Swine flu could be bad for your financial health

Investment guru Jim Cramer has had his ups and his downs, but to quote the late, great Frank Sinatra, "But hey, who hasn't?" Well, notch one on the plus side for Cramer for his stance on swine flu investing, from both investor and public health standpoints.

The swine flu has generated the predictable short-term plays (such as shorting airline, travel, oil stocks, anything relating to commerce in Mexico) but Cramer is advising against it: "If you shorted them too soon you were overrun, and if you bought the good ones that were knocked down too soon you lost too much money."

Cramer advises: "Let this one play out. We are in the plague's infancy, and we need more data before one can make informed decisions. . . . No need to punish yourself. Nothing good is coming of this one until it is more under control."

Cramer: Wait for clarity on swine flu

Essentially, Cramer is arguing that discretion is the better part of valor, of portfolios that don't deteriorate further, and of sound health, and there's ample evidence to suggest he's correct. If you take a survey of short-term, speculative swine flu plays, both long and short, by typical investors from Monday thru mid-May, the record probably will not be impressive. Many typical investors will either short a stock too late or buy it too late and will take a hit, financially.

Further, it's for the above reasons that I've never recommended that typical investors try short-term plays. You may get lucky once or twice, one even catch a hot sector, but over time, if don't have the knowledge, trading execution system, immediate access to data, and, most importantly, a professional trader's training and mindset – you'll most likely lose money. Again, keep in mind that the best trading systems and techniques deployed by institutional day traders and swing traders have thin profit margins. Add an unknown variable like a flu and the probability of a typical investor successfully and systematically exploiting the event for winning trades is pretty low.

But what about the flu's impact on investments, long-term? Again, Cramer and others provide prudent advise: we don't have enough information to project long-term, secular trends, and anyone who says we do at this juncture isn't being honest or is misleading you.

Swine flu: Not yet a pandemic

For an accurate, succinct description of the flu, and the variables that affect potential virus spread scenarios, see this forum in The New York Times.

Here's a summary: the swine flu appears to be virulent, and fairly transmissible. So far, the flu, H1N1, appears to have led to a number of deaths from young, otherwise "healthy" adults in Mexico, and if that's the case, it's approximating the 1918 Spanish flu, which also killed healthy adults. Typically, a flu kills those with comprised immune systems (elderly, very young, those who are weak etc). However, in 1918 the Spanish flu (it probably originated in Kansas) caused a response known as a "cytokine storm" that affected young adults, overstimulating their immune systems and causing organ failures, leading to death.

Still, the swine flu is not at 'pandemic' levels yet – it's a scientific term that the general media confuses with other scientific terms - 'outbreak' (occurrence above what's expected for a small, localized area) and 'epidemic' (occurrence above what's expected regionally) - and they're not interchangeable.

Could the swine flu heavily burden hospitals, clinics and health care facilities in the United States? Yes, it could, particularly public hospitals and public clinics, but keep in mind that a replay of the 1918 flu devastation that killed 500,000-675,000 Americans is not likely. Swine flu cases have been confirmed in five states, New York (45), California (10), Texas (6), Kansas (2), and Ohio (1), and should conditions warrant, the U.S. Congress would approve an emergency and / or special fund authorization for the U.S. Centers for Disease Control and Prevention and for related departments / agencies to cope with the health emergency. Some Congressman would invariably oppose the measure, but most likely Congress would follow the national emergency philosophy of former President Lyndon Johnson and "do what it takes to address the emergency now, and worry about how much it's going to cost, later."

Economic Analysis: Again, the swine flu should be taken seriously, with all appropriate precautions in terms of personal care and public health, but it's just too soon to forecast long-term economic implications and sector ripples. The swine flu could approximate the 2003 SARS virus in Asia (which substantially depressed regional GDP) or the flu could be checked and have only minimal impact on international business travel and deals, or even on the U.S. summer vacation season. So it's best to wait for a couple more weeks of health data points before boldly stating sector winners and losers, as well as the impact on U.S. and global GDP.

Financial Editor Joseph Lazzaro is based in New York.
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