Busch: Fear Of The Flu Is The Biggest Driver

As author of World Event Trading, I did an entire section on infectious diseases from the 1918 Spanish Flu to Bird Flu. The recent outbreak of Swine Flu is generating headlines and concerns globally. It has spread from Mexico to the US to New Zealand. There are over 1,300 cases in Mexico and over 100 deaths. President Obama has declared a US health emergency.

Reuters: "The new flu strain, a mixture of various swine, bird and human viruses, poses the biggest risk of a large-scale pandemic since avian flu surfaced in 1997, killing several hundred people. A 1968 "Hong Kong" flu pandemic killed about 1 million people globally."

Here's the WHO website

Critical point: fear of the disease is the biggest driver of behavior and societal changes due to the outbreak.

Here are a few bullets on the topic:

-The country of the origin of the disease will see it's markets the most severely impacted from currencies to stocks. Bonds generally rally.

-Major outbreaks and rapid spread of infectious diseases occur when the populations are under duress or at the weakest points. This would be an ideal time for a large outbreak as the global economy has dramatically weakened the finances of major countries to deal with the situation. The population may also be weakened by lack of funds to provide proper health care due to job losses.

-Populations flee and spread the disease. This is already occurring as Mexico has had tourists leave and come to the United States spreading the disease. Russia and some US states are limiting travelers from Mexico and some imports already.

-Travel, leisure, and retail will be hit. While I don't think any attempt at quarantines, I do think travel to the originally infected areas will be severely curtailed. Mexico's tourism will be severely negatively impacted with hotels hurt. Public places will be shunned and this will impact entertainment like concerts (already canceled in Mexico City), movies, theatres, stores, and restaurants. Schools will be closed and universities. Also, ridership on mass transit could decline significantly.

-Pharma could see gains. Like bird flu, the big drugs are Relenza and Tamiflu with Glaxo and Roche. "Roche said Saturday it is in regular communication with the World Health Organization concerning a outbreak of swine flu in Mexico, and could deliver several million doses of its Tamiflu drug should the treatment prove effective. producing them. "

-The big winners could be health care and hospitals as they see a surge in patients. Also, telecommunications entities like cell phone companies could do well with increases in phones used from people staying home. Companies like Blockbuster and Netflix could see surges due to stay at home families....this is somewhat already occurring due to the recession/depression.

I hope this helps and I hope the Swine Flu doesn't spread like the 1918 Spanish Flu which killed about 7% of the US population at the time. The best news is that this is occurring at the end of the flu season and not the beginning.

The problem is that this is the flu or influenza which mutates due to it's unstable genetic composition. This is why health care officials are being exceptionally cautious and warning that the situation is fluid meaning it can change rapidly.

Already, we've seen the Mexican peso lose almost 3%, the drug companies are up, airlines down and risk trades are being sold. How much more we go depends on how much further the disease spreads.

Programming Note: Andy Busch Will Be On CNBC's Today at 2:30pm/ET

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Andrew Busch
Andrew Busch


Andrew B. Busch is Global FX Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.