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Rolling the dice on bird flu
No one can know for sure when or if the virus will make the jump to humans -- or whether any of these 28 companies working on treatments will hit it big.
By Jon D. Markman
Bird flu sweeps southern China! Bird flu blasts northern Thailand! Bird flu attacks Turkey! Germany finds bird flu! Bulgaria, Romania, Azerbaijan -- bird flu, bird flu, bird flu!
Well, you can say one thing for the threat of an avian influenza pandemic. It does provide a pretty good geography lesson. Maybe we can watch Where in the World Is Bird Flu? on PBS from our quarantine bunkers.
But is it really something that investors need to worry about, or prepare for?
Among traders, the answer must be an emphatic, if slightly cynical, yes. When a poultry disease has a public-relations campaign that rivals the best that sneaker companies can muster, speculators have to pay attention. Buying a stock based on rumors of a news event and selling when the event occurs is a tradition on Wall Street as old as fried chicken on the Fourth of July. Ill give you a list of my top 26 bird flu plays to consider in a moment.
Among long-term investors, the answer has to be more qualified. Avian influenza virus, known by scientists as H5N1, started as a phenomenon of the developing world, where practices of raising fowl in filth among pigs and insects has not changed in hundreds of years. In the West, where chickens are raised by agribusiness in factories optimized for profit, regulation and taste, in that order, the breeding grounds for disease is less fertile.
Overblown or Armageddon?
The problem is that H5N1, which sounds like a Star Wars character, has jumped into the developed world on the wings of migratory birds. And if somehow it jumps the species barrier into humans, one of three things at the extremes of the scare spectrum will occur: - The whole episode will go down in the annals of overblown global medical fright nights alongside discredited fears of swine flu, anthrax, West Nile virus and SARS.
- Drug companies efforts to create a vaccine or symptom-reducing therapy will work in the nick of time, and quick action by authorities will quarantine victims and isolate the bug before it sickens millions. Pharmaceuticals investors will clean up, and migratory swans will go off the Most Wanted list at Interpol.
- So many people will be infected and killed that it wont really matter which stocks you own, since international trade will collapse. Youd be better off buying put options on the big indexes -- highly leveraged bets against the market -- that will make you rich if theres anyone to collect from after pandemic ravages Earth.
The roots of bird flu
With that cheery thought, lets dial back a moment to see how the bubble in bird-flu mania emerged.
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The tale begins a few decades ago when rising wealth in Asia began to change eating habits. Chinese farmers in rural areas had long raised both chickens and swine for local consumption, but demand accelerated geometrically once capitalism swelled incomes among urban customers. Because of their thrift -- and because Asia is largely short of protein for feedstock -- farmers designed tiered animal pens in which birds were kept on a top floor in slatted cages. Their droppings fell to the ground floor, to be consumed by pigs as part of their feedings. Yum.
As swine ate chicken droppings, their biological nature changed over time. Various viruses and bacteria were shared and mutated. And these mutations were carried elsewhere by insects that fed on the blood of both pigs and chickens. The risk of migration away from infected farms has always come primarily from migratory birds, such as geese, that were bitten by the same insects that sipped the blood of caged birds.
The danger of breeding mutated swine and avian diseases is elevated in South Asia, where religious rules protect sick animals from slaughter. Exacerbating the predicament is the combination of warm weather; stagnant pools of water that breed malicious insects; close living quarters among the very poor; and sanitation practices that are, well, Third World.
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