Market Thinking

making sense of the narrative

Lessons from FMD 2001

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When we see an unexpected event in markets, there is a tendency to quickly check ‘What Happened Last Time?’ (WHLT). In fact, WHLT is the basis for the majority of financial and other models generally, although we give it fancier names like econometrics and AI. For the sensationalists, of which there are many, the Covid-19 virus is akin to the Spanish Flu that killed more people in the aftermath of the First World War than did the war itself. For others, particularly in Asia, it is like SARS, while at the other extreme the pragmatists and skeptics see it as no different to a normal Flu season, where tens of thousands of people die, but nobody panics about it.

To that end it is perhaps worth looking at the following graph from the site which is also a notable resource for those looking for some balance to counter the perennial doom emanating from the Global Warming industry. Currently, they are providing a daily update of deaths and projecting how many days at current growth rates it would take to reach the ‘normal’ level of the flu. The first graph shows that Italy and Spain are already there. It is perhaps worth noting that now we hear that Italy was reporting a lot of ‘unusual pneumonia type deaths’ back in November. Given the strong connectivity with Chinese owned textile businesses in the region where Covid is concentrated it may well be that the Italian infection started much earlier.


The second chart looks at the situation by US state and also suggests that number of days or each to reach the average level for a US flu season at the current rate of growth. What seems clear to us at least is that we would need to see that rate of growth declining before anyone, even Donald Trump, could ease restrictions. So once again it will be about the second derivative, the rate of change of the rate of change, that matters.


Perhaps a useful historical precedent might be the H1NI virus of 2009/10 with 6.7m cases and 18,449 confirmed deaths over 214 countries over the course of just over a year. However, it is worth remembering that this was retrospectively adjusted to include many mild cases that often go undetected or unconfirmed such that in the US alone it was subsequently determined that in fact there were 61m cases, 274,000 hospitalisations and 12,470 deaths, making the fatality rates far lower – albeit high for those hospitalised. This is important because we need to remember that policy makers are working with very imperfect information in real time, not least that the tests we are relying on need to be both a) random and b) subject to low levels of false positives. At present neither is the case, which is not to dismiss them, rather to highlight their flaws and to caution against overly precise modelling. We should also not lose sight of the fact that the aim is not to irradiate the virus but to contain its growth such that our health systems can cope and to build some herd immunity.

So to return to the title of this post, which is not to look at WHLT with Flu, but rather to consider the behaviour of scientists and government, for the threat to the economy and the markets is candidly not the deaths of largely elderly and vulnerable people, but the economic crisis emerging from the measures taken to control the virus. As such it might be useful to consider WHLT with government and scientists in the context of the Foot and Mouth (FMD) outbreak in the UK in 2001. Here, we see similarities in the government being slow in its initial response and, frankly, culpable in its inefficiencies – slaughtered but diseased animals were trucked through what were at that point uninfected areas to disposal sites in a parallel to continued arrivals from China, Tehran and Italy at Heathrow airport and the failure of even basic screenings for fever such as routinely take place at arrivals in airports all over Asia. A more powerful similarity is the role of the team at Imperial College in London in modelling the spread of the disease and in demanding ever more aggressive action, and the UK government eventually yielding to pressure from the scientific models. The same team as are driving the agenda now. And this was before social media! The whole process of FMD ended up taking almost a year with millions of animals being slaughtered as the reaction swung from one extreme to the other.

There was much anger and criticism afterwards on both sides, but one of the lessons that should have been learned is that with all due respect to scientists, their models are frequently wrong and that they should be there to propose, not dispose. The logical fallacy of ‘appeal to authority’ has been increasingly applied by the Green Lobby in recent years such that not only are ‘climate scientists’ deemed to have perfect modelling techniques (despite all evidence to the contrary) but they are, apparently, the only people allowed to formulate policy. Politicians have largely gone along with this as they personally see no downside. On this issue, however, as we highlighted in an earlier post (the Venkman protocol) the cost/benefit of the precautionary principle is much greater and much more immediate.

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