Research in Motion: The End is Near

Research in Motion (NASDAQ:RIMM) has too much to prove to the Street and the consensus is for the pain to continue for shareholders.



(theStockMasters.com | Frank Lara) We knew Research in Motion (NASDAQ:RIMM) had one last run left, that run has occurred and now its time to never look back. Think back to the Blackberry Ban when every other country was threatening to put an end to RIM in 2010. We told our readers to buy at that 52-week low. RIM shares then went on a tear and almost bucked above $70 in Feburary. Friday Research in Motion shares closed within 7.5% of its 12 month low.

Could the same game plan be executed once again? Will Research in Motion shares rise from the ashes and prove the Street wrong? Can lightning strike twice for investors?

The Masters aren't willing to go to bat for RIM this time, that ship has sailed.

Last time RIM hit a 52-week low we screamed "Buy". The company at that time had 41 million subscribers all over the planet, the blackberry bans were all hype, and the Street refused to buy the company's impressive guidance.

rimmHowever we knew a year ago that RIM was eventually going to lose the battle to Google's (GOOG) Andriod system, Apple's (AAPL) incredible iPhone, and even Microsoft's Windows Mobile 7 (MSFT). This time the comeback story is much more difficult to believe and the cold reality is starting to sink in.

Last Thursday, IDC reported a significant shift in smartphone sales for Q1 2011. The key takeway from the stats: Apple (AAPL) and Google (GOOG) continue to own RIMM and Nokia (NOK) when it comes to smartphones. The rankings show Q4 2010 to Q1 2011 increases/decreases in global market share (SeekingAlpha.com | Rocco Pendola).

The numbers were the following:
Nokia: 28% to 24.3%
Apple: 16.1% to 18.7%
RIMM: 14.5% to 14%
Samsung (SSNLF.PK): 9.6% to 10.8%
HTC: 8.5% to 8.9%

Worse yet RIM's average selling price for its BlackBerry devices keeps falling. Too bad the company's stock price can't stop falling.

Research in Motion will continue to rake in revenue, but not at the margins that will enable its share price to become a growth stock. RIM will be lucky to ever hit $70 a share again. It could be possible on a long enough time frame or with a reverse stock merger. Then again, maybe RIM will just fade into the sunset or finally get bought out by Microsoft (MSFT). Regardless of the outcome, RIM as a profitable company is questionable at best.

Bottom line: RIM shareholders are in for a tough ride. The Masters are betting on a new 52-week low before RIM shares make any spark of a comeback.

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What Attracted Berkshire to Lubrizol

Lubrizol's niche market, the critical function of its products, and focus on service lead to better pricing power and stickiness, says Sanibel Captiva Trust's Pat Dorsey.

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Google's Spendthrift Ways Spook Investors

Google (GOOG, $530.70, -47.81) announced its Q1 results last night. The company grew its top line by 27% year over year, topping expectations, but a 54% increase in spending and a clear signal from co-founder and new CEO Larry Page that the expenses would keep, sent investors running for the exits.

Page made a brief appearance on the earnings call last night, expressing optimism about the company's future and saying that management changes Google announced earlier in the year were "all working very well, exactly as planned." Page, who has a reputation for being media averse, exited and left CFO Patrick Pichette and other executives to answer analyst queries.

The costs increases stemmed from the company's announcement at the end of last year that it would increase salaries across the board by 10% and ramp up hiring. It added about 1,900 new employees during the quarter. Google's management argues that is battling other Silicon Valley tech firms for talent and the increased salary scales and aggressive hiring practices are necessary for it to remain a leader in the online industry. Google had over 26,000 employees at quarter end.

"Look, we’re nothing but very, very excited about our reporting 27% year-over-year revenue growth in Q1. This 27% proves really the logic behind our strategy, not only to invest heavily in our core search business and ads, but also in our new emerging businesses like display, like mobile, like enterprise," Pichette told analysts.

"From an investment perspective, our Q1 results don’t only show our continued commitment to invest in hiring, in marketing, and in the other areas; but they also, as you can see through our expenses, they reflect for the first time the full impact of the compensation changes we announced in Q4, the 10% salary increase," he added. "Google is clearly benefiting from and is also fueling the unrelenting pace of the digital economy that’s around us. And it’s growth we believe will benefit both Google, but in fact, the entire ecosystem for a long time to come."

The company reported an adjusted profit of $8.08 per share, which fell short of $8.10 that analysts were projecting as a result of margin pressure from its increased spending.

As reported according to GAAP, Google's profit was $2.3 billion, or $7.04 per share, compared with $1.96 billion, or $6.06 per share, in Q1 2010.

Google's gross revenue grew by 27% year over year to $8.58 billion; revenue excluding traffic acquisition costs (TAC) of $2.04 billion equaled $6.54 billion and easily topped the $6.31 billion Street estimate. Gross revenue grew by 2% from a strong Q4 2010; adjusted for FX and its hedging activities, it was up 1.2%.

The company's adjusted EBITDA equaled $3.63 billion, but the EBITDA margin was cut by -350 basis points sequentially to 55.5% from 59.0% in Q4.

Breaking down the results, revenue from Google's owned and operated (O&O) sites grew 33% year over to $5.88 billion, equal to 69% of total revenue and up 32% from a year ago.

Google’s partner sites generated $2.43 billion in revenues through its AdSense programs, which was 28% of total revenues. It represented a 19% increase year over year.

Other revenue was down -10% year over year to $269 million. Google booked revenue from its Nexus One mobile phone in the year-ago quarter but it has since been discontinued.

On a geographic basis, revenue from outside of the U.S. totaled $4.57 billion, or 53% of total revenues, up from 52% in Q4 and equal to the year-earlier percentage. On a currency neutral basis, the results would have been reduced by -$23 million, the company said. Revenues from the United Kingdom grew by 15% to $969 million, or 11% of the total, down from 13% of the total last year. The disaster in Japan "somewhat negatively" impacted the international results, Pichette said.

Global aggregate paid clicks grew by 18% year over year and 4% sequentially, which Pichette said reflected the accelerated shift of offline advertising to online. Aggregate cost per click (CPC) growth was up 8% year over year and down -1% sequentially. FX had little impact on CPC growth, Pichette added.

TAC expense was 25% of total advertising revenue; other cost of revenue equaled $897 million, including stock-based compensation of $49 million.

Operating expenses totaled $2.8 billion, including approximately $383 million in stock-based compensation. The increase year over year in OpEx was primarily due to payroll, increased advertising, and promotional spend, and some other professional services.

Operating cash flow equaled $3.2 billion. Google spent $890 million in CapEx in Q1. The majority of CapEx was related to facilities expenses and data center operations. Google bought two buildings in Q1, one in Dublin and one in Paris.

