Don't Let the Flu Get You Down
By Ryan J. Puplava CMT, April 27, 2009
The onset of a new strain of swine influenza A/H1N1 with 20 confirmed cases in the U.S. over the weekend shocked the financial markets Monday. The World Health Organization (WHO) grew this figure to 40 confirmed cases now in the U.S. The number of confirmed cases in Mexico is 26 as of today.
The hardest hit sector was the transports with the Dow Jones Transportation Index down 4.69% to 2990.74. The hardest hit industries were airlines and hotels with the Dow Jones Airline index down 12.03% and the Dow Jones Hotel index down 7.50%. Lean hog futures were down 4.09%. The S&P 500 index finished the day down 1.01% to 857.51.
The biggest threat right now is a pandemic outbreak. A pandemic virus infects humans and causes serious illness, possibly death. A pandemic virus must be easily transmitted and have sustainability. An airborne virus could potentially cripple the transportation sector and hinder the recovery of our markets.
The swine flu is not the first outbreak to become a possible pandemic outbreak this decade. We’ve already seen two before with the severe acute respiratory syndrome (SARS) in 2003 and the Avian influenza between 2005 and 2006. SARS was acted on very quickly by the WHO to slow the transmission before it could become pandemic. The Avian flu of 2005 was not labeled as pandemic because it could not cause sustained and easy transmission.
The WHO issued a travel warning to Hong Kong and Guangdong in April 2003 and lifted it in June that year. It is very difficult to trace the effects of the epidemic and its effects on the transports when it happened in the midst of a cyclical low in the economy. The financial markets were rallying strongly with the start of the Iraq war as three months of uncertainty clouding the market were finally relieved.
There was a lot of debate at the time whether SARS was airborne. In April of 2005, a Canadian doctor, Timothy F. Booth, PhD presented evidence that the virus was airborne. However, he did not document any case in which there was transmission to a human by air. He only documented that it was in the air near an infected patient. The researchers also detected the virus in four of 85 surfaces tested that were frequently touched. SARS is still believed to have been human-to-human transmission. Because of the quick response by the WHO, SARS was stopped far short from becoming a pandemic outbreak.
The sharp drop in the Dow Jones Transport index during the first three months of 2003 was probably due more to the rise in the price of oil leading up to the Iraq war than in worries of a pandemic.
The travel warning by the WHO had more of an effect on the Asian economy than the virus seemed to itself. Below is a chart of the hotel occupancy for Singapore and Hong Kong during the SARS epidemic. Rates were fairly unchanged after the first case was reported in November of 2002. It wasn’t until April’s travel warning that a severe drop occurred in occupancy. It didn’t take too long (three months of data) once the WHO lifted the warning in June of that year for a recovery back to normal occupancy rates.
The second outbreak this decade was the Avian influenza from 2004 to 2006. There is research now that suggests the flu, H5N1, is a form of the 1918 Spanish Influenza that killed an estimated 40 million people in less than a year.
As you can see from the chart, it seems as though the Avian flu (H5N1) had little effect on the Dow Jones Transport index. It can be deduced that the human-to-human contact to transmit the flu, measures to control the infected avian pool, and few resulting cases helped to contain this epidemic from affecting the financial markets and the transports.
The WHO gave update #3 today on the swine virus. There are more cases of the disease today than there were yesterday as awareness has set in. Cases of influenza-like illness are now being tested to confirm the strain of virus. As such, there are 73 confirmed cases:
40 in the United States
26 in Mexico, seven resulting in death.
6 in Canada
1 in Spain
It will be more important to see how many new cases develop after the awareness has set in than by the large number of cases presented over the next couple of days. The WHO has advised that,
“There is no risk of infection from this virus from the consumption of well-cooked pork and pork products. Individuals are advised to wash hands thoroughly with soap and water on a regular basis and should seek medical attention if they develop any symptoms of influenza-like illness.”
Other sources, like the Centers of Disease Control and Prevention, have indicated that there are 2,000 cases in Mexico and that the death toll is as high as 149. The WHO did not recommend any travel restrictions because it would not have much of an effect on preventing the spread of infection at this point. Only one case resulted in death from the 1976 swine influenza outbreak and it was very limited to person-to-person transmission. That puts the swine influenza of 2009 higher up the epidemic chain.
The past two outbreaks, SARS and the Avian flu, had little affect on the transports during those times. The damage to hotel occupancy in Asia during SARS was more attributed to the WHO travel warning than news of the outbreak. Until it can be proved that this outbreak can be transmitted by air or the WHO makes any additional travel warnings, as far as financial investments are concerned, don’t let the flu get you down.
© 2009 Ryan Puplava