Tuesday, April 28, 2009

Markets Catch Swine Flu

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The only pandemic that you need to worry about right now is that global markets are being infected by swine flu hysteria. The Asia markets sold off last night, Taiwan and Hong Kong for the second day in a row with both down 1.9%. The Nikkei dropped 2.7% and South Korea's Kopsi was off 3%. As I write this, major European markets are down between 2.1% and 2.8% and S&P futures are down 1.8%. Oil if falling from the above the 50 level again (this has become a recurrent pattern as of late). Most amazingly, gold is down about $20 in the futures market, even though the price of gold should go up during a crisis (is this telling us something about the Fed meeting taking place this week?).

The media's handling of the swine flu news is incredibly irresponsible and outrageous (keep this in mind when reading financial news which is not handled that much differently). You would think that another Medieval Black Plague was about to strike. Just as in investing reporting the facts get buried amid the hype and the news deviates significantly from reality. So far, it doesn't look like there are any deaths outside of Mexico. While flu has been found in 40 people in the U.S. who had traveled to Mexico, the cases seem relatively mild and this seems to be true in other countries as well. The disease seems to be one thing in Mexico, but quite another outside of Mexico. This is a huge inconsistency that doesn't make sense, so there is obviously more to this story than is being reported, or perhaps it would be more accurate to say, less to the story.

So far the most damaged stock groups from the Swine flu news are airlines and hotels. AMR, UAUA, and LCC were all down in the double digits yesterday. They are still not buys however since they were already overextended on the upside when they began selling off. They would have to have about 4 serious days of selling to make them interesting for other than day trading purposes. Anti-viral biotechs were the big winners, most going up well into the double digits. Expect them to come right back down once the crisis blows over. At that point they might be longer term buys. If you want to take a look: BCRX, BTAHY/BTAHF, GNBT, HEB, NVAX, PPHM, and VICL. Only very experienced traders should play with these stocks.

Wall Street reaction to the swine flu is as would be expected. Hearing the word swine, the usual suspects have answered the call. One market analyst is out on the net with a statement that the market could drop 15% (if this turns out to be as bad as SARS that is - it won't be, the two aren't comparable at all). One oil analyst has come out with a prediction that oil will go back to $33 a barrel because air travel is likely to have a huge drop. My guess is this is all going to be much ado about nothing. Even though the swine flu may disappear, don't assume the swine on Wall Street will have done the same. You always need to worry about them.

NEXT: The Stupidity Pandemic; U.S. GDP Tanks

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

No comments: