Whilst we’ve had progressive easing of restrictions on the world economy, the GDP everywhere began to pick up. We’ve had ebbs and flows as a result, in particular of the Delta variant, but we are, I think, gradually leaving the COVID-19 pressure behind.

In fact, the economy has been growing at such a clip that it’s put pressure on inflation, and this has really come from a couple of sources. The first one is, is people have left highly restricted conditions, and they had pent-up demand, and they’re satisfying that. And that’s come crashing into supply chain problems, also as a result of COVID-19.

Now we don’t think that inflation expectations have changed here, and so this is more of a transitory pressure on the economy, but it absolutely needs to be monitored. So you really have three factors at work now. You have, as we do leave COVID-19 behind, eventually we’re going to have to tighten monetary policy. So you’ll have that pressure.

At the same time, the fiscal easing—and there’s been trillions of dollars of it—will also be left behind. So there will be that pressure on the economy or a headwind on the economy that you’ll gradually sail into in 2022 and beyond.

On the other hand, there are a variety of structural positives that the economy can take advantage of. Clearly among this is that the consumer is probably in the best shape of 40 or 50 years. If we looked at the fixed obligation ratio, the amount of their disposable personal income that they have available for purchasing as opposed to servicing debt, et cetera, that’s at a higher amount since Ronald Reagan was president.

So yes, there’s some headwinds that we’ll face as this all moves into the past, but the fact that consumers are in such good shape, I think is an important dominating factor. So we look for growth at something like 6%. In real terms, in 2021 versus 2020, of course, that’s some base effect there. But even as we begin to normalize conditions into 2022, still expect almost 4% growth in North America and generally strong growth everywhere in the world.

Well, certainly over the last 18 months, prices of things like fuel, housing, commodities have really spiked a lot higher, and it has consumers and governments and planners concerned. And they ought to be. They ought to be concerned. One has to worry about changes of expectations the longer that a higher level of price is in place.

They still look to be transitory to us. Part of it is the effect of people’s growing personal income and the inability to spend that during fairly restrictive periods and especially during lockdowns. And you release them into the economy, well, they’re going to spend.

That comes crashing into supply chain disruptions that are also a product of COVID-19. So there’s a degree of normalization that lies ahead that will alleviate some of that pressure. But it’s expectations that we need to be concerned with.

Longer term, structural forces, I think, will dominate. You have an aging population, you are going to have lower nominal rates of GDP growth, and that’s highly correlated with normal lower levels of inflation.

So as the handoff from the near term to the long term happens, as you move beyond COVID-19 to 2022, 2023, and beyond, this should look after itself. So we’d look for something like 2% to 4% inflation everywhere in the world, with the U.S. actually at the high end of that in 2021, dropping to 1% to 3%, again, with the U.S. at the high end of that in 2022 and those problems tapering off further down the road.

A lot of concern heading into the spring and summer of 2021 that interest rates were set to rise; that as we left COVID-19 behind, that the quantitative easing that propelled markets higher, and especially bond markets, would start to withdraw; that eventually, or sooner or later, that central banks, led by the Fed, would be raising interest rates; and that we’d see progressively higher bond yields as a result.

In fact, what happened was bond yields fell through the summer and we set record lows, as low as 1.17 on a U.S. T-bond. Of course, that reflects the slowdown that was dealt by the Delta variant and also a view that the pace of tightening doesn’t have to be all that pronounced; that we’re going to begin with quantitative easing, that that will progress over 2022, and the first actual rate hikes in the United States and elsewhere might not happen before 2023.

I think there’s also a recognition, though, that rate hikes are not always a bad thing for capital markets or even bond markets, where the Fed has not been behind the curve, and this has been about half the time. Sure, when they start hiking, markets become a little unglued because that is a new variable. But when they realize that, actually, that they can have well-paced and well-telegraphed interest rate hikes, just to get interest rates to a level that provides you with a tool to fight the next recession—because there will be one—the market takes it in stride. It’s too early to start worrying about the ultimate impact of rate hikes on markets.

Well, it’s been a terrific spring and summer 2021. Most markets in the world actually entered all-time-high territory, and it’s left us with a valuation concern. We began this, the post COVID-19 bull market slightly, below what we would consider to be fair value for global stock prices, and the U.S. surged and dragged other markets alongside. And in aggregate, our model shows the market to be almost 25% above what we would consider to be fair value.

Now that’s not a near-term problem, necessarily. PEs are though, or valuations, in the United States in particular, are though, very high. And that speaks to the level of expectations for future profits.

Now fortunately, those profits have been stunning. Eighty percent of profit releases, of company releases of their earnings quarterly, continued to beat analysts’ expectations. So if you look at where profits are, the S&P 500 peaked; its all-time high in profits prior to COVID-19 was $165. It’s going to close this year at $200, and we aren’t fully out of the depressive effects of the pandemic. And we think they’ll rise further to something like $235 in 2022.

Now those high valuations are an expectation hurdle. You’ve got to bring in strong profits. But we’re looking for 20% profit increases in 2021 to repeat at almost the same number in 2022. We think that’s enough to keep the bull market alive.

Nevertheless, there is a heightened level of “show me”, if you will, when you’re at these levels of valuations. And we think those profits will come in, and we’ve maintained overweight positions in risk assets and predominantly liquid equities.