Berkshire Hathaway Incorporated’s Warren Buffett, who made $1.63 billion on foreign currencies in the fourth quarter, said he’d prefer if his bet against the American dollar failed.

“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,” Mr. Buffett, Berkshire’s 74-year-old chairman, told shareholders in his annual letter over the weekend.

Mr. Buffett, whose letters are pored over by investors searching for insights from the world’s second-richest man, began betting against the dollar in 2002 on concern that widening American trade and budget deficits would erode its value. At the same time, he has urged America to establish a new tariff plan to lower the trade gap.

“We hope the U.S. adopts policies that will quickly and substantially reduce the current account-deficit,” Mr. Buffett wrote in the letter. “True, a prompt solution would likely cause Berkshire to record losses on its foreign-exchange contracts.”

Mr. Buffett increased Omaha, Neb.-based Berkshire’s position in foreign currency forward contracts – agreements to purchase an asset at a future date – to $21.4 billion in the fourth quarter. Berkshire’s net income rose 40% to $3.34 billion, or $2,171 a share, as the dollar slumped 7.5% against major currencies, spurring a gain.

The American trade deficit soared to a record $617.7 billion last year, and the budget shortfall stood at $412.3 billion. In a November 2003 letter published in Fortune magazine, Mr. 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,” Mr. Buffett wrote this weekend.

“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,” he wrote.

Mr. Buffett said he’s less confident in his bet now because “so many pundits predict weakness for the dollar.” His dollar outlook doesn’t reflect a negative outlook on the American economy, he said.

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

Berkshire said its $21.4 billion in contracts had an estimated value of $1.76 billion at yearend. If foreign currencies weaken 20% against the dollar, the contracts’ value would drop by $4.38 billion, the company said.

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

Other than foreign currencies, Mr. Buffett said he sees few investment bargains. Berkshire’s cash holdings were $43.4 billion at yearend, up from $43 billion on September 30, because he and Berkshire Vice Chairman Charles Munger, 81, saw so little to buy, he said.

“What Charlie and I would like is a little action now,” Mr. Buffett wrote. “We don’t enjoy sitting on $43 billion of cash equivalents that are earning paltry returns.”

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

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

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

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

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

Mr. Buffett’s letters, known for explaining complex business concepts in simple terms, earned him an award from the National Commission on Writing for America’s Families, Schools and Colleges last month.

In this year’s letter, Mr. 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.”

Buffett also joked that he considered secretly funding a group of Coca-Cola investors who wanted him removed from the company’s audit committee, because, “why anyone would wish to be on an audit committee is beyond me.”

Institutions questioned Buffett’s independence from Coca-Cola because Dairy Queen buys Coke and Berkshire’s McLane Company unit distributes it, he said.

“I’m puzzled how anyone could conclude that our Coke purchases would control my decision making when the counterweight is the well-being of $8 billion of Coke stock held by Berkshire,” Mr. Buffett said.

“Assuming I’m even marginally rational, elementary arithmetic should make it clear that my heart and mind belong to the owners of Coke, not its management,” he said.