Barclays Capital came out predicting a quick end to the shallow Israeli recession, and a return to decent growth of 2.9%  by next year.  Keep in mind that the Israeli economy was late to the ‘recession game’ and looks to be an early ‘exiter’ from economic turmoil as well.

With all this great news Barclays said that they expect an Israeli Shekel/USD exchange rate of 3.65 buy the end of the year. That’s a big move from the 3.93 area that the currency is trading at now.

According to Globes: “Barclays sees a less severe recession in Israel, and relatively quick growth recovery. The investment house bases its optimism on the fact that about 75% of Israeli exports are high-tech goods, and Barclays says that a rise in the Tech-Pulse Index - showing a US high-tech recovery - points to stronger Israeli exports. The Tech-Pulse Index, measured by the San Francisco branch of the US Federal Reserve, tracks the US information technology sector.”

It looks like we have started to see this happen. As Tech has led the stock market turnaround in the US, Israeli stocks that trade in the US have been flying, up over 33% this year. Keep in mind that, like it or no, President Obama’s push for alternative energy sources will be huge for Israel, as Israel is one of the big global players in cleantech and water technology. If this trend of a ‘tech led recovery’ continues, look for the Israeli hi-tech scene, from small and mid-cap tech plays on the NASDAQ to M&A to Israeli VC, to have a very strong 2nd half of ‘09, and lights out for 2010.

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I had an interesting meeting yesterday with Gershon Baskin, who is Co-CEO of the Israel/Palestine Center for Research and Information, who also happens to work with Terry Spragg, on introducing a new way of transporting water to countries in need. Spragg has developed waterbag technology, which may be a cheaper way of transporting water than by using tankers.

With countries all over the Middle-east suffering continued drought conditions, this type of technology has the potential to ease the problem. I may be wrong but I doubt that they can move enough water for the waterbag to be a total solution, rather is can be used as part of a more comprehensive plan.

Check out the video to see how it works.

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Looking to invest in the up and coming field of water technology? Have a couple hundred million dollars available? For those looking at investing in this field Israel should be your destination. The Israeli water company Mekorot has a subsidiary that is  offering private investors an option for a 40% stake in the planned  $625 billion project due to be completed in 2012.

According to Globes: “The company is due to build the 100-million cubic meter a year desalination facility at Ashdod by 2012. It will be Israel’s fifth seawater desalination plant on the Mediterranean coast. The project was originally conceived as a turn key project between Mekorot Enterprises and a contractor who would build the plant for NIS 1.5 billion. However, at the conference, Mekeorot Enterprises CEO Giora Gutman said that the company might offer a partnership of up to 40% of the franchise for the sale of water to the state and in the operation of the plant.”

With Israel facing another year of drought, the plant coming online as soon as possible will be very helpful, to help combat the Israeli water shortage.

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Before we get started I just wanted to send a shout out to my in-laws, on the occasion of their wedding anniversary. Don’t say we never get you anything!

Israel is second to none when it comes to innovative technology for the water industry. From drip irrigation, to the water quality testing solution that was used in Beijing to keep the water events safe, Israel has been at the forefront of developing these technologies. It makes it all that more frustrating and shocking that domestically, Israel has been fast approaching a water crisis. With the country’s main water source at dangerously low levels and few calls for water conservation, a crisis seemed to be on the horizon.

Well finally a solution maybe brewing. Bids have been made to build and operate Israel’s 4th desalination plant. Funny that the country that developed the technology, has for the most part exported it to other countries to solve their water problems, but has been slow on the uptake to tackle the domestic issue. (But there is no use crying over spilled milk) According to Globes: “…that at least four or five consortia will likely submit bids today in the presorting tender to build and operate Israel’s fourth desalination facility at Soreq. The 100-million cubic meter a year plant will cost NIS 1.5-2 billion($500 million). The facility is due to come on line in 2012.”

Let’s just assume that it won’t be completed on time, and that it will come on line in 2013-2014. Still, it will go a long way in solving the domestic Israeli water crisis. Israel faces many challenges to its’ water supply from neighbors. Jordan, Syria and Lebanon, all have the ability to tinker ( to put it mildly) with the Jewish state’s water supply. Another water desalination plant will help Israel become more ‘water independent’ and self sufficient, which will also be crucial in limiting geopolitical risk.

It also wouldn’t hurt if some prayers would be directed to above to provide the country with some much needed rain.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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