Is Swine Flu a Tail Risk You Are Contemplating?

Our Healthcare Sector Head Tom Tobin called out a global macro risk to us the other day that we had not been considering, the reemergence of swine flu (H1N1).  In the United Kingdom, almost 36 people have died of the virus this flu season.  Interestingly, almost all were under 65 years of age and, according to reports, 40 percent of the fatalities did not have the usual risk factors (weak immune systems, primarily).

Ireland, in particular, is seeing an acceleration in swine flu activity.  According the Public Health Agency in Ireland, as of the week ending January 2nd, reported swine flu cases had grown from 30 to 91 week-over-week – a +190% increase in seven days! (albeit on small numbers)

As a refresher, the H1N1 form of the swine flu is descended from the strain that caused the 1918 flu pandemic, which was estimated to have killed 50 – 100MM people globally.   The symptoms to swine flu are similar to other flues – chills, fever, sore throat, muscle pain, and general discomfort.   Fatalities occur as these symptoms accelerate, and the most common reasons for death are respiratory failure, pneumonia, dehydration, and kidney failure.  Not surprisingly, fatalities are most common in the young and elderly, which is what makes the recent strain in the U.K. interesting to note, as 40% of the fatalities did not come from this target group.

We actually did a Google analytics analysis to understand whether swine flu is a risk the investors are currently considering.  As the chart below outlines, currently search volume for the term swine flu is well below levels in 2009 and, in fact, search activity is quite low overall. 

Is Swine Flu a Tail Risk You Are Contemplating? - 1

Interestingly, we also looked at the last 30 days of search activity and noticed that swine flu search activity is beginning to break out to the upside, which suggests that the idea of swine flu as macro risk is gaining momentum.

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In 2009, the World Health Organization (WHO) declared swine flu a pandemic and President Obama declared a state of emergency after more than 1,000 people had died from it.  In August 2010, the WHO officially declared the pandemic over.  While we are not trying to be alarmists in suggesting that a new pandemic is coming, we did want to highlight that there is evidence of a pickup in infections, which is not currently priced into expectations based on the low relative amount of Google search activity.

While it is tough to measure the potential economic impact from a broader breakout, it is likely fair to suggest that even a mild pickup in activity would hurt confidence and have a more severe impact on the travel and hospitality industries.  In 2009, the Brookings Institute estimates that “a mild scenario would cost the global economy about $360 billion and an ultra scenario up to $4 trillion within the year of the outbreak.”  Even if we are early and wrong, those are numbers that make this a Tail Risk worth considering. 

Daryl G. Jones

Managing Director