'Dismal science' just got a lot gloomier

National Post columnist Jacqueline Thorpe explores possible effects an outbreak of Avian Flu would have on the world's economy. SARS will be nothing compared to Avian Flu if it becomes a pandemic, according to BMO chief economist Sherry Cooper. Experts say worldwide deaths could reach or exceed 50 million if the disease were as vicious as the influenza pandemic of 1918, even if a successful vaccine could be developed and distributed. We're talking quarantines, officials denying landing rights to planes and ships from countries where the disease is spreading, banning concerts, parades, public gatherings. Global trade would probably grind to a halt, leading to empty shelves and shortages of medicine and food. Oil prices would also plunge. Canadian markets and the loonie would be particularly vulnerable. Income and profitability of businesses of all kinds would suffer. Financial institutions would be under enormous pressure to sustain their services, due to employee absenteeism and chaotic financial markets. Staying indoors might boost e-commerce, assuming the postal and delivery services were still operating, but don't buy technology stocks because they are heavily integrated into East Asian economies and are highly volatile at the best of times. Soaring death rates would puncture the housing bubble and create vast oversupply, leading to default for many. Life insurance policies might not cover pandemics. Cooper says the traditional safe havens of gold, the US dollar and US treasuries would benefit, at least until big Asian buyers brought their money home to fight the disease. Central banks would chop interest rates to spur demand, but deflation would probably take root anyway as economic activity and world credit demand plummeted. But BMO financial strategist Donald Coxe says it would likely be a while before financial markets cottoned on to the full implications, giving the prepared investor opportunity to act. Adds Cooper: "[Those] who could protect their assets and hoard cash would ultimately benefit by buying real estate, farms, businesses and stocks at extraordinary bargains. This sounds rather callous, because the death toll could be so high, but those with liquid assets in the lead-up to the Depression were able to scoop up the property of those who were heavily indebted." Bottom line, especially for those investors immersed in the great Canadian oil and commodity play, is be prepared to go liquid quickly -- that is, if there's anyone left standing.
(National Post 050824)