As I write this message, there are a significant number of negative items that are confronting our economy. The labor force participation is at a low point causing an unusual display of “help wanted” signs across the country. Restaurants going out of business is nearing the 100,000 figure that I predicted at the beginning of the pandemic. Inflation has returned in a big way and has broken the five per cent level. The supply chain problem will prevent merchandise from arriving on time for the holidays, potentially messing up the season for retailers.

So, why is the stock market at historic highs? Are we having another bout of “irrational exuberance”?

My answer is as follows: Firstly, people do not buy stock only based upon what is happening currently. With these high levels, the market is making a prediction. Going forward – perhaps a year from now – the market is predicting even greater profits than we are having now. It is predicting that the Covid situation will be much better than it is now. It is predicting restaurants reopening and thriving, and that millions of people will return to work.

So, what will the Covid situation be a year from now? The news reporters and public officials have stopped predicting things, having been wrong so many times. I will go out on a limb and make a few predictions:

Covid will not be over in a year or anytime soon. The one quarter of the population who refuse vaccinations will not decline very much. Many people will still be wearing masks in the supermarket.
Medicines will be released – more than one – that will substantially reduce the death rate. This will change so many things.
With the vastly reduced overhang that Covid has on society – business will become closer to normalized. People will reenter the work force.
All but the youngest infants will be able to be vaccinated – probably before the end of this winter – and this will further reduce so many of the problems that we are having.
The other issues which could spook the markets are not a problem presently
The market doesn’t think that interest rates will be much higher.
The market doesn’t think that taxes will rise much if any at all.
Based on news reports, the votes just aren’t there for any tax increases at all. The latest try is for the “billionaires tax.” That is unlikely to change the landscape very much even if it passes. The Fed is fearful that rising interest rates will put people out of work and is carefully avoiding doing this.