``Berkshire's resources remain heavily concentrated in dollar-based assets, and both a strong dollar and a low-inflation environment are very much in our interest,'' Buffett, Berkshire's 74-year-old chairman, told shareholders in his annual letter Saturday.

Buffett, whose letters are pored over by investors searching for insights from the world's second-richest man, began betting against the US dollar in 2002 on concern that widening US trade and budget deficits would erode its value (see box).

At the same time, he has urged the US to establish a new tariff plan to lower the trade gap. ``We hope the US adopts policies that will quickly and substantially reduce the current account deficit,'' Buffett said. ``True, a prompt solution would likely cause Berkshire to record losses on its foreign-exchange contracts.''

Buffett increased Omaha, Nebraska-based Berkshire's position in foreign currency forward contracts - agreements to purchase an asset at a future date - to US$21.4 billion in the fourth quarter. Berkshire's net income rose 40 percent to US$3.34 billion as the dollar slumped 7.5 percent against major currencies, spurring a gain.

The US trade deficit soared to a record US$617.7 billion last year and the budget shortfall stood at US$412.3 billion. In a November 2003 letter published in Fortune magazine, Buffett proposed establishing a tariff plan that would promote exports and make imports more costly.

``Policy makers continue to hope for a `soft landing,' meanwhile counseling other countries to stimulate [read `inflate'] their economies and Americans to save more,'' Buffett wrote.

``In my view, these admonitions miss the mark. There are deep-rooted structural problems that will cause America to continue to run a huge current account deficit unless trade policies either change materially or the dollar declines by a degree that could prove unsettling to financial markets.''

Buffett said he is less confident in his bet because ``so many pundits predict weakness for the dollar.'' His US dollar outlook does not reflect a negative outlook on the US economy.

``Our economy is far and away the strongest in the world and will continue to be,'' Buffett said. ``In no way does our thinking about currencies rest on doubts about America.''

Berkshire said its US$21.4 billion in contracts had an estimated value of US$1.76 billion at year-end. If foreign currencies weaken 20 percent against the US dollar, the contracts' value would drop by US$4.38 billion.

The value would increase by US$4.91 billion should the same currencies gain 20 percent. Berkshire must report the change in the contracts' estimated value each quarter as an investment gain or loss.

Other than foreign currencies, Buffett said he sees few investment bargains. Berkshire's cash holdings were US$43.4 billion at year-end, up from US$43 billion on September 30, because Buffett and Berkshire vice-chairman Charles Munger, 81, saw so little to buy.

``What Charlie and I would like is a little action now,'' Buffett wrote. ``We don't enjoy sitting on US$43 billion of cash equivalents that are earning paltry returns.'' Thomas Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, said the foreign currency position may allow Berkshire to make acquisitions outside the US.

``To the extent he's inclined over time to buy non-US companies, having the basket of non-dollar currencies is a big help,'' Russo said..

Over the last four decades Buffett transformed Berkshire from a failing textile manufacturer into a US$137 billion holding company by acquiring out-of-favor securities and businesses on the cheap.

A US$10,000 investment in Berkshire the day Buffett took control in 1965 would be valued at about US$50 million today. Only Microsoft Corp founder Bill Gates is richer than Buffett, according to Forbes's ranking. Buffett's own stake in Berkshire is worth about US$42.5 billion.

About 19,000 admirers traveled to Omaha last year to Berkshire's shareholder meeting to hear Buffett and Munger speak. This year's meeting is scheduled for April 30.

Shares of Berkshire, whose dozens of subsidiaries include auto insurer Geico Corp and International Dairy Queen, rose 4 percent last year following a 16 percent gain in 2003. The shares fell US$302 to US$89,300 in New York Stock Exchange composite trading on Friday.

The company is the biggest shareholder of Atlanta-based Coca-Cola, New York-based American Express and Boston-based Gillette, which Procter & Gamble plans to buy for about US$57.3 billion.

Buffett's letters earned him an award from the National Commission on Writing for America's Families, Schools and Colleges last month.

In this year's letter, Buffett praised ``whistleblower lines'' that allow employees to send information to management without fear of repercussions.

Buffett said most messages at Berkshire are of ``the guy-next-to-me-has-bad-breath variety,'' though the company's line has helped him discover ``important problems at our subsidiaries that I otherwise would have missed.''