Analysts were mixed in their reaction to the company's results. Citigroup cut its rating on Google to a "hold" from a "buy," calling the stock a "show me story."

Colin Gillis of BGC Partners called the stock "dead money until summer," and criticized Page's brief remarks on the call.

"Our opinion was the 370-word introduction that was delivered by the CEO that did not include any comments on how he wanted to shape the company was lackluster," Gillis wrote. He also rates the stock a "hold."

Other more bullish analysts -- the overwhelming majority of the 41 analysts who follow the company rate the stock a "buy" or "strong buy" -- were more willing to wait and see, though several adjusted their targets and/or EPS estimates. The following comment from Benchmark Capital was typical of the bulls' camp:

"Google managed costs well through the recession but began to ramp expenses earlier than most. This proved successful as 2010 top-line growth accelerated to 26% from 10% in 2009. Based on this track record, we give Google the benefit of the doubt that investments will pay off and scale over time. Google’s primary areas of investment offer rewarding profit margins," the firm wrote.

BMR Take: Leaving aside the debate over whether Google is spending wisely or recklessly for one moment, its core business actually performed very well. The fact that revenue from its O&O sites is growing faster than network revenue is a good trend for Google as will drive down TAC expense as a percentage of revenue. The top-line growth was clearly excellent; Google shows no sign of losing appreciable search market share.

Google investors clearly aren't pleased with the company's increased spending, but the company's management is equally unapologetic about it. Several speakers talked about the array of new products Google has launched over the last 18 months, pointing to the success of Android in particular and noting that YouTube has become a solid platform for advertisers.

The fear is that Page will let spending get out of control; we agree that his first appearance as a CEO on a conference call was hardly inspiring. Many people are media shy, but hopefully he'll get some coaching because a CEO that can't articulate a clear strategy is not going to inspire investor confidence even if he is a tech genius and a co-founder of the company.

Trading at about 11x the slightly revised 2012 EPS consensus of $39.66, minus its approximately $97 per share in net cash and investments, we think the stock looks undervalued, but agree that the shares are likely to be range bound until investors get a better handle on its long-term expenses and margins. We would put a target of around $735 on the stock, which is a 16x multiple of 2012 EPS excluding its net cash. We note as well that Google's stock has tended to trade lower in the summer when traffic declines and then picks up steam in the second half of the year. As such we think interested investors will be able to ease into the name over the next couple of months.

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What Kids Should Know About Money At 9, 13, 18 and 23

Kids Financial Lessons

A child occasionally blowing a week's worth of allowance on ringtones or a month's worth on designer jeans may seem like a harmless rite of passage. If the child is really young, you might even think it's cute — and to be fair, such behavior may be both harmless and cute if parents use these kinds of moments as teaching opportunities.
But most parents aren't nearly vigilant enough with their financial guidance and most schools don't teach a thing about money at young ages. So bad habits develop early and may stay with kids for a lifetime. No one should be surprised to see these same children later on buying cars or houses they can't afford and amassing credit-card debt they can't pay off.
What young people don't know about money is sometimes shocking. In a recent national survey testing high school students about basic financial facts, only one in six understood that over the long run stocks should generate higher returns than savings bonds; only one in five understood that the interest paid on a savings account is taxable in most cases. The average score on this financial literacy test was an F — just 48%, which happens to be the worst result in a series of six such tests over the last 11 years.
Even when teachers were asked to test only their brightest students the average score barely budged — to a still-failing 57%. "Kids don't know enough about finance pretty much across the board," says Laura Levine, executive director of JumpStart Coalition, which promotes teen financial literacy. One big problem is that many parents aren't sure how to bring their kids along. Here's a snapshot of what your kids should know about money at four stages of life:


Nine years old

It's never too early to start teaching about money. Well, almost never. I'd skip bedtime readings of Benjamin Graham's The Intelligent Investor while your darling is still in a crib. Financial osmosis doesn't work any more than round-the-clock Mozart will in quest of an infant genius. There are things you can do, though, and I'll get to them. First, some benchmarks: By age 3 or so a child should be identifying coins and by 5 he should know what those coins are worth. By 9, he should be able to make change, read price tags, understand a store's product return policy and know how to make money by selling lemonade or doing extra work. He should understand the difference between wants and needs and how saving will allow him to buy something better later on. He should be able to identify at least one charitable organization and give examples of common household assets like a car or bank account.
Advice: Young kids should receive a weekly allowance of about half their age (in dollars) and along with any birthday money be instructed to keep the money in three separate jars — 60% for immediate spending, 30% for one or two specific longer-term goals like a cell phone upgrade or iPod, and 10% for giving to charitable causes. Let him spend the money anyway he wants within those bounds. This will help teach the difference between short- and long-term goals and predispose him to giving as well. "I often talk to clients who are great savers," says Kelly Campbell, a financial planner at Campbell Wealth Management in Washington DC. "Inevitably it is because their parents started them off with a great savings lesson long ago."

Thirteen years old

Teens spend about $200 billion a year on toys, games, clothing, movies, live events, arcade games and electronics — all forms of immediate gratification that run counter to sound long-term money practices. Your 13-year-old is about to chart a course through this wasteland of spending and would benefit from having a grip on a few core concepts. By now, she should be well acquainted with saving and understand how impulse and peer pressure can set back her longer term goals. She should be able to research products, comparison shop, and make good decisions about what offers the most value. Your budding teen should also be skeptical about advertising claims and familiar with identity theft. She should know how to fill out a job application, be able to set up a personal spending budget, and understand the difference between stocks and bonds and mutual funds. Her three jars should be emptied; the money should be in a bank account with check-writing and ATM card privileges and she should know how to make deposits and withdrawals and track her balance.
Advice: Look for easy ways to teach money lessons. When you shop and pay by credit card explain to her (briefly, please) that the bill will come later — then show her the bill when it comes. While you're at it, show her the lines on your credit card statement for interest expense and late fees and explain why you do or do not have such expenses. Directly deposit a weekly allowance into her bank account and make sure she understands what that money is for — and do not bail her out if she spends too much and has to stay home on Saturday night for lack of cash. Increase her allowance for clothing expense, and let her make the decisions on what to buy. Introduce her to the stock market through low-cost programs like those at sharebuilder.com or mystockdirect.com — and challenge her to a stock-picking contest. "Kids learn best through games," says Lewis Mandell, a leading scholar in the financial education movement at the University of Washington Business School. "The lessons are immediate, fun and real." Kids who play stock market games tend to perform best in financial literacy tests, Mandell says.

