What if we can’t beat COVID-19?
Science fiction writers have long been fascinated by the concept of alternate universes — worlds in which realities are very different from the ones we are used to.
One example is Philip K. Dick’s novel “The Man in the High Castle,” published in 1962 and recently made into a streaming series by Amazon Prime.
The book postulates a world in which Germany and Japan won the Second World War and divided the United States between them, with a neutral zone in the Rocky Mountains. Dick’s alternative universe is a dark, brooding place in which people live under a menacing shadow of repression and arbitrary arrest. It’s a grim but mesmerizing view of what might have been.
I raise the concept of alternate universes because we are approaching a real-world inflexion point that could lead to two (or more) different scenarios for how we will live in the years to come. Everything hinges on how we deal with the coronavirus and the economic fallout it has created.
Right now, we are gradually emerging from lockdowns. Most governments are taking tentative steps to reopen businesses. This is not because the virus has been beaten — far from it. Rather, it’s an effort to tentatively restart the economy so as to ease the burden of massive unemployment and the resulting cost to governments from lost tax revenue and massive support programs.
How all this plays out will determine which alternate universe will exist a year from now.
The best-case scenario is based on the discovery of an effective vaccine. Pharmaceutical companies around the world are working flat-out on this project, and a few have moved to the first stages of clinical trials. But finding a vaccine as effective as those against polio, smallpox and measles won’t be easy. Consider the annual flu vaccine; according to the U.S. Centers for Disease Control and Prevention, in most years it is less than 50 per cent effective.
But let’s assume that in this alternate universe scientists succeed, and that by this time next year enough doses will have been produced and administered to provide the human race with herd immunity. The world could go back to normal, right?
Not exactly. Some of the changes we have become accustomed to in recent months will probably stick. Many employees will continue to work from home, at a cost saving to themselves (no daily commute, work attire) and to their employers (reduced office space requirements). Teleconferencing will cut down on the need to travel to business meetings. Online shopping will put traditional retailers at risk.
In financial terms, I would expect a V-shaped recovery in the second half of 2021 under this scenario. Pent-up demand would fuel sales of everything from dresses to automobiles. Industries would prosper, and stocks would soar on improved earnings.
On a macro level, governments of both the left and the right would become more intrusive in the business sector as they seek to create domestic sources for critical products and materials. There will be a strong push for a minimum annual income in many countries. More spending will be allocated to future disease prevention, at least until the memory of the coronavirus fades. Taxes will increase at all levels as governments cope with the massive deficits the virus left in its wake.
In short, the post-COVID-19 world will be similar to the one we left behind, but different in some fundamental ways.
That’s the best case. The worst case is that no effective vaccine can be found as the virus mutates faster and scientists can’t keep up. Instead, it continues to flare up in hot spots around the world, with each wave taking thousands more lives. The nightly news would continue to be a drumbeat of grim COVID-19 statistics.
Lockdowns would be reimposed. Large gatherings would continue to be forbidden. People would continue to live in fear, especially those who are older and most vulnerable. Schools and universities would remain closed and all education would take place online. The economy would be in a shambles and we would find ourselves living in this century’s version of the Great Depression, with unemployment in the 30 per cent range.
Stock markets would reflect the prolonged depression with shares at bargain-basement levels, with few takers. Bond yields would slump into negative territory.
All semblance of democratic government would have vanished as parliaments and legislatures remain shuttered and the prime minister and premiers effectively rule by decree, with little opposition or accountability. This would be accepted by the population because, for many, governments will have become their primary means of support.
It’s a vision that no one wants to contemplate. But it could happen.
That’s perhaps an extreme scenario — there are in-between scenarios as well, for example the development of a vaccine that does not eradicate COVID-19 but reduces the spread, as the current flu vaccine does.
Whatever alternative emerges as the new reality, current investment strategies should err on the side of caution. The strong rally we’ve seen in the stock market since the March crash suggests investors are betting on the best-case scenario. I think that is premature.
The road ahead has many twists and turns. No one can predict at this point where it will lead.
Gordon Pape, a contributing columnist for the Star’s Business section, is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. He may have personal holdings in the investments he writes about. Follow him on Twitter: @GPupdates