Flu Scare Poses Fresh Economic and Market Concern

April 27, 2009

The Spanish flu epidemic of 1918-19 killed about 20 million people worldwide, including half a million Americans.  More than 9% of reported cases of SARS (severe acute respiratory syndrome) from November 2002 to July 2003 resulted in death, sixteen times greater than typically accompanies ordinary flu.  A mere two cases of swine flu at Fort Dix in February 1976 led to the inoculation of 40 million Americans against a disease that had no further spread and with a remedy that produced an unacceptably high incidence of severe negative reactions.

Public hysteria and uncertainty that normally accompany a health emergency have an added dimension in the 21st century, the possibility of a bio-terrorist cause.  The natural epidemiology of a new strain of flu and how governments try to contain it are sources of uncertainty and areas where unfolding events can go terribly wrong. Investors do not have to see worst-case scenarios unfold to justify guarding against such possibilities.  Today’s market spike in risk aversion, evident in lower stock prices and a firmer dollar, was predictable, especially since this is Monday, a day that has seen a large share of jittery market blowouts since September.  Since the weekend in which Lehman Brothers failed, the DOW has fallen at least 1% on eleven Monday, at lease 2.5% on eight of those occasions and as much as 4.0% five of those times.

The SARS health scare depressed economic activity.  Japanese real GDP fell 1.7% at a seasonally adjusted annual rate in 1Q03, and U.S. growth averaged less than 1% annualized between 3Q02 and 2Q03.  Canadian growth was almost negative in the second quarter of 2003, and Euroland expanded at a minuscule pace that quarter.  The current swine flu is juxtaposed on the weakest global economy in six decades.  During the height of the SARS scare (March-May 2003), the dollar fell against the euro and Canadian dollar but rose modestly against the yen.  Most stock markets fell in March but rose over the three-month period as a whole.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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