Eighteen years old

Here come the college years and very likely your last chance to make any kind of real impression on your child's money habits. He will go off to school (or work) and navigate his finances from here on out pretty much on his own. By now, he should have a credit card in addition to an ATM card and understand all about late fees, interest expense, the importance of paying bills on time and the scourge of making only minimum monthly payments. Young adults are often appalled to learn that a $5,000 balance can take 20 years to pay off through minimum payments. Meanwhile, the card company will reward them with an ever greater credit limit if their payments are on time, and before they know it they have more debt than they can repay. "They shake their head and say, 'Hey, I didn't think I was doing anything wrong,'" notes JumpStart's Levine. Knowing about credit is most essential at this age, and that includes understanding what a credit score is and how to find it and why it's important. But he should also be able to do things like evaluate if financial information is objective and current and use an online calculator to research things like car loans and mortgages. He should understand that student loans must be repaid with interest and have some idea what career he'll be pursuing before loading up on student loans he may never be able to repay.
Advice: Studies show that the single best indicator of future success is a child's willingness to delay gratification. Never stop reinforcing saving for long-term goals and offer to match his long-term savings $1 for every $2 he puts away to mimic saving in a 401(k) plan. If you are still paying him an allowance, do it in bigger, less frequent chunks (monthly or quarterly) so that he has to create and live with a budget. Talk about where the money came from that is in his college fund and what sacrifices were made to put it there and carefully review with him his monthly credit card statements — before he's packed off for campus.


Twenty-three years old

By now your child is pretty much what she will be when it comes to financial know-how. She should understand career choices and how hers will determine her near- and possibly her long-term earnings potential, and understand the consequences of living beyond her means. She should know how to access her credit report, make corrections to it and what actions will boost her score. She'll be coming off of your insurance policies soon and should have an understanding of the various types of life and property policies she'll have to choose from. "Teens think they'll never get sick and live forever," says Levine. She should be able to estimate future annual returns from a stock and bond portfolio (6% to 10%) and inflation rates (2% to 4%). She should be keeping financial records; paying bills online and contributing to a 401(k) plan and know how to dispute a bill or charge. She should understand the advantages of owning versus renting and what types of loans and expenses are tax deductible. In short, she should be an adult.
Advice: The good news is that most college graduates either get this stuff now or soon will. A college education correlates highly with financial literacy, Mandell says. The bad news is that only 27% of the population graduates from a four-year college, which leaves a lot of folks in financial peril. So, yeah, get her through college if you can. Otherwise, the most important thing you can do for your child at this age is cut her off from financial support. That will force her to come to grips with issues she'll be dealing with long after you're gone. Besides, research shows that kids who get taken off their parents' dole in a timely fashion, on average, pull in 20% more lifetime earnings.

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Dollar mixed after brief rally

NEW YORK -The dollar is retreating again after a brief rally following news of the death of al-Qaida leader Osama bin Laden.

The dollar has fallen against a group of six major currencies for the past eight trading days. Investors expect that the Federal Reserve will keep interest rates super low and continue other stimulus efforts, while central banks overseas are raising interest rates. Higher rates tend to make currencies more attractive to investors seeking higher yields.

In morning trading Monday in New York, the euro is up to $1.4845 from $1.4839 late Friday. The dollar is giving back some of its overnight gains against the British pound and Japanese yen, but is higher against the two currencies than it was on Friday.

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Buffett's Berkshire Hathaway Sees Profit Tank 58%

Berkshire Hathaway's first-quarter profits fell 58 percent because of an estimated $1.7 billion in pretax insurance losses from major disasters in Japan, Australia and the U.S.

CEO Warren Buffett estimates that Berkshire will report $1.5 billion in net income, down from $3.6 billion the year before. He did not offer earnings per share figures.

Buffett offered a, earnings preview at Saturday's annual shareholders meeting. Berkshire's full earnings report is scheduled to be released Friday.

Buffett said the biggest factor in the earnings drop was losses related to the damage from the Japanese earthquake and tsunami, Australian floods and the New Zealand earthquake.

"We had probably the second-worst quarter for the insurance industry in terms of disasters around the globe," Buffett said.

Reinsurance companies, like Berkshire's General Re and National Indemnity, sell backup insurance to primary insurers so the industry can cover big losses.

Berkshire expects to record an $821 million underwriting loss in its insurance businesses during the quarter because of the catastrophes. That compares with a $226 million underwriting gain in last year's first quarter.

Berkshire's insurance businesses will still contribute $131 million to net income for the first quarter, because of investment gains. That's considerably less than a year ago when Berkshire's insurance businesses, which include auto and home insurer Geico, added $1.2 billion to net income.

Buffett said most of Berkshire's companies continue to improve gradually along with the overall economy - except for those tied to residential construction. Berkshire subsidiaries that are particularly sensitive to the housing market, such as Acme Brick, Shaw Carpet, and Johns Manville haven't improved significantly since the recession slammed the home-building industry.

Berkshire's railroad and utility division, which includes Burlington Northern Santa Fe railroad and MidAmerican Energy, posted a big jump in profits. That unit will add $908 million to Berkshire's net income in the quarter, up from $505 million last year.

Berkshire recorded an $82 million loss on investments and derivatives in the first quarter. In 2010, Berkshire posted a $1.4 billion gain.

The true value of the derivatives won't be clear for at least several years, because they don't mature until at least a decade from now on average. But Berkshire is required to estimate their value every time the company reports earnings. Buffett has told investors he believes the contracts will ultimately be profitable because the premiums are being invested.

Berkshire's operating earnings were $1.59 billion in the first quarter, down 28 percent from a year ago. Buffett has said Berkshire's operating earnings are a better measure of how the company is performing in any given period, because those figures exclude the value of derivatives and investment gains or losses.

Berkshire owns roughly 80 subsidiaries, including clothing, furniture and jewelry firms. Its insurance and utility businesses typically account for more than half of the company's net income. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.

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BofA to spin off $5 billion private equity unit

(Reuters) - Bank of America Corp (BAC.N) plans to spin off its last large private equity fund, with more than $5 billion in assets, and has no plans to make new private equity investments, a company spokesman said on Tuesday.

Bank of America, the largest U.S. bank by assets, will spin off BAML Capital Partners into its own unnamed firm.

The firm would then manage the bank's private equity assets for a fee -- winding those positions down over time -- and could begin accepting outside investors.

The assets will remain on BofA's balance sheet until they are wound down.

Company spokesman Jerry Dubrowski said BofA determined the business was "not strategically critical to customers and our clients" and the decision was made to spin off the unit.

Dubrowski said the head of the new firm had not yet been announced, and it was not immediately clear the number of employees that would move to the new firm.

The spin-off is the latest in a series of moves by the bank to comply with the Volcker Rule, a part of the financial regulatory overhaul law passed in 2010 that limits proprietary trading, or investments by banks using their own capital. It also fits with Chief Executive Brian Moynihan's efforts to sell off extraneous business units.

In 2010, the bank spun off Banc of America Capital Investors, a $1.4 billion private equity group to form Ridgemont Equity Partners, under a similar structure.

