Oh, where to begin, dear reader? When you have something important to say, like launching a nuclear missile…you have to be careful how you aim the thing…

But first, let's look at the major headlines: the Dow shot up more than 200 points yesterday. And then back down this morning. Oil rose $5. The dollar fell back…and gold dropped. Nothing worth getting excited about…so let's return to our story…

What happens when one bubble runs into another one? Which bubble survives…the one in commodities? Or the bubble in the people who buy them?

By the charts ye shall know them - bubbles, that is. The lines roll along nicely, calmly, along the bottom of the page, then all of a sudden, the line shoots up. When you see a chart like that, whether it is the price of tulip bulbs, shares in the South Sea Company, or Alan Greenspan's career, you know what will happen next. The line will go down!

What goes up must come down. A bubble is an extraordinary thing - a rare phenomenon, like a presidential candidate with an honest opinion. And all extraordinary things tend to become less extraordinary over time. "Regression to the mean," is what statisticians call it. The "mean" marks the territory that is normal. Whenever anything ventures into abnormal territory, chances are very high that it will soon come back on familiar ground.

Take an extraordinary person, for example. More than likely, his children and grandchildren will be more like everyone else than like himself. It must be a terrible burden to be the son of an extraordinary man; people look at you like you were a dotcom stock in '99 - they expect something exceptional. Almost inevitably, they are disappointed.

Or take a Great Empire. What is an empire but an extraordinarily successful state? It stands out in history because it has managed to lord over its neighbors. Yet, what empire lasts? None…all regress to become commoners…ordinary lumpen-nations.

Or take the weather. A rainy spell may last for a long time. But the more days it rains, the more dry days will be needed to bring the rainfall down to "normal" levels.

Regression to the mean is one of the surest bets an investor can make. Let prices go to extraordinary levels and he's almost guaranteed that they will come back to normal. In markets, regression to the mean is even more certain than it is in nature. Because extraordinary prices set in motion a series of actions and reactions that almost always bring them back in line. Today's record-beating oil price, for example, has already touched off a series of derriere-kicking trends and events that are sure to take it down a notch.

On the supply side, the industry is spending four times as much on exploration and development than it did when the century began. The price of drilling equipment rentals has more than tripled. And now, believe it or not, a young man graduating from an Ivy-League college with a degree in petroleum engineering earns more money than a man who goes to Wall Street.

On the demand side too, changes are underway that will cut the amount of oil used. The cure for high prices is high prices, as we opined yesterday. Bubbles are self-correcting. The higher prices cause people to look for alternatives - or simply not use so much. U.S. imports of oil went down over the last 12 years. And, for the first time ever, Americans are driving fewer miles.

Another track of the feedback loop is the economy itself. High oil prices work like higher interest rates or higher taxes - removing money from domestic commerce. The effect is to "cool" the economy…chilling demand for energy.

Elsewhere, substitutes for oil are being developed at breakneck speed - including wind, solar, and bio-fuels.

Regression to the mean works. Markets work. Lower energy prices seem a cinch.

But now we introduce an annoying nuance. While the bubble in oil prices was expanding…another, much bigger bubble was shaping up - and hardly anyone noticed.

Where? Just look in the mirror, at our own species. In the many, many thousands of years of our prehistory, we were hardly worth counting. There were tribes of us all over the globe…but they were small…barely holding their own against other species in the competition for food and resources. It took until about 1800 to get the population up to one billion. Worldwide. Then, man was a big winner. Numero Uno…the crown of creation. By 1930, another billion had been added. And another billion was added in the next 40 years. That brings us to about 1970, when the earth hosted about 3 million two-legged yahoos. Since then, the population has more than doubled. The line shot up, in other words.

But we are a proud and egotistical race. As our numbers rise, we think the road will rise to meet us. What a shock it would be to find that the whole species is mean-reverting, just like everything else! What a surprise to find no road at all - to find that we are running off the edge of a cliff, like lemmings. More below…

*** What brings these thoughts on our species to mind is a report in the Daily Telegraph. It tells us that a conference organized by Goldman Sachs has revealed the world's "Top Five Risks." The Goldman team turned its back on America's bugaboo, terrorism. Instead, they believe the biggest risk is a shortage of water.

Not that there isn't enough water. There just isn't enough in the right places. And getting it to the right places is going to be expensive. Ergo, Goldman explained, there is money to be made.

We don't know whether it was the report that was stupid…or the Daily Telegraph. It says, for example, "water is not a renewable resource." Oh? What happens to it? It evaporates, says the paper. But doesn't it later fall as rain? Maybe we're missing something.

Then, quoting directly from the report, "it is estimated that by the year 2050, about one third of the global population will not have access to adequate drinking water." How could that be? By definition, if people are alive, they must be drinking something. And it must be adequate, or they'd drop dead from thirst.

The real question is: how much will it cost to get it? And where will people get the money?

But let us put those questions aside. What interests us today is how it works. Does a lack of water doom the bubble in humankind? Or, do we Homo sapiens have some special grace that exempts us from the bubble laws…from reversion to the mean, for example?

As water becomes scarce, naturally its price rises. Sooner or later, the price of water will get into bubble territory too. But what happens then? Will the bubble in water prices pop the bubble in our species? Or will we find some way around the problem…effectively popping the bubble in water, so that we will all have plenty to splash around at every day low prices?

Colleague Chris Mayer, points out that crumbling water infrastructure is a big problem in the United States.

"The U.S. alone has nearly 700,000 miles of aging pipeline and pumping stations.

"Some of these U.S. systems are over 100 years old. They wear out. Pressure falls. Water leaks out. Cities lose as much as 30% of their clean water supply to leaks alone. And then things like arsenic, human waste particles, chlorine, and decayed metal leak in.

"With over 55,000 public drinking water systems…about 20,000 public wastewater treatment plants… and around 75,000 dams and reservoirs… in the U.S. alone… you're looking at a massive infrastructure in need of updating and repair."

And there's some major opportunities for investors here…

"New 2005 water purity laws from the EPA demand that those systems get updated. U.S. spending on new water infrastructure alone could top $1 trillion by 2015, according to both Merrill Lynch analysts and the Wall Street Journal," continues Chris.

"And remember, that's just the U.S. China's market for water-systems infrastructure will grow at nearly twice the global rate - with as much as $250 billion in new spending, just between now and the end of 2008."

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.