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The Globe and Mail

Six reasons to be optimistic about the U.S. recovery

Murray Leith is a vice president and director, investment research, at Odlum Brown Limited.

Earlier this week, as stock markets were tanking, Mad Money host Jim Cramer explained to viewers on his show that he is waiting to buy stocks like Johnson & Johnson Inc. because he wants a greater margin of safety in case there is a panic on the scale of 2008, even though he expects the economy to hold up.

Such is the general sentiment in the market – investors have seen panic get out of control in recent years so many are selling and/or not buying.

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We have no idea how long the current turbulence will continue but we are confident that economic fundamentals will ultimately make indiscriminate selling look silly.

We also know that Jim Cramer is a trader and that his view can turn on a dime; he could be slamming the buy-buy-buy button tomorrow, talking about reasons to get excited about the outlook.

We remain focused on economic fundamentals and believe that they will get better following a period of slower growth. The following is a list of reasons to be optimistic regarding the U.S. economy, the one that everyone seems to be most worried about at the moment:

Home prices: U.S. home affordability is at a record level, due to the significant drop in home prices and interest rates. The U.S. housing industry has already collapsed. Many homes have been foreclosed and debts have been written off. Housing could still get worse, but from its already depressed state, the marginal damage to the overall economy would be minimal. More likely, in our opinion, the significant drop in mortgage rates recently will lead to a bounce off bottom.

Commodities: The prices of oil and other commodities have dropped significantly, which will put discretionary spending money in consumers' pockets.

Money flows: Money is flowing from the European banking system to the American banking system because institutions have more faith in the United States and its banks. They are also buying U.S. government debt and driving yields lower, which also suggests that talk of a U.S. debt crisis is misplaced.

Factory rebound: The U.S. manufacturing sector is in the early stages of revival, driven by improved competitiveness. The improvement in competitiveness is being driven by the weakness in the U.S. dollar, inflation in emerging markets, the high price of transporting goods overseas, and U.S. ingenuity and innovation.

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Employment: Jobs are being created, albeit at a slower pace than hoped. But such is to be expected following a financial crisis. In our opinion, the jobs market will continue to recover.

Consumers: U.S. consumers are paying down debt and saving more, setting the stage for a brighter future.

The stock market correction, although significant, will not derail the U.S. economic recovery, in our opinion. We believe the drop in interest rates and gasoline prices will have a greater impact on Main Street than the action in the stock market.

I personally bought stocks on Friday and Monday. Don't forget that the object of the investment exercise is to buy low and sell high. Good companies will continue to prosper in the muddle-through economic recovery that we believe will stay on track.

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