Swine Flu And Your Investing Decisions

| April 27, 2009 | 0 Comments

It’s all over the news right now.  The swine flu is the topic of the day.  As a matter of fact, the lead article for the Wall Street Journal is on the swine flu.  This is a big story.  How big?  This is the second day in a row the swine flu is a cover story (the WSJ Weekend Edition also led with it).

It looks like pigs are learning to fly.

The so called swine flu virus is a new strain.  According to the latest reports, it’s a combination of swine, bird, and human flu viruses.  If you think about it, this could get real ugly.

I know first-hand.

When researching my family’s history a while back, I came across a bit of sad, yet fascinating information.  My grandfather’s brother died in the Spanish flu epidemic of 1918.  I didn’t know much about this tragic event so I dug a little deeper.  What I found was scary.

In 1918, the flu virus started spreading around the world.  The first cases were reported in March, and the fear didn’t subside until June 1920.  Cases were reported around the globe, including some remote Pacific Islands.

It’s estimated the flu infected almost 50% of the global population.

The scary part wasn’t the infection rate (though it makes the hair on the back of my neck stand on end), it was the victims.  Normally the flu attacks weaker humans like children and the elderly.  This virus was different.  It claimed many victims who were healthy, young adults… the ones who logically should have survived.

According to the Center for Disease Control, more than 50 million people died.

When the Spanish flu hit Fiji, more than 14% of the population died.  In India, more than 5% of the population perished.

This all happened in just two years.

Let me give you a little perspective.  More people died from the Spanish flu than all the battles of World War II.

I’m sure you’re thinking the same thing I am.  Will this swine flu outbreak follow in the footsteps of its deadly cousin?  Might we be on the verge of a global outbreak?  What does this mean for my own safety?  These are all good questions.

Let me toss one more on the table.  Should we change how we invest because of it?

First, let’s look at the government response.

Countries around the world aren’t taking any chances.  The US and Canada are now monitoring the border.  South Korea is now checking all airplane passengers for fever and early signs of the flu.  The CDC is sending emergency medical supplies out to local governments.  And President Obama is calling for calm.

Honestly, the only cases of the swine flu in the US are isolated and relatively minor.  I’m praying the government and the medical community will react in appropriate ways (though I have my doubts).

Besides, if it gets much worse, we’ll see restrictions on travel.  Some countries might even try to isolate themselves completely.  (But I see that as worst case scenario.)

Regardless, the markets are retreating as I write this.

This morning we opened lower, with numerous news agencies pointing to the flu story.  The key question here is simple.  Should we allow the threat of this new flu to impact our investing strategy?

What we’re seeing right now is panic trading.  Some of the drug companies are getting bid higher.  The thinking is simple.  All this news coverage will drive up demand for drugs.  Seems likely to be a short term blip in the stocks if the outbreak is contained.

Other investors are selling off travel stocks like airlines, cruise ships, and hotels.  Their thinking is simple as well.  If the disease spreads, the number of travelers will fall.  They could be right.  The question for this scenario is how bad does it need to get?

Here’s my thinking.  For either of these strategies to work, we’d need to see the outbreak get worse… much, much worse.

Is that a possibility?

Sure it is.  Anything is possible.  We might see a repeat of the 1918 epidemic (though I highly doubt it).

The more likely scenario is that this is a big, scary news story.  In a few weeks, it will be forgotten.  Ultimately, the market won’t be moved over the long term by this flu epidemic.

Let me sum it up.  The potential threat of the swine flu is scary (especially if you know what happened in 1918).  Government and health care professionals are already working to contain any outbreak.  The likelihood of another pandemic is slim.

So don’t go changing your long term investment strategy.  If you do want to invest along with the news, keep your view short term… and look at each opportunity as a trade, not an investment.

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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