Swine Flu and the “Everyman’s Approach to Risk”

I read this in the LA Times today and the first thing I thought was “how do they know?”.

“This virus doesn’t have anywhere near the capacity to kill like the 1918 virus,” which claimed an estimated 50 million victims worldwide, said Richard Webby, a leading influenza virologist at St. Jude Children’s Research Hospital in Memphis, Tenn.

[From Scientists see this flu strain as relatively mild – Los Angeles Times]

The 1918 Spanish Flu pandemic had a mortality rate of 2.5%, profound virulence, and demonstrated a morbidity pattern that affected 20-40 year olds most severely. From early reports the swine flu cases have a 10% mortality rate and a morbidity pattern that favors 20-40 year olds, what is not yet known is the virulence. In other words, what we are seeing as of right now is that the swine flu is statistically far more deadly than the Spanish Flu and affects the same age demographic, what we don’t know is how the statistics skew downward as more cases are reported and more importantly, how fast the virus can spread and infect.

All of this brings me to the observation about how we intuitively deal with risk at a personal level. I was talking about this with my wife last night and what we focused on was that the government seems really behind the curve on this with almost 10 days elapsing from the initial reports from Mexico and Canada before the U.S. government kicked into action and then wildly conflicting reports about what Homeland Security is and is not doing, and now even the Vice President says he would give his own family precautionary advice far more severe than what the government is telling the rest of us to do. While we seem to have a good system in place for dealing with a pandemic, the lurching actions toward aggressive steps to contain this are troubling along with the fact that CDC and DHS seem to have been caught off guard by it.

When it comes to your family and yourself the statistics tend to be meaningless. I think we can all intellectualize the notion that the risks are miniscule but we also understand that if the statistic is you or your family it’s not 1 in a million but rather 100%. This is where statistical models collide with personal real world experience.

Not surprisingly there is a run on face masks and hand sanitizer, it’s human nature to want to take control of your own situation with proactive measures, even if they are ultimately moot because of efficacy or low risk rates. As much as it pains me to do this, I actually agree with VP Biden because it’s premature for any government to project the actual risk with this virus. This flu pandemic may blow over and be a footnote in the annals of infectious diseases but then again it may not… the 1918 Spanish Flu pandemic played out over 2 years and the more recent SARS epidemic proved to be very deadly, killing 20% of the people infected with it.

More on this topic (What's this?) Read more on Influenza outbreak at Wikinvest

Blame the Hedge Funds!

On every news story this morning about the pending Chrysler bankruptcy, the narrative included “hedge funds would not agree…” as a central theme. Economic populism still carries the day in Washington.

What you won’t hear in these mainstream news stories is that Treasury was demanding a huge haircut for debt holders (screw the “hedge funds” label, these are private investors who lent Chrysler money) in exchange for 15 cents on the dollar, a slap on the back and a hearty “atta boy”. Labor unions, on the other hand, were being subjected to slight changes in work rules and relieving Chrysler of paying $4b to the UAW for retiree benefits, all in exchange for 55% of the equity in the “good Chrysler” and a long term note. So basically the equation that Treasury was using was the debt holders give up 85% and get nothing, the UAW gives up half of that and gets half of Chrysler’s equity in return and long term note paying back (if I recall correctly) $5 billion by 2025.   

This company is worth more to creditors through bankruptcy than it is under the Treasury plan (creditors are at the top of the waterfall in a bankruptcy case, retiree benefits would resolve below creditors) and anyone who thinks GM could go through a similarly easy restructuring should watch this case under a microscope.

“[The hedge funds’] failure to act in either their own economic interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders nor will it impede the new opporunity Chrysler now has to restructure and emerge stronger going forward.”

How dare these hedge funds believe that debt covenants have any value under the current administration? After all, Obama himself is telling you that your economic interests have to align with the national ones. As long as they diverge, you can expect to pay 99% of all income as taxes in perpetuity compliments of soon to be implemented legislation out of Barney Frank.

[From Zero Hedge: Chrysler To File Any Minute, Hedge Funds Blamed]

More on this topic (What's this?)
Stock Market Internals - 10:30am
Fitch Downgrades GM and Chrysler
Read more on Hedge Funds, Chrysler at Wikinvest