow pack in the Sierra Nevada mountains, which is currently at 182% of normal, accounts for as much as a third of California’s water supply.
It should be noted that drought relief has not been completely uniform. Recent rainfall, while generally better than normal has, for example, largely bypassed Santa Barbara. Lake Cachuma, which serves as the largest supply of water for the county’s 450,000 people, stood at just 14% of capacity compared to Shasta Lake’s 82% (Northern California) and 86% for Castaic Lake (Southern California).
Investors would be well advised to recognize that things change, including rainfall and, while not a certainty, reversion to the mean is generally the most likely long term trend. “Hockey Stick” projections* are not always wrong, but are a definite signal to double down on due diligence.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®
*Divestopedia defines a hockey stick projection as one that shows its last few years of actual results as relatively constant, and then “magically” rockets up for future years, just like the blade of a hockey stick.