Buffett enthusiasm for U.S. could boost markets

Sun Feb 27, 2011 1:41pm EST

* Buffett annual letter strikes optimistic tone

* Heavy investment planned in U.S. businesses

* Experts see boost for markets

By Ben Berkowitz and David Gaffen

NEW YORK, Feb 27 (Reuters) - Warren Buffett is going long on America, and investors are likely to take note when markets open on Monday.

Buffett's annual letter, released Saturday, is brimming with references to the strength of the American people, economy and spirit.

Investors said they were struck by how confident the letter was, particularly in comparison to his annual missives of recent years.

"Money will always flow toward opportunity, and there is an abundance of that in America," said Buffett, who has run Omaha, Nebraska-based Berkshire Hathaway (BRKa.N) since 1965 and is now one of the world's richest men.

"The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential ... remains alive and effective."

He also forecast a recovery in the housing market "within a year or so" and that "America's best days lie ahead."

Given that Buffett owns the entirety or a large share of the country's largest railroads, insurers, banks, consumer products makers and distributors, his optimism could be seen as an endorsement of the economy in 2011 and beyond.

ORACLE, IN LONG TERM

Buffett's comments have helped markets in the past, even though his calls were not always perfectly timed.

In an Oct. 17, 2008 article in The New York Times, he said that he was "buying American stocks." The S&P 500 closed at 946.43 a day before that editorial, and his comments helped boost shares the following week. But his call was early as the S&P was on its way to losing another 300 points before bottoming out in March 2009.

Still, Buffett's latest enthusiasm, coming at a time when many believe the market is ready for a pullback, was a good sign for some investors.

"They're certainly encouraging, especially for U.S. investing. I was struck by the level of capital investing he cited," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

"Whether or not his remarks result in a Monday (rally) remains to be seen. Buffett is a long-term investor, not a timer. He tends to be early."

Buffett is likely aware of the impact of his comments. In last year's letter he lamented at some length how too much had been made in the media of comments the year before on the state of the economy.

EYES MORE DEALS

It is also possible Buffett could boost the market on his own through an acquisition.

Berkshire owns about 80 businesses and a huge portfolio of stocks valued in the tens of billions of dollars. While its portfolio is varied -- from railroads to ice cream, insurance is its largest and best-known business.

He made it clear in Saturday's letter Berkshire would need to buy assets to increase earnings in its non-insurance businesses.

"We're prepared. Our elephant gun has been reloaded, and my trigger finger is itchy," he said, emphasizing a need for "major acquisitions."

With a war chest of $38 billion in cash, even with a commitment to keep $10 billion on hand for contingents, Buffett is more than capable of big deals.

"I think what was so telling was he is looking to make a big purchase. Cash generation is huge at Berkshire. I expect something significant," said Michael Yoshikami, president of wealth manager YCMNET Advisors and a Berkshire shareholder. (Reporting by Ben Berkowitz and David Gaffen, Additional writing by Ritsuko Ando; Editing by Bernard Orr)

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