Why We’re Buying In This Market: Part Nine

From Cale’s June 2010 letter to Tarpon Folio investors. Find the rest of this series here.

The Bottom Line

While there are near-term risks to the economy, I believe they are overblown. I would put the probability of the U.S. slipping into a double dip recession at most at 20%. Recent economic data is less confusing when taken in historical context and after acknowledging the psychological effects of numerous systemic shocks to investors over the last few years. The Deepwater Horizon oil spill in particular comes at a critical time in the recovery.

Nonetheless, to expect 2.5% to 3.0% growth in the economy this year seems both objective and reasonable, and if credit conditions improve, it seems likely we’ll see considerably more growth next year. Despite the wild daily swings in the market the last few months, the data does not indicate any trends that would cause me to move any significant portions of the portfolio to cash. To the contrary – eventually we should begin to see positive economic news that will help underscore the depressed valuations of our companies.

And while I would not underestimate the ability of our esteemed political leaders to screw this recovery up, I would also caution against underestimating the desire of businesses to grow when given the chance. Right now is one of those opportunities.

Cale Smith

About Cale Smith

Portfolio Manager at Islamorada Investment Management.
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