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Japan eyes sales tax rise to pay for post-quake rebuild

(Reuters) - Japanese consumers may have to help foot the reconstruction bill after last month's earthquake and tsunami caused $300 billion of damage, further burdening the hugely indebted economy, a newspaper said on Tuesday.

It would be the first increase since 1997, though a sales tax hike had been the subject of fierce political debate before the earthquake struck as one way for Japan to dig itself out of its massive debt.

The government is considering raising the tax by 3 percentage points to 8 percent when the new fiscal year starts next April, the Yomiuri newspaper reported.

"It was clear even before this disaster and the need to secure funds for reconstruction that to ensure a sustainable fiscal situation, some sort of reform of spending and revenues was necessary," said Internal Affairs Minister Yoshiro Katayama.

"The debate over the fiscal situation is not something that began with this disaster," he told reporters.

The government hopes to avoid issuing new bonds to fund an initial emergency budget, expected to be worth about 4 trillion yen ($48 billion), due to be compiled this month.

But bond issuance is likely for subsequent extra budgets which will only make it harder for Japan to rein in its debt, already running at twice the size of the $5 trillion economy.

The mood among consumers about the prospects for jobs and incomes darkened in March after the quake, a Cabinet Office survey showed.

Though the triple disasters of quake, tsunami and nuclear crisis are bad news for the Japanese economy, the damage is not expected to spill over across the region.

The Asian Development Bank's chief economist said he saw little sign of a serious negative impact on other Asian economies.

The government says it has not yet decided how to fund the rebuilding cost but the Yomiuri said it had ruled out raising income and corporate taxes.

"I am aware that the Democratic Party is considering various methods, including this (tax rise). But the government is not considering any specific funding methods at this stage," top government spokesman Yukio Edano told a news conference.

Katsuya Okada, secretary-general of the ruling Democratic Party (DPJ), said on Sunday taxes had to rise to repay new government bonds that will be needed to pay for reconstruction.

A poll by the Nikkei business daily showed about 70 percent of Japanese voters would support a tax hike, but want unpopular Prime Minister Naoto Kan to be replaced.

IMPACT OF NUCLEAR CRISIS

As well as trying to deal with the consequences of quake and tsunami which killed at least 13,000 and left tens of thousands homeless, Japan is struggling to control the Fukushima Daiichi nuclear power plant that began leaking radiation when it was nearly destroyed by the natural disasters.

NHK state television said police statistics from hard-hit Iwate Prefecture found drowning caused 92 percent of the deaths and that more than two-thirds of victims were over 60 years old.

Plant operator Tokyo Electric Power (TEPCO) said it had started removing highly contaminated water from one of the reactors, a key step to repair the cooling system that regulates the temperature of radioactive fuel rods.

It wants a "cold shutdown" of the plant in six to nine months, setting a timeframe for bringing the world's worst nuclear crisis in 25 years under control.

French nuclear plant maker Areva said it had agreed with TEPCO to provide a water treatment plant that uses a process called "co-precipitation" -- which isolates and removes radioactive elements from water -- to speed up decontamination of the Fukushima site.

"We have much experience of decontamination . we are ready to put it at the disposal of the Japanese government," Areva Chief Executive Anne Lauvergeon told reporters in Tokyo.

She said TEPCO is hoping to begin the water treatment before the end of May, but she did not know when was feasible. Areva would "try to do this as soon as possible," Lauvergeon added.

The damage to Fukushima Daiichi, and the shutdown of other nuclear power plants, has caused power outages that exacerbate the disruption to manufacturing supply chains and overall economic activity.

Toshiba has cut its 2010/11 operating profit estimate, blaming the disaster. Earnings at cellphone venture Sony Ericsson, due later, were expected to shed light on the size of the earthquake's impact on the cellphone industry.

Chip maker Texas Instruments warned of slower-than-usual quarterly sales growth as it scrambles to restart production after the quake, and said it was unclear when the supply of the silicon and wafers it needs will return to normal.

Japanese corporate confidence plunged by a record amount in April and is seen worsening further, a Reuters poll showed last week.

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Yahoo earnings beat estimates, sales fall

SAN FRANCISCO (MarketWatch) — Yahoo Inc. on Tuesday reported a smaller-than-forecast decline in quarterly profit, as the Internet search and advertising company presses ahead with an ongoing turnaround effort.

Yahoo’s earnings for the first quarter beat Wall Street estimates, and its shares of rose more than 2% in after-hours trading, following the report.
Sprint looks to share network

Sprint Nextel is in advanced talks to rent space on its wireless network to start-ups LightSquared and Clearwire, a move driven by consolidation and cost-cutting. Spencer Ante reports.

Yahoo YHOO +3.47% said net income fell to $223 million, or 17 cents a share, compared to $310.2 million, or 22 cents a share, in the same quarter last year. The Sunnyvale, Calif., firm said net revenue for the period ended March 31 fell 6% to $1.06 billion.

Yahoo’s first-quarter earnings included an impairment charge of 2 cents a share related to Yahoo Japan, the company said.

The results also compare to a year-earlier period when Yahoo’s earnings were boosted by its sale of the Zimbra email service, and its search partnership with Microsoft Corp.

Analysts polled by FactSet Research had expected Yahoo to report first-quarter earnings of 16 cents a share and $1.05 billion in net revenue.

For the second quarter, the company said it expects revenue excluding traffic acquisition costs to come in the range of $1.08 billion to $1.13 billion. Analysts had been expecting $1.1 billion for the period.

“Our turnaround is proceeding on schedule, and we are very confident that Yahoo is headed in the right direction,” Chief Executive Carol Bartz said during a conference call with analysts.

Bartz pointed to various “proof points,” including the increase that Yahoo saw in online display advertising revenue during the quarter.

Yahoo hired Bartz in 2009 to reboot the embattled company. The CEO has sought to streamline operations and has set a target of reaching a 24% operating margin by 2013. Yahoo said Tuesday that its operating margin excluding the cost of acquiring traffic stands at 18%.

Bartz has also sealed a partnership with Microsoft MSFT +1.19% that has Microsoft powering Yahoo’s search results in a revenue-sharing arrangement.

But in January, Yahoo cautioned that it likely won’t see a significant benefit from the Microsoft partnership in terms of revenue-per-search until the second half of this year, due to “bumps in the road” encountered as the companies align their operations.

Bartz said Tuesday that problems encountered in combining with Microsoft’s search-advertising technology have continued. As a result, Bartz said Yahoo would hold off on moving more of its geographical markets outside the U.S. over to Microsoft’s search advertising technology this year, until the companies “get this thing back to where it needs to be” in terms of revenue growth.

In particular, Bartz said that “as it turns out,” Microsoft’s technology does a poor job of predicting performance for some search advertisers that don’t have a history on their system. Therefore, “many of the new advertisers can’t even get their campaigns in,” she said.

