My Wealth.com asked:


On Monday, as I watched the media breed fear into the public, I also saw my charts going nuts. The “Swine Flu fear” was spreading from people, to the financial markets.

Fist I heard about hog and pork belly futures taking a blood bath in the trading pits due to the swine flu. (Commodity traders were scared that while this is all going on that the public would eat less pork than they otherwise would.)

Then later on, the stock market cranked up and I saw Smithfield Foods (SFD) gap down and lose over 12% in a single day. Tyson Foods (TSN) gapped down too and traded down almost 9% on the day too.

It was then that I switched over to my currency screens and brought up the Mexican peso (USD/MXN). The peso was getting slaughtered over the swine flu.

It not only broke the downtrend line as the peso dove, but it gapped noticeably higher on the daily chart and soared over 5.25% on the day. 

But why? What’s the big deal about this flu and why should it affect a currency?

Here’s how the peso gets punished for the “Swine Flu”!

Mexico has had 159 Swine flu related deaths and there are 2,500 that have been diagnosed, 1,300 of which are in the hospital.

Economists estimate that it has slowed Mexico’s economy by 60% recently (or an estimated $87 million A DAY)! All 35,000 restaurants in Mexico City have been ordered shut and the schools are already closed down.

The fear that is spreading from Mexico, now to other parts of the world is growing at a rapid pace. After all, this is not just a Mexico epidemic. The Swine flu has already spread to the U.S., Canada, Germany, Israel, Spain, the U.K., New Zealand and Australia.

Therefore, the media has taken this opportunity to feed this fear in hopes that it turns into a frenzy. After all, that makes for great ratings.

Swine flu is common. It’s common in pigs and this same type of flu is even common in birds too. We even had a bout of swine flu back in the 1970s here in the U.S. and there was a vaccine given out in 1976 that some people may still have in their body today.

However, the problem right now is that there is no vaccine currently and it takes at least 3-6 months to make a vaccine

If this fails to be contained, it will continue to hurt Mexico’s hotels, restaurants, bars, churches, tourism in general and anything having to do with the pork industry, etc. After all, who’s going to go to Mexico while they know all of this is going on?

Matter of fact, even once the “coast is clear” again one day, I’d bet that tourists will still avoid the place for a while longer just to be on the safe side.

After all, do you remember the SARS virus in Asia. Even though they got it contained in a relatively short amount of time, it virtually shut down Hong Kong for about 6 months.

Therefore, this is not just a health issue (which is most important) but it’s also a financial issue. And a financial issue is also a sentiment issue. After all, would you buy the peso knowing that all of this is brewing in their country? Of course not, and neither will millions of other traders around the world…hence the rise of the USD/MXN pair.

Therefore the deterioration economically that it has on any country can weigh down its currency as well. After all, currencies are basically valued based off of sentiment and that sentiment is based off of how well investors think the economy is doing.

 

The peso gets punished while the buck and the yen catch a break!

 

So money is flowing out of the peso at a rapid rate and is fleeing to the U.S. dollar and the yen as the market becomes “risk adverse” yet again over this epidemic that investors feel could become a pandemic.

Therefore expect more money to flow out of the peso until this problem gets reigned in and expect money to flow towards the greenback which will continue to crush the USD/MXN pair.

Should this flu virus start spreading to other countries rapidly, then you can expect the yen to be a huge beneficiary since the yen seems to thrive off of fear these days. The dollar will benefit as a close runner up for the very same reasons.

Therefore, keep an eye on how bad this “swine flu” gets in the media and in “real life” as this story continues to unfold. Because a whole lot more currencies could be “dragged into this mess” if it’s not contained rather quickly.

Until there is a vaccine and containment, this will be something that is a factor that could affect any currency. Since viruses “know no boundaries”, you will want to keep an eye out for where this thing is spreading so that you know what currencies will be the most effected.

I’ve learned a long time ago to position myself to profit from forces that are outside of my control. So my trading will continue to stay on the side that profits from the Swine flu but in my heart, I pray that this is contained soon so that I can profit from dynamics that don’t affect the world’s most valuable assets: humans!

Sean Hyman

Contributing Writer

My Wealth

 



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Byron J Richards asked:


At the epicenter of the new swine flu outbreak in Perote, Mexico is, not surprisingly, a very large commercial pig farm.  It is owned by American-based Smithfield Foods, the world’s largest pork packer and hog producer.  This location raises 950,000 hogs per year.  Hogs have the unique ability to change viral DNA into something that can now recognize human cells.  Thirty percent of the residents living nearby have this new swine flu.

There is no question that large hog farms are an ideal breeding ground for new viral strains.  The issue is complicated by large farms wherein massive waste is also present and difficult to manage, readily polluting nearby water.  The smell from such farms is beyond horrid.  Residents living nearby were the first to be documented with this new swine flu, and they are certain that between their polluted groundwater and when the winds shift their direction, the hog farm is the source of their flu problem.  The company says, at this time, that its hogs don’t have the virus.  Does anyone trust them?

I remember when Jessie Ventura had to body slam Cargill in court to get them to stop polluting Minnesota lakes with feces from its commercial farming operations.  In Mexico you can assume regulations are even more lax.  These commercial hog farms, like just about any commercial farming operation of any kind, are detriments to human health and tend to produce low-quality food at risk for transmission of food poisoning.

If this swine flu does pick up speed in the United States, every time it reaches a commercial pig farm it will get a major boost of virulent activity.

Don’t expect any politicians from the pig states to speak up. In fact, don’t expect the CDC or Department of Homeland Security to care at all.  They are going to be too busy trying to cram experimental vaccines down the throats of everyone – and now that they have declared an emergency you should fully understand that you have no right of recourse of any kind if you should be injured from such a vaccine.

If this does turn into a pandemic, which is still too early to tell, we will be looking at several years of the problem.  Anti-viral drugs will have limited effectiveness for the first wave – and after that the virus will mutate around them and they will be worthless (that will take 2-8 weeks).  It will take six months to make an experimental vaccine. In the mean time expect so many enforced quarantines that certain members of the public will be falling all over themselves to line up for the government’s concoction – I won’t be one of them.  Our government has a horrid track record with experimental vaccines, just ask our Gulf War vets. 

Government officials should consider shutting down commercial pig farms if this new swine flu starts killing Americans – the sooner the better.



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