Fairfax Financial says portfolio braced for turmoil

(In U.S. dollars unless noted)

By Lynne Olver

TORONTO, April 16 (Reuters) - Fairfax Financial Holdings (FFH.TO: Quote, Profile, Research), which made record profits last year on the back of U.S. credit default swaps, remains on guard against a depression-type slide in the U.S. economy, its chief executive told shareholders on Wednesday.

"We are conservatively positioned," Fairfax Chairman and CEO Prem Watsa said at the insurance holding company's annual meeting.

Fairfax has 74 percent of its $19 billion investment portfolio in cash and marketable securities, and does not own mortgage-backed or asset-backed securities.

"In the next few years, we think opportunities will come our way to invest this money...right now we're not reaching for yield," Watsa said.

"The U.S. economy and U.S. stock markets have begun to decline, that means a recession is coming and now it's only a question of how long and how deep," Watsa said.

As securities backed by risky loans have been re-priced globally, banks have run into trouble before the recession hit, rather than after, Watsa noted.

"That is why we think of this event for financial markets as one-in-50 (or) one-in-100 years," Watsa said, drawing comparisons to Japan's decade of economic and market woes, and the Depression that started with the 1929 stock market crash.