Yahoo said that its gross search advertising revenue fell to $455.1 million in the first quarter, from $841.2 million in the same quarter last year.

Analysts had been anticipating a significant decline in Yahoo’s search advertising revenue.

Yahoo said that gross revenue from online display advertising, a market in which it has long enjoyed a more solid footing, rose to $522.6 million, from $491 million — a 6% increase.

Analysts had been expecting display-advertising revenue growth in the quarter of slightly less than 10%.

Bartz said that Yahoo enjoyed particularly strong interest in its news blogs, and original Web video content. The CEO said that Yahoo’s video advertising still makes up a relatively small part of its total revenue, though it’s “the fastest growing part.”

Yahoo said Tuesday that its total cash, equivalents and marketable securities on hand as of March 31 fell by $101 million compared to Dec. 31, to $3.5 billion.

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Gold Tops $1,500 on Outlook for Escalating U.S. Debt, Dollar

Gold futures rose to a record $1,500.50 an ounce as U.S. debt concerns weighed on the dollar, boosting demand for the precious metal as an alternative investment. Silver surged to a 1980 high.

The greenback dropped against the euro on speculation that the European Central Bank will continue to raise borrowing costs as some nations struggle to contain sovereign debt. Standard & Poor’s yesterday revised its long-term outlook on U.S. debt to negative from stable. Gold has climbed 32 percent in the past year, and silver prices have more than doubled.

“The U.S. credit rating will undoubtedly be lowered in the next few years,” said Michael Pento, a senior economist at Euro Pacific Capital in New York. “This will mean much higher borrowing costs and a much lower currency. International investors have been using gold and silver as an alternative currency and an alternative to the dollar, and this will only exacerbate and accelerate that process.”

Gold futures for June delivery rose $2.20, or 0.1 percent, to settle at $1,495.10 at 1:38 p.m. on the Comex in New York. Earlier, the price climbed as much as 0.5 percent to the record.

Gold for immediately delivery rose $1.97 to $1,497.27 at 3:49 p.m. New York time. Earlier, the price gained as much as 0.3 percent to an all-time high of $1,499.32.
Silver Climbs

Silver climbed as much as 2.8 percent to $44.175 in after- hours trading. The most-active contract settled up 95.7 cents, or 2.2 percent, to close at $43.913 an ounce.

“Silver is like gold on steroids,” said Jon Nadler, an analyst at Kitco Inc. in Montreal.

Euro Pacific’s Pento, who correctly predicted gold’s rally in the past three years, said the metal will reach $1,600 in 2011. The commodity has gained every year since 2001 on increased investment demand for raw materials.

“The bullish trend becomes pronounced as more and more people get out of the dollar to buy hard assets,” said Lim Chae Myung, a Seoul-based trader with Hyundai Futures Co.

The Treasury Department projected that the government may reach the $14.3 trillion debt-ceiling limit as soon as mid-May and run out of options for avoiding default by early July.

The Federal Reserve has kept its benchmark interest rate at zero percent to 0.25 percent since December 2008 and has pledged to buy $600 billion in Treasuries through June to stimulate growth.

The ECB this month raised its main rate to 1.25 percent from a record 1 percent to stem inflation.

The Fed probably won’t risk damping economic growth by raising borrowing costs rapidly, Pento said.

S&P changed its long-term rating, citing “material risk” that policy makers won’t reach an accord on “medium- and long- term budgetary challenges.”

“There certainly has always been that lingering concern over U.S. debt and the S&P people are finally identifying the threat,” said Stephen Platt, an analyst at Archer Financial in Chicago. “The world is awash in liquidity. Gold’s slow, grinding action upward shows the deterioration in the dollar, excess liquidity and deficit problems are still in force.”

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Do you think you will be rich one day?

In this land of opportunity, Americans may believe that it's harder to get rich than it used to be. But when asked about the likelihood of getting rich personally, one-third say it's very or somewhat likely that they will attain wealth because of their work, investments, inheritance or good luck.

On the other hand, six out of 10 (63 percent) say it's not too or not at all likely they'll get rich. Just 2 percent volunteered that they're already rich.

Bankrate commissioned Princeton Survey Research Associates International to explore how people feel about their chances for prosperity, as well as how they define wealth and their motivations for pursuing it.

Hope springs eternal -- for the young. More than half of those aged 18 to 29 (54 percent), believe they will get rich. Meanwhile, cynicism sets in with the passage of time. Only 34 percent of respondents in the 30 to 49 age range believe they will be rich, while one out of five (21 percent) in the 50-plus age group think so.
How would you define rich?
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What is rich, anyway?
Most people don't equate wealth with a yacht in the Mediterranean and a house on every continent. A meager 7 percent of respondents define "rich" by possessions such as houses, cars and boats.

Instead, rich means having just enough money not to worry, to at least one-third of Americans (33 percent), according to the survey. That's a subjective definition that varies with lifestyle and attitude. Another 26 percent define rich as having enough money to quit their jobs.

"I think there is a paradox about it. People could live smaller than they do. There are a lot of McMansion inhabitants who could do that if they wanted to, but they slide on the golden handcuffs, and that is part of what keeps you from feeling rich," says Peter Rodriguez, associate professor of business administration at the University of Virginia's Darden School of Business.

Few people put a dollar amount on the definition of wealth. Just 17 percent say that being rich means having a net worth of $1 million or more, and 11 percent say that a six-figure annual income makes someone rich.

Most people who are rich don't even consider themselves rich. It's a relational feeling, says Rodriguez.

"For example, you take someone who has been earning $40,000 a year and bump them up to $100,000 -- they feel rich. Even if they increase their lifestyle, they don't have to worry about their old bills anymore. But if you take someone who is making $150,000, they feel poor unless they make $300,000," he says.
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How to get rich
One-fifth of Americans (20 percent) believe that starting your own business is the most likely way for someone to get rich today.

History supports that assumption. Most self-made millionaires are small business owners, says Greg McBride, Bankrate.com's senior financial analyst.

Choosing a high-paying job or career comes in second (19 percent) as the most likely path to getting rich.

Unfortunately for most people, having a high-paying job is the ticket to an expensive lifestyle and nothing more lasting, says Todd Tresidder, a financial coach at FinancialMentor.com and self-made millionaire.

Surprisingly, just 9 percent of survey respondents say real estate investments offer a likely path to wealth. Though real estate investors have gotten creamed in the past year, it's been a major moneymaker for some over the years, though it's by no means a sure thing. Plenty of people go bankrupt in real estate.
What is the most likely way for someone to get rich?

What motivates you the most to obtain prosperity?

"You do have to have deep pockets to play the game," says Dan Danford, principal and chief executive officer of the Family Investment Center in St. Joseph, Mo.

It offers a couple of advantages. For one, you can leverage the investment which dramatically increases the return or magnifies the loss.

