* Forecasts record earnings for industrial units
* Predicts record U.S. capital spending in 2012
* Housing sector the only problem
By Ben Berkowitz
Feb 25 Anyone looking for more evidence of a strengthening U.S. economic recovery need only consider conglomerate Berkshire Hathaway, where businesses ranging from railroads and electric utilities to furniture and candy stores are racking up record profits.
Even though Berkshire's Warren Buffett says with emphasis that the housing market is still in a depression, he was as upbeat as ever this weekend on the rest of the dozens of businesses he owns.
"Though housing-related businesses remain in the emergency room, most other businesses have left the hospital with their health fully restored," Buffett said on Saturday in his closely watched annual letter to shareholders.
Berkshire's five largest non-insurance businesses, all of them industrial in some way, posted record profits last year and should do the same this year, he said, surpassing $10 billion in combined earnings.
That being the case, Berkshire broke its own records for capital spending in 2011 by a wide margin and expects to do so again in 2012 - almost all of it domestically, even with the company's global footprint.
"About 95 percent of these outlays were made in the U.S., a fact that may surprise those who believe our country lacks investment opportunities. We welcome projects abroad, but expect the overwhelming majority of Berkshire's future capital commitments to be in America."
There are other big investments on tap, too. Buffett said his home-furnishings retailer, Nebraska Furniture Mart, bought a 433-acre (175-hectare) parcel north of Dallas and will construct what it expects to be the highest volume store of its kind anywhere. He also forecast billions of dollars in spending on solar and wind energy projects.
Investors who have been with Buffett over the long term expected his optimism.
"That's not surprising," said Michael Yoshikami, CEO of Destination Wealth Management, in California, noting in particular Buffett's sense that the banking business is back in shape. "He's obviously a believer in the financial sector being a key to the overall economy."
SIGNS WORTH WATCHING
Buffett sounded a similar tone in 2011.
"I don't see how anybody can be other than enthused about this country," Buffett told Berkshire shareholders last year at the company's annual meeting, even as the country was in the middle of a crisis over its debt ceiling and credit ratings.
Nonetheless, at this delicate stage in the U.S. economic recovery, his words carry weight, partly because of his successes over the years and partly from the sheer size and scope of Berkshire, which employees more than 270,000 people in nearly 80 businesses.
That gives him a view into many of the same factors policymakers consider when they try to figure out what to do next with the sluggish economy.
Federal Reserve officials have noted lately that while the economic recovery is tepid, there is sufficient evidence that things are picking up to warrant holding off on further stimulus measures.
Buffett's optimism is not confined to industry. He said that "the banking industry is back on its feet" and singled out two of his favorite investments, Wells Fargo and Bank of America.
He also took a fair bit of space in the letter to call into question the value of bonds and commodities as investments, and to praise his own favorite category, "productive assets" like businesses and real estate.
"Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola, IBM and our own See's Candy meet that double-barreled test," he said.
If there is one sore spot, it is the housing market. A year ago, Buffett said he expected the housing sector to recover within a year or so. He acknowledged that call turned out "dead wrong."
Berkshire's five housing-related businesses were profitable the past two years, but at a level two-thirds less than they were in 2006. They have shed 26 percent of their staff over that time, more than 15,000 people in total.
As he has in the past, Buffett said the problem was an excess of supply and no one to soak it up. On Saturday, he proposed that lust, of all things, would solve the problem eventually.
"Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while 'doubling-up' may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure."