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Justice Litle is editorial director for Taipan Publishing Group. He is also a regular contributor to Taipan Daily, a free investing and trading e-letter and editor of trading research advisory service, Macro Trader. If his name sounds familiar, it's because Justice is regarded as one of the top... More
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  • The Invisible Plague 0 comments
    Jun 15, 2009 1:43 PM

    There is a myth in this biz that “if it bleeds, it leads.” The idea is that what truly makes mainstream media moguls happy is guts, gore and conflict. Drama sells, and sells well. Death, war and sex sell even better.


    It’s commonly held that when Frederick Remington cavilled to William Randolph Hearst that conditions in Cuba were not bad enough to warrant hostilities, Hearst told Remington to shut up and draw: “You furnish the pictures and I'll furnish the war.”


    The truth is, as always, somewhat more complex. Yes, a good tale of death and destruction will hold the public’s interest for a while. But it has to be something they can easily wrap their minds around. And it has to go somewhere if it’s going to have legs.


    Just Because It’s Boring…


    An example: For a week or so, the H1N1 Virus – a.k.a. Swine Flu – was the talk of the town. Old folks in Asia and Europe were dying, elementary schools in NYC were closing, men in white isolation suits were rushing about doing things that looked important, and the international authorities were bandying about scary words like “Level 5 Epidemic.”


    All that hubbub got our attention but good – for a minute or two anyway.


    But then it turned out that all we were talking about was yet another iteration of the flu. No piles of corpses on wagons. No quarantine posters on front doors warning off visitors and salesmen. Heck, all some people got were bad chest colds.


    And those doctors: Who can really understand all the gobbledygook about reservoirs, global transmission paths and such? “What kind of plague is this?” people wondered. “Ah fergeddaboudit. I just wanna hear about ex-Chrysler dealers burning cars they can’t sell.”


    … Doesn’t Mean It’s Going Away!


    Now just because a subject isn’t holding the public’s interest at the moment doesn’t mean that it isn’t important. In fact, while the public at large may be “over” Swine Flu right now, there is every indication that it will reclaim center stage come this winter.


    Just last week, the World Health Organization’s Director General, Margaret Chan, announced that H1N1 had attained official “Pandemic Status,” warning that the virus was spreading quickly around the globe, with some 30,000 reported cases in 74 countries.


    The authorities now tell us that this was simply H1N1’s initial wave, the first round of what might very well be a long, bruising fight. Now that it is entrenched worldwide, H1N1 is simply waiting for winter in the northern hemisphere to unload its real roundhouse punch.


    And this will not be “a mere head cold.” Nor will it strike mostly the old, young, sick or poor. The WHO now reports 144 H1N1 deaths, with most of those fatalities striking adults between the ages of 30 and 50 – the prime productive figures in most economies.


    Not the Plague, but Not a Mere Head Cold Either


    Now please understand that I am not, repeat NOT, suggesting that this will be some kind of return of the Black Plague or such. You do not need to buy a ranch in Montana and secure it with barbed wire or anything that extreme.


    What I am saying is whether we like it or not, whether we ignore it now or not, swine flu IS coming, and it WILL have an impact.


    It’s that old “wisdom gap” again. Once again, we know everything we need to, but most folks are simply not paying but so much attention.


    How to Cash In on the Wisdom Gap


    As I have said many times in the past, wisdom gaps are the source of virtually all really good investment gains. And this time around is no different.


    Back in April, we advised WaveStrength Options Weekly readers to buy call options against the British drug company GlaxoSmithKline PLC (GSK:NYSE).


    GSK already manufactures the anti-viral drug Relenza, an effective post-infective treatment for H1N1, as well as most of the other flu viruses expected to attack the northern hemisphere come November. It is also one of the prime contractors developing an H1N1-specific antiviral vaccine, which should be available to doctors, hospitals and clinics by late fall.


    Short-Term Gains…


    The options we advised saw gains of as much as 109% last Friday when the WHO announced H1N1’s upgrade to pandemic status. But this is only the beginning of the mid-term ramp up for this well-placed drug maker.


    As I sit to write, the GSK January 2011 35 Call Option contract can be purchased for $550. By mid-winter, when the flu is actually here and can no longer be ignored, GSK shares could be expected to match their 2008 highs at $59.98. That rise would push the sell price on these calls to $1,692, for gains in excess of 300%.


    Now that ought to pay for your tissues and cough syrup this winter – and then some.


    But all this is mere short-term speculation – a hedge against the potential impact flu will have this year. And while GSK is certainly a major soldier in this year’s battle, it is also a field general of sorts in the war to come.


    … And a Long-Term Plan


    GSK is forming a joint venture with China’s Shenzhen Neptunus Interlong Bio-Technique Co. to develop and manufacture influenza vaccines for China, Hong Kong and Macau, including vaccines for seasonal, pre-pandemic and pandemic influenza.


    GSK will take a 40% stake in the joint venture and will contribute cash and assets equivalent to 21 million British pounds. Shenzhen Neptunus will take a 60% stake in the joint venture and will contribute cash and assets equivalent to 31 million British pounds. While it may take a couple of years for these vaccines to hit the market, the venture could assure GSK’s position at the table for decades to come.


    Keep in mind that GSK was a $76 stock as recently as 1999. Forward planning like this could easily see a simple investment in GSK shares double in value over the next 12 to 24 months.


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