"The research shows that owning your own business and real estate are two of the most common paths to achieving wealth and financial security. There is a reason for that. Owning your own business and real estate have two principles: They have leverage and tax advantages," says Tresidder.

Surprisingly, 15 percent of people say that getting lucky via the lottery or an inheritance is the most likely road to riches, while 15 percent point to living frugally and saving money as best.

Though living frugally may not have you living like a Rockefeller, it's a more likely route to wealth than winning the lottery.

"Living frugally and saving money are helpful, sure, but winning the lottery isn't even a plan. That's called hope," says Tresidder.
Motivations for attaining wealth
Despite what advertising messages might convey, most people are not motivated to pursue wealth for material reasons. Only 11 percent of those surveyed say they want to be rich to afford material things and pursue leisure activities.

Instead 41 percent of Americans wish to obtain personal prosperity so they can provide a better life and future for their children.

Statistically, only a small fraction of the population will ever be truly rich. Americans sometimes sabotage themselves or are too anxious about current economic conditions to take steps toward prosperity. Danford has a fatalistic point of view when it comes to getting rich.

"I work with a broad spectrum of people, and one of the truisms I've come up with is: People who have money will always have money and people who don't (have money) won't ever have money."

The majority of Americans appear to agree, according to our poll. But optimism prevails with at least a third of Americans who aspire to be wealthy.

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Money management 101

From the middle class to millionaires, everyone feels a few dollars short of comfort at times. But more money won't necessarily solve financial difficulties.

Developing strong money management skills can help you use the money you have today to live the life you want. Plus, when your ship does come in -- the great job, the winning lottery ticket or the inheritance from rich Uncle Bob -- you'll know how to handle it.

"People need to have a plan for their money," says Steve Bucci, Bankrate's debt adviser and president of Money Management International Financial Education Foundation. "If you don't have a plan and the other person does have a plan, they're going to win because they have the discipline, goal and desire and you're just sort of playing by ear."

And who is the other person? Marketers, says Bucci, who also authored "Credit Repair Kit for Dummies."

It's not your imagination; people are out to get you -- or at least your money. Being prepared will help you counter the very real forces out there that want you to spend, spend, spend.
Savings strategies

Set goals
Track spending
Automate savings
Prepare a budget
Change behavior
Borrow wisely
Prioritize bills

1. Set goals
Not all superfluous spending goes to shiny new toys and baubles. Money can be easily frittered away via expensive cable packages or restaurant meals, to name a couple of examples.

Setting goals provides a mechanism for overriding the impulse to buy things that are not as important.

"People don't often associate spending plans with dreaming, but if you do it right, it's a key ingredient," says Bucci.

"You need a reason not to spend on things that don't matter. You decide that you have a goal in mind that is more important."


Writing down your goals will help prioritize spending when it comes time to map out your plan. Bucci recommends writing short-term, medium-term and long-term goals on note cards. If you have them, include kids and the significant other in the process.

"You make your choices, but you need to have the dream or the goal and the money plus knowing that you're going to be able to put the money aside," he says.

2. Track spending
"The only way to plug the leak is to know where the leak is," says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling.

Take some time to try to follow every cent spent: the rent payment, the $3.32 latte, the 50-cent newspaper, the 79-cent pack of gum -- everything. Don't judge yourself now or feel angst over purchases.

Almost everyone can usually account for most of their spending with a cursory overview of their finances, says Bucci. "Most people can get to 90 (percent), but the last 10 percent is a killer.

"It disappears ... lattes, tips, food at work, allowances for the kids. Just write it down and by the end of the month you'll have most of the 10 percent and know where almost all of your money goes," he says.

Continue to take notes on spending after the first month. "Keep up with the balance in your checkbook, each time you make a deposit or withdrawal, reconcile or balance your checkbook and also reconcile your statement when it arrives," Cunningham says. "No one wants to do it, but it is important."


"Even if you use a debit card, you have to write that down in your checkbook -- you should carry something around that is going to keep up with your balance."

3. Automate savings
"We're the only industrialized nation with a negative savings rate; people are spending more than they make," says Dave Jones, president of the Association of Independent Consumer Credit Counseling Agencies.

To combat sluggish savings, earmark a certain percentage or dollar amount for a savings account. Savings accounts can be either specialized retirement accounts or regular deposit accounts. Start small to get into the routine of saving regularly.

"When you're getting started, it's more important that you get in the habit of saving rather than that you save a lot," says Bucci.

Use windfalls and raises to jump-start savings as well. Got a raise at work?

"Put that money toward savings. You were living just fine without it," says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling.


Bucci recommends funneling half of the newfound income into savings. "The other half you get to spend," he says. "So you're not missing anything, you're not taking anything away from yourself. You're still getting more money then you had before, but now you're saving a little bit more."

4. Prepare a budget
"We all need to do what is right for us," says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling. "Some people might want to use Quicken or another computer software program and others might want a pad and pencil. It's just a matter of knowing what works for them."

If possible, send a set percentage of your income straight to a savings account and try to configure your budget as though that money doesn't even exist.

Cunningham recommends that people divide their spending plan into separate categories with necessities taking top priority. Necessities would include housing, utilities, medical insurance, food, child care, secured loans, car payments, insurance and co-signed loans. Then comes the unsecured debt, miscellaneous and entertainment expenses -- plus any other applicable categories.

Plug in your income and the amount of money shuttled into each category every month. You may see areas where you can trim some fat. For instance, you could save hundreds of dollars a year by requesting lower interest rates on credit cards or shopping around for car insurance. Unnecessary drains on funds will become apparent and you have the foundation in place to take action.


"A spending plan will let people understand exactly what bills need to be paid first -- or if they need to put a little extra cash toward a bill," says Dave Jones, president of the Association of Independent Consumer Credit Counseling Agencies.

5. Change behavior
Ideally everyone would have plenty of money leftover at the end of the month. But if necessities leave you tapped out by the 20th of the month, it may be time to take drastic steps such as getting a roommate or finding a second job.

Sometimes a change could be as easy as not eating out twice a week. "If someone is spending $100 a month on pizza, then they might decide they want to look at that and say, 'Well it's fine to order pizza in, but we're only going to do it once a week instead of two times a week,'" says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling.

"I have found that it is more successful if a person cuts back rather than cutting out," she says. "So back to our pizza example, don't say, 'OK, no more pizza.' Just say, 'OK, let's be more judicious.'"

Curtailing credit card usage -- especially on impulse -- might be the best behavioral change you can make, particularly if you already have a large amount of credit card debt.

Another thing to do: "Get organized," says Cunningham. "You're not going to believe it, but people walk into our centers carrying grocery sacks full of unopened bills. And in that grocery sack are unopened letters from their mortgage lenders."
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Use a filing cabinet or a simple box to keep financial documents in order. Bills should be kept handy in a designated box or basket. The important thing is to set up a system that works for you. "It will save you time and you won't have to look for misplaced documents," she says.

