“Smooth” Recoveries Rarely Occur, Says Dorfman

Growth in manufacturing activity and industrial production have slowed a bit recently, leading many to fear a double-dip recession is coming. But columnist and money manager John Dorfman — one of the few strategists who was offering optimism heading into the 2009 rally — is still optimistic.

“One reason these figures don’t shake my confidence too much is that I’m old,” Dorfman writes in the New Jersey Star-Ledger. “Having lived through nasty recessions in the early 1970s and 1980s, I can testify recoveries are rarely neat and smooth.”

Dorfman cites data from some past recessions and recoveries to back up his point. “In short, it’s easy to panic based on a few months of negative readings in a couple of benchmarks. One key to successful investing is separating noise from underlying trends,” he says. “Economic data always send mixed signals. As my mentor David Dreman said, indicators often resemble a traffic light that flashes red, green and yellow simultaneously.”

Currently, Dorfman says he’s impressed by the profit reports of many large and midsize companies. “Rising profits usually presage improvement in other areas such as employment,” he says.