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Avian Flu and Bear Markets Print E-mail
General Investing Articles | Written by Robert Prechter |

Avian Flu and Bear Markets

By Elliott Wave International's Robert Prechter, Prechter's Market Perspective
Oct 14, 2005

The threat of avian flu has moved from the back burner to the front burner. Last week, we learned that U.S. scientists had recreated the virus that caused the Spanish flu epidemic that killed more than 40 million people in 1918 and 1919. The bad news is that this lethal Spanish flu virus seems to have also originated as a bird virus. And this week comes the news that birds in Turkey have been found to harbor the HN51 strain of bird flu, the strain that has jumped to humans in Asia.

Bob Prechter wrote about the effects of negative social mood on health, and he made the connection between epidemics and bear markets in his socionomics book, The Wave Principle of Human Social Behavior, and the Theorist. As avian flu becomes part of the news, providing a reason to worry about the possibility that it might become the next big flu epidemic that we've dodged for the past 65 years, it might be worth reading why epidemics happen when they do.

* * * * *

Epidemics, Social Mood, and Bear Markets

Excerpt from The Wave Principle of Human Social Behavior (p.326)

The most extreme example that I can think of that could be argued as constituting an outside event that would affect societies is an epidemic or pandemic. After all, they kill thousands or millions of people. How could they fail to be an important social factor affecting mood?

The fact is that epidemics and pandemics seem to hit populations during major negative social mood trends. Perhaps it happens that way because people's psychological constitutions are weaker during bear markets. Perhaps it is because people's personal behavior, whether involving hygiene (as in the time of the plague or in recent years with respect to hypodermic needles used to inject drugs) or sexual promiscuity, is more conducive to spreading disease during social mood retrenchments. Perhaps it is because social mood retrenchment brings economic contraction, which makes people less able to afford the creature comforts that ward off disease and more apt to crowd into smaller, more affordable spaces.

Whatever the reason, when we study pandemics of the Dark Ages or the Spanish influenza epidemic that broke out during the bear market of 1917 (which year also saw intense fighting in World War I and the Communist coup in Russia), there always appears to be a bear market in force, and the extent of the epidemic tends to correlate with the size of the setback in mood.

Does Disease Spread Fear or Does Fear Spread Disease?

Excerpt from May 2003 Theorist

Increased susceptibility to disease now could prove exceptionally devastating due to human disease bacteria's developing resistance to established antibiotics, which is due primarily to the widespread inappropriate prescription of antibiotics for viral infections. If aggregate human health has indeed begun a period of serious setback, future historians will undoubtedly comment on how those changes in health and risk affected human mood. The actual direction of causality is the opposite. The biggest change in human mood in centuries is ushering in a change in the trend of aggregate human health from the positive to the negative. This time, mood seems to be playing an even more direct role (as it has done from time to time in the past), as the destruction of human health through biological warfare agents would be a consciously desired goal.

Only socionomists can provide the proper perspective on this situation. For example, the accompanying headline from a newspaper reads, "Disease Spreads Fear." The truth of the matter, as usual with respect to conventional thinking about social mood causality, is the opposite. The world's social mood has been in a bear market for three years, and much of Asia specifically has been in a bear market for nearly six years, since 1997. The waxing of negative social psychology preceded the outbreak of the SARS epidemic, as has been the case regarding all the major epidemics that I have studied. Therefore, a proper headline, reflecting the socionomic insight, should read, "Fear Spreads Disease." That is closer to the truth of the matter.

Just as the developing economic depression has been mild to date, so has the emerging difference in aggregate human health. Do not fall into the trap, as so many people do, of scoffing, "What depression?" simply because there are as yet no large ranks of unemployed or "bread lines." Such are the conditions at the bottom, when it will be time to turn bullish. This change in the trend of public health is likewise a process, not an event.

When wave (c) of Grand Supercycle wave is in force, then the worst of the new trend will become manifest. Don't wait until then to wonder if this outlook is valid, or you will be caught unprepared. According to the World Health Organization, the "Spanish flu" pandemic of 1918 killed between 40 and 50 million people worldwide "and caused the largest number of deaths in the 20-39 age group, devastating economies at the end of World War I." That was only a Cycle degree bear market. This one is two degrees larger. People should be preparing now for greater stresses to come.

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