6. Borrow wisely
Credit can be a good thing. Loans allow people to buy cars, houses, boats and even help cushion the blow in emergencies.

"It's fine when it's used properly," says Bucci. "What you have to know is that you're taking from tomorrow's money today."

On the other hand, people don't always make buying decisions rationally and can easily rack up thousands upon thousands of dollars in debt.

"If you have a $10,000 credit card bill on an 18 percent interest rate credit card and you make the minimum payment of 2 percent -- though some companies have higher minimums -- it will take 40 years to pay off that bill," says Dave Jones, president of the Association of Independent Consumer Credit Counseling Agencies. "And that's if you never make another purchase on that card."

To keep a perspective on borrowing, match a loan to the life of the product. "If this is a purchase that is going to take you a long time to pay off, then you use long-term credit to pay it off -- not short-term credit," says Bucci.

"Use long-term credit for big purchases and short-term credit for purchases that you're going to pay off in a reasonable amount of time," he says. Extreme examples would be buying a car with a credit card or taking out a home equity loan to replace a sofa.
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"You look at the couch that you're going to buy, and think this couch is going to be trash in five years. You don't want to be paying for a couch you no longer have 15 years down the line," Bucci says. "The payments shouldn't outlive the purchase."

7. Prioritize bills
Late fees and exorbitant interest rates can eat away at even well-stocked coffers. Whether you're juggling a lot of financial plates or have only a couple of monthly obligations, paying on time -- every time -- is essential.

One of the great conveniences of modern life, online bill pay allows consumers to schedule bill payments without touching a checkbook or finding postage stamps.

Some people prefer the security of real-world actions to virtual ones, however, which means they need to plan ahead.

"Payments need to be sent at least seven to 10 days before the due date," says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling. "Write the date that you are going to mail it in the upper right hand corner under where the stamp goes and then file those bills in chronological order so that anytime you sit down, you have at your fingertips which bills need to be paid."

She also advises that if money gets too stretched, necessities should always come before paying unsecured debt.

"Last in line are the creditors, but often the consumer pays them first. I always say if your creditor is happy and your electricity has been cut off, you've done it backward. But really, though, the creditors put on the pressure."

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The 10 Commandments of Wealth and Happiness

One of the stupidest expressions ever coined was “The one who dies with the most toys wins.” When you’re on your death bed, you won’t be thinking about the things you had – you’ll be thinking about the times you had.

So here goes: the 10 commandments of achieving financial independence and being happier while you do it …
1. Thou shalt live like you’re going to die tomorrow, but invest like you’re going to live forever.

The ease of making money in stocks, real estate, or other risk-based assets is inversely proportional to your time horizon. In other words, making money over long periods of time is easy – making money overnight is the flip of a coin.

Money is like a tree: Plant it properly, care for it every so often, then wait patiently. Stare at a newly planted tree for 24 hours, and you’ll be convinced it’s not growing. Fixate on your investments the same way, and you could miss out on a game-changer.

The biggest winner in my IRA is Apple stock. I don’t remember exactly when I bought it, but I’m guessing it was in 2002 or 2003. My split adjusted price is around $8/share: As I write this, Apple’s trading at around $300/share, for a gain of 3,800 percent. Had I been listening to CNBC or some other “news” outlet that promotes constant trading, I almost certainly wouldn’t still own it.


Patience is certainly a virtue when it comes to investing. I invested a bunch of money and built my online portfolio when the Dow was hitting generational lows back in spring 2009. I had no idea where the market was going next. I was every bit as scared as the next guy.

But having lived through similar times before – I was a stockbroker during the market crash of 1987 – and since I’m only in my mid-50s, I was confident the economy would rebound sometime before I died. While the stock market has come back quite nicely since then, in many parts of the country, housing prices haven’t. That’s why I’m now looking for real estate investments. Are you?

In short, enjoy your life to the fullest every day – live like you’re going to die tomorrow. But since you’re probably not going to die tomorrow, plant part of your money in quality stocks, real estate or other investments; then hold onto them. Don’t ignore your investments entirely – sometimes fundamental things change that indicate it’s time to move on – but don’t act rashly. Patience pays.
2. Thou shalt listen to thine own voice above all others.

My job as a consumer reporter has included listening to countless sad stories about nice people being separated from their money by people who weren’t so nice. While these stories run the gamut from real estate deals to working at home, they all start the same way: with a promise of something that seems too good to be true.

And they all end the same way: It is. Just last week, I helped someone who was about to lose money by applying for a government grant.

If someone promises they can make you 3,000 percent in the stock market, they’re either a fool for sharing that information or a liar. Why would you send money to either one? When you hear someone promising a simple solution to a complex problem, stop listening to them and start listening to your own inner voice. You know there’s no pill that’s going to make you skinny. You know the government’s not handing out free money for your small business. You know you can’t buy a house for $300. Stop listening to commercials and start listening to yourself.
3. Thou shalt covet bad economic times.

Wealth is realized when the economy is booming, but that’s not when it’s created. Wealth is created when times are bad, unemployment is high, problems are massive, everybody’s freaking out, and there’s nothing but economic misery on the horizon.

Would you rather buy a house for $400,000, or $200,000? Would you rather invest in stocks when the Dow is at 12,000 or 7,000?

Obviously, nobody wants one in 10 Americans to be out of work. But the cyclical nature of our economy all but assures that this will happen periodically. If you’re one of the 90 percent who still has a job, this is the time you’ve been saving for. Stop listening to all the Chicken Littles in the media: The sky isn’t falling. Get busy – put your cash to work and create some wealth.
4. Thou shalt not work.

MSN Money’s Liz Pulliam Weston recently wrote a great story called Pretend You Won the Lottery. She asked her Facebook fans to describe what they would do if they won the lottery. From that article:

Most of the responses had a lot in common. People overwhelmingly wanted to:
Pay off all their debts.
Help their families.
Donate more to charity.
Pursue their passions, including travel.

Note that these goals are largely achievable without winning the lottery. And that was her point: Listing what you’d like to do if money were no object puts you in touch with the way you’d really like to spend your life.

My philosophy takes this concept a step further: When it comes to work, you should try to do something that you regard as so fulfilling that you’d do it even if it didn’t pay anything. In other words, the word “work” implies doing something you have to do, not something you want to do. You should never “work.”

I’ve chosen to spend nearly all of my adult life in warm climates – I lived in Arizona for 10 years and have now lived in Fort Lauderdale for nearly that long. Why? Here’s what I’ve always said: “You already spend a third of your life sleeping. Why spend another third of it freezing your tail off?”

