Akre Capital Management

For almost two years now we have commented on the ideas of slower growth, the constrained consumer, high unemployment, and federal government deficit issues as reasons to remain cautious with our allocation of capital. During this time we have held higher than average amounts of cash and made opportunistic purchases along the way. As we look back to a December 2009 interview with Maria Bartiromo on CNBC, we suggested that the market was on a sugar high and that we were in a period in which it was prudent to be cautious. It seems the sugar high has subsided and reality has set in.

We believe that businesses and consumers in the United States are gradually healing, but it is clear the economy remains hobbled by the housing hangover and excessive debts public and private. Perhaps even greater troubles are brewing abroad. Serious fragilities in the European and Chinese banking and monetary systems are coming to light. Every major economy of the world including our own is facing down the uncomfortable prospect of austerity. Nearly everywhere, the ability of monetary authorities to maintain a stable value of paper currency is in question.

We continue to be cautious on the economy, as the ?big? problems (a hangover from the financial crisis and mounting US government debt) are likely to stay with us for some time. The large dosage of negative news and events worldwide, from Portugal to Japan, has been absorbed by the U.S. stock market with barely a hiccup. During the 1 quarter of 2011 we continued to take advantage of opportunities in the market and ended the quarter with a cash balance of 17.2%. Our portfolio today reflects a number of businesses that have proven their ability to thrive in a consumer constrained environment.