BILLIONAIRE Warren Buffett said the US economy will be ?in shambles? this year, and perhaps longer, before recovering from the reckless lending that caused the worst ?freefall? he ever saw in the financial system.

Stocks and the economy would rebound, and the best days for the US were ahead, said Buffett, chairman of Berkshire Hathaway Inc., in his annual letter to shareholders on Saturday.

Buffett said he would spend the recession shopping for new investments for Omaha, Nebraska-based Berkshire.

?The economy will be in shambles throughout 2009?and, for that matter, probably well beyond,? he said.

?Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so.?

Buffett, an informal adviser to President Barack Obama, said the consequences of the US housing bubble were now ?reverberating through every corner of our economy.?

The gross domestic product shrank at a 6.2- percent annual pace from October through December, the most since 1982, the Commerce Department said Feb. 27.

Late last year, ?the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country,? said Buffett, 78.

?Fear led to business contraction, and that in turn led to even greater fear.?

Berkshire?s fourth-quarter net income fell 96 percent to $117 million, the firm said Saturday.

Book value per share, a measure of assets minus liabilities, slipped 9.6 percent for all of 2008, the worst performance under Buffett?s watch, on the declining value of derivatives and the stock portfolio. Berkshire shares have plunged 44 percent in the past 12 months.

The Standard & Poor?s 500 Index would probably gain in three-fourths of the next 44 years, just as it did in the period since Buffett took over Berkshire in 1965, he wrote. The benchmark dropped 38 percent last year, the most since 1937.

?We enjoy such price declines if we have funds available to increase our positions,? Buffett wrote.

?Whether we?re talking about socks or stocks, I like buying quality merchandise when it is marked down.?

Berkshire?s cash hoard was about $25.5 billion at yearend, down from $33.4 billion on Sept. 30.

Buffett disclosed increased holdings of Posco, Asia?s third-largest steelmaker, and Sanofi-Aventis SA, France?s biggest drugmaker.

Berkshire sold $4.77 billion of equities in the fourth quarter to help finance private deals for preferred shares in Goldman Sachs Group Inc. and General Electric Co. The sales included shares of Johnson & Johnson, Procter & Gamble Co. and ConocoPhillips, holdings that, Buffett wrote, ?I would have preferred to keep.?

Buffett said he made a ?major mistake? in buying shares of oil producer ConocoPhillips when oil and gas prices were near their peak. Berkshire paid $7.01 billion for its remaining stake, which was valued at $4.4 billion as of Dec. 31.

Among his other errors for the year, Buffett listed the purchase of shares in two Irish banks that he didn?t name for $244 million. Berkshire wrote down the stake by 89 percent.

Buffett?s analysis and wit earn attention from professional money-managers and individual investors because of his success as a stock picker and businessman. Bloomberg