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As swine flu cases are diagnosed in the United States and elsewhere in the world, the markets are becoming increasingly jittery. Yet, at the center of their concern is uncertainty, being worsened by the lack of credible and tradeable information.
U.S. authorities spent most of Monday increasing their concern and raising their alarm level about the swine flu. To be sure, the number of deaths in Mexico, 149, is cause for concern, as it means that nearly 10% of the confirmed 1600 cases have died. Yet, according to Stratfor.com: "The number of deaths in Mexico attributed to swine flu has been dropping, even as the World Health Organization heightened the pandemic alert level to 4, El Universal reported late April 27. Mexican Health Secretary Jose Angel Cordova Villalobos said the death rate had been declining — from six on April 25 to 5 and then three by April 27 — creating an encouraging outlook."
There have been multiple cases in the state of Texas, with no reported deaths. And according to Reuters cases have been confirmed in Israel and New Zealand, adding that "no one has died outside Mexico but more than 50 infected people have been found in the United States, six in Canada and two each across the Atlantic in Spain and Scotland. Possible cases were being tested as far away as South Korea and Australia." In New Zealand "three of 11 people in a school group that recently visited Mexico had tested positive, and it expected the other eight would also turn out to be positive when tests were completed. The Israeli carrier, a 26-year-old man, had also recently returned from Mexico."
Reuters also reported that "Britain, France, Germany and the United States issued travel alerts for Mexico, which relies on tourism as its No. 3 source of foreign currency. Japan advised its citizens in Mexico to consider returning home soon, saying they might find themselves unable to leave and not be able to get adequate medical care."
Drug companies are starting to work on a vaccine for this latest strain of the flu, but it could take up to six months before any vaccine hits the market. According to Reuters: "The U.S. Centers for Disease Control and Prevention has already taken a sample of the H1N1 virus causing the disease, produced a vaccine virus strain and is growing it up, marking the first stage of the production process. These samples, which can then be distributed to companies, must be grown in specially produced chicken eggs in a cumbersome system that experts agree is outdated. New and more efficient technologies based on cell cultures are, however, still a few years away."
Companies involved in vaccine development include Baxter International (NYSE: BAX), Sanofi Aventis (NYSE: SNY), Glaxo Smithkline (NYSE: GSK) and Astra Zeneca (NYSE: AZN), which owns Medimmune. The only U.S. traded stocks that make antivirals that may help blunt symptoms of the flu include Gilead Sciences (Nasdaq: GILD), which developed the drug Tamiflu. Tamiflu is distributed by Roche which does not trade in the U.S. Glaxo Smithkline has a drug called Relenza, which is also a potential remedy.
There is another aspect to consider here, the effects on Mexico's security. Mexico is currently under siege, as it finds itself in the midst of an increasingly aggressive drug war. This means that many of its resources, including the military are deployed in multiple areas of the country, involved in a mission that is crucial to national security.
Should this situation unravel to the point where the military has to be redeployed, it could have significant consequences. Stratfor.com summarizes the situation succinctly: "A massive public health response would likely involve military and federal law enforcement resources that are currently deployed around the country on counternarcotics and public security missions. Should the outbreak escalate to the extent that authorities implement further emergency procedures such as crowd control on a large scale, it would likely require a significant reassignment of these resources, which have been stretched thin as they have struggled to deal with the country’s already deteriorated security situation. In addition, the country’s already weak military could be affected particularly hard if its members are sharing close quarters in barracks."
Here's a grim summary of the drug war in Mexico. According to Stratfor.com: "The number of organized crime-related homicides in Mexico during 2009 surpassed 2,000 this past week, representing a higher rate over the same period last year, when it took nearly seven months to reach 2,000. Despite recent declines in violence associated with the increased security presence in Ciudad Juarez and the rest of Chihuahua state, it is important to recognize that overall violence during the first four months of the year is occurring at the similar rates as during much of 2008 — a record year in terms of drug violence. "
Conclusion
Much remains to be known and understood about the swine flu, but by next week the FDA and CDC should have a decent handle on things. For now, it makes sense to be cautious and avoid travel to Mexico, as well as being careful around people that have recently traveled to the country.
The global economy is in no shape to withstand any significant flu epidemic at this point, though. And Mexico's security could also suffer significantly if this situation unravels.
From an investment standpoint, it's a good idea to keep an eye on the companies listed in this story. Most of them got a token bounce on Monday. Otherwise, this remains a market in which caution is an excellent idea.
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