Its name was Enza,
I opened the window,
-American Skipping Rhyme circa 1918, the year of the great pandemic.
Deadly and as dangerous as it may be, the fear of swine flu is spreading at a much faster rate than the virus itself.
In fact, in little less than a week, the world has become gripped with that fear. Talk of a future pandemic has left the especially nervous wondering whether or not it is safe to head outside.
Meanwhile, I think it’s safe to say Howard Hughes would be having a conniption fit right about now if he were alive today. As for another famous mysophobe Howie Mandel, I suppose his nights have been more sleepless lately too.
And while I don’t mean to make light of either mysophobia or the seriousness of the "H1N1 virus," I feel as though I would be remiss if I didn’t at least mention that the first influenza pandemic was recorded in 1580.
Since then influenza pandemics have occurred nearly every 10 to 30 years.
On top of that, it is also worth noting the garden variety influenza that occurs every year kills 30,000 people in the U.S. without inciting a panic, or any help from the swine for that matter. Occasionally, nature strikes back.
That’s why, when it comes to betting big on swine flu stocks like Novavax (NVAX) and BioCryst Pharmaceuticals Inc., (BCRX) the only thing likely to suffer a serious setback is your portfolio.
In fact, that is what our own Brian Hicks warned on Tuesday when he decided to take bets in the opposite direction.
"I Opened the Door and In- Flew-Enza"
Of course, that doesn’t mean the fear engendered by this latest bit of swine flu hasn’t been earned. Pandemics can and do occur, with the Spanish Flu of 1918 taking top honors as the most infamous.
Amazingly, this particularly virulent strain killed some 20 to 40 million people worldwide before ending in 1920. Scary stuff.
However, a much better comparison for the swine flu would probably be the SARS pandemic of a just few years ago. And as bad as it was, it came nowhere close to what happened 90 years ago with the Spanish Flu.
SARS caused "only" 774 deaths worldwide before rapidly coming to an end just 4 months later. Of course, where the swine goes from here is anybody’s guess.
Even still, if there is one thing we have learned about any of these episodes it’s that the fear of contracting these viruses has a much deeper impact on the economy, since those same fears can dramatically alter consumer behavior.
Take SARS for instance. . .
According to the Asian Development Bank, the scare surrounding it cost over $18 billion in 2003, slicing 0.6% off the Asian GDP. Tourism was hit particularly hard, suffering through declines of nearly 35% as SARS fears seriously restricted travel.
The MCSI emerging Asia-ex-Japan index plummeted by nearly 14% in three months as a result, thanks largely to SARS fears.
Swine Flu Stocks: Time to Short Mexico
For investors that means, aside from making risky bets on companies with no earnings, the way to play the swine flu may be to go short the economy of its epicenter — which in this case is Mexico.
In fact, already reeling from falling oil prices and a weak tourist season, UBS Investment Research downgraded Mexico this morning from "top pick" to underweight because of its rapid climb the past seven weeks.
Swine flu, naturally, has only added to those problems, as wide swathes of the troubled nation have been idled by the outbreak.
As a result, economic activity in Mexico has slowed markedly as retail shoppers stay home to avoid crowds and foreign tourists simply don’t make the trip. That has only pushed Mexico one step closer to the brink as it tries to cope with the global financial crisis and increasing drug cartel violence.
Of course, this disruption in economic activity in Mexico City and the State of Mexico — the two most affected areas — could significantly impact second-quarter GDP growth since they account for 30% of the country’s economy.
So, instead of going long healthcare stocks amid the swine flu fears, the stock to keep an eye on here is the iShares MSCI Mexico ETF (EWW:NYSE).
Because, given what happened in Asia in the spring of 2003, shorting EEW is the safer way to profit from these fears.
Besides, as my old pal Chris Nelder wrote a few months ago, the swine flu is just the tip of the iceberg south of the border. Mexico’s troubles are just getting started.
Your bargain-hunting analyst,
Steve Christ, Editor
P.S. As Wealth Advisory subscribers have learned, making money in a bear market is not as daunting as it sounds. In fact, The Wealth Advisory portfolio is now 24-8 in its closed postions over the last 12 months, delivering net gains of 465%. Not bad for "the worst market since The Great Depression." To learn more about The Wealth Advisory, click here.