In an article entitled ‘A Black Swan With Teeth”, Peter Schiff says “the age of permanent stimulus began in earnest with the Federal Reserve’s reaction to the dotcom crash” and each successive crash would have to be met with increasingly ineffective doses of monetary and fiscal stimulus to keep the economy from spiraling into depression. However, he says the incredible amount of stimulus and the speed with which it has been ladled out could never have been predicted, no one had predicted the perfect storm – a black swan with teeth.

Whilst much of his piece is a critique of the way the Democrats have tried to challenge Donald Trump’s omnipresence in our world today, he sums up the challenges facing the post-coronavirus economy just as many businesses reopen: “Even if all restaurant and retail employees were to ignore the incentives and return to work, there is no certainty that customers will follow as fears of contagion will remain long after the economy reopens, and social distancing procedures will reduce the quality of the experience while increasing its cost.”

The state of the post-virus world is difficult to foresee accurately but some differences are highly likely. For potentially quite some time, the behavioural changes brought about by the virus will mean 1) reticent consumers, 2) a less attractive world in which to socialize and spend money, and 3) higher costs for businesses who are forced to adapt in order to keep customers safe (and, especially in America, to avoid being sued). Weaker demand, weaker incentive to spend and higher costs – a potentially devastating combination that could mean the recovery takes much longer than anticipated. It is not simply a case of going back to normal when we are all let out.

Let’s not forget that global economic growth had slowed to a decade-low before the virus erupted (at the same time as global stock markets hit a decade-high) so the non-financial world was already looking fairly weak. Much of the stimulus that has been deployed in response to the crisis has either been temporary (stimulus checks, furlough) or in the form of loans. What comes next is an end to these temporary support measures and a realisation that loan capital will need to be repaid at some point. The end of this support and the reopening of economies will also see a large number of small and medium-size businesses not reopen, as well as one or two large ones, and a weak economy will exacerbate this problem. Business confidence about the future is not as high as the stock market might have you believe and it is this that will determine how quickly the 40 million unemployed Americans get rehired and how quickly the consumer-based economy rebounds. Very few people are expecting a v-shaped rebound in the real world.

For the stock market this might not matter. The reopening of economies will bring new data showing a sharp upward trend, if only because lockdown data was so extremely bad and presented such a low starting point. Whilst valuations are ignored, the market (which we are told is now being led by young day traders) could head higher as investors latch onto the big positive numbers we can expect to see. There is even talk of markets reaching new highs this year. But ultimately it will be the real economy that is the more dominant force and, even without a second wave of the virus, the economic recovery is likely to be relatively slow, costly and littered with bankruptcies and bailouts.