No offense to you Northerners. I realize some people enjoy the cold. The point is that if you’re going to spend a huge part of your life working, don’t fill that time with what makes you the most money. Fill it with what makes you the most fulfilled. I made more money in 1990 managing a branch office for a Wall Street investment firm than I will this year. But I feel a lot less slimy (no offense to stockbrokers) and lot more fulfilled. You can’t put a price tag on that.
5. Thou shalt not create debt.

I’m always getting questions about debt. “Should I borrow for this, that, or the other?” “What’s an acceptable debt level?” “Is there such a thing as good debt?”

There’s way too much analysis and mystery around something that isn’t at all mysterious. Paying interest is nothing more or less than giving someone else your money in exchange for using theirs. Rule of thumb: To have as much money as possible, avoid giving yours to other people.

Don’t ever borrow money because you want something you can’t afford. Borrow money in only two circumstances: when your back is against the wall, or when what you’re buying will increase in value by more than what you’re paying in interest.

Debt also affects you on a level that can’t be defined in dollars. When you owe money, in a very real way you’re a slave to that lender until you pay it back. When you don’t, you’re much more the master of your own destiny.

There are two ways to achieve financial freedom: Have so much money that you can’t possibly spend it all (something exceedingly difficult to do) or don’t owe anybody anything. Granted, since you still have to eat and put a roof over your head, living debt-free doesn’t offer the same level of freedom as having more money than you can possibly spend. But living debt-free isn’t a matter of luck or even hard work. It’s a simple choice, available to everyone.
6. Thou shalt be frugal – but not miserly.

The key to accumulating more savings isn’t to spend less – it’s to spend less without sacrificing your quality of life. If going out to dinner with your significant other is something that you enjoy, not doing it may create a happier bank balance, but an unhappier you – a trade-off that is neither worthwhile nor sustainable. Eating an appetizer at home, then splitting an entree at the restaurant, however, maintains your quality of life and fattens your bank account.

Finding ways to save is important, but avoiding deprivation is just as important. In short, diets suck.

Whether they’re food-related or money-related, if they leave you feeling deprived and unhappy, they’re not going to work. But there’s a difference between food diets and dollar diets: It’s hard to lose weight without depriving yourself of the foods you love, but it’s easy to reduce spending without depriving yourself of the things you love.

Cottage cheese isn’t a suitable substitute for steak, but a used car is a perfectly acceptable substitute for a new one. And the list goes on: watching TV online rather than paying for cable, buying generics when they’re just as good as name brands, using house-swapping to get free lodging, downloading books from the library instead of Amazon… No matter what you love, from physical possessions to travel, there are ways to save without reducing your quality of life.
7. Thou shalt not regard possessions in terms of money, but time.

You go to the mall and spend $150 on clothes. But what you spent isn’t just $150. If you earn $150 a day, you just spent a day of your life.

Almost every resource you have, from physical possessions to money, is renewable. The amount of time you have on this planet, however, is finite. Once used, it can never be replaced. So when you spend money – especially if you earned that money by doing something you had to do instead of what you wanted to do – you’re spending your life.

This doesn’t mean that you should never spend money. If those clothes are all that important to you, by all means, buy them. But if it’s really not going to make you that much happier, don’t. Think of it this way: If you can live on $150 a day, every time you forgo spending $150, you just get one day closer to financial independence.
8. Thou shalt consider opportunity cost.

This is related to the commandment above. Opportunity cost is an accounting term that describes the cost of missing out on alternative uses for that money. For example, when I said above that not spending $150 on clothes puts you $150 closer to independence, that was a gross understatement. Because when you save $150, investing those savings gives you the opportunity to have more savings. If you’re earning 10 percent, $150 invested for 20 years will ultimately make you $1,000 richer. If you can live on $150 a day, ignoring inflation, you can now retire nearly a week sooner, not just a day.

One of the exercises in my most recent book, Life or Debt, is to go around your house and identify things you bought but probably didn’t want or need. A quick way to do this is to find things you haven’t touched in months. These were probably impulse buys. Add up the cost of these things, multiply them by 7, and you’ll arrive at the amount of money you could have had if you’d invested that money at 10 percent for 20 years rather than wasting it.

And when you do this, consider the stuff in your closet, the stuff in your garage, the rooms of your house that you heat and cool but don’t use, the new cars you’ve bought when used would have worked. The truth is that most of us have already blown the opportunity to achieve financial independence much sooner. Maybe now’s the time to stop.
9. Thou shalt not put off till tomorrow what thou can save today.

Shortly after I began my television career in 1988, I went on set with a pack of smokes, a can of soda, and a candy bar. I explained that these things represented the kind of money most of us throw away every day without thinking about it – at the time, about $5. But compound $5 at 10 percent for 30 years, and you’ll end up with about $340,000. That’s why learning to save a few bucks here and there and investing it is so important.

Fortunes are rarely made by investing big bucks, nor are they often made late in life. Wealth most often comes from starting small and early.

In short, there are limited ways to get rich. You can inherit, marry well, build a valuable business, successfully capitalize on exceptional talent, get exceedingly lucky – or spend less than you make and consistently invest your savings over time. Even if you’re on the road to any of the former, why not do the latter?
10. Thou shalt not covet thy neighbor’s stuff.

If this commandment sounds familiar, that’s because it resembles the Biblical 10th commandment:

Thou shalt not covet thy neighbor’s house, thou shalt not covet thy neighbor’s wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor any thing that is thy neighbor’s. (Exodus 20:17)

Envy may not be the root of all evil, but it is the root of much wasted money. As I’m fond of saying, you can either look rich or be rich, but you probably won’t live long enough to accomplish both. I’ve lived both ways, and trust me: Being rich is way better than using debt to look rich.

We’ll all admit that when on the verge of making a purchase decision, we’re often thinking of what our friends will say when they see it. Normal human behavior? Sure, but it’s not in your best interest, or theirs. Making your friends feel jealous isn’t nice, and feeling envy for other people’s possessions is silly. Possessions have never made anyone happy, nor will they.

Decide what really makes you happy, then spend – or not – accordingly. When your friends make an impressive addition to their collection of material possessions, be happy for them. One of the stupidest expressions ever coined was: “The one who dies with the most toys wins.” When you’re on your death bed, you won’t be thinking about the things you had – you’ll be thinking about the times you had.

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Dow falls 118 as oil slides, Japan worries rise

Energy stocks stumble as crude oil falls below $107. Drivers are cutting back, a new report shows. Japan raises the severity rating on its nuclear problem. Gold pulls back, but airlines jump. Wal-Mart and Procter & Gamble boost the Dow; Alcoa lags.

A series of inconvenient truths dawned on Wall Street today: The economy may not be as strong as thought; high gas prices are already causing people to change their driving habits; and the Japanese nuclear crisis is worse than thought.

The result was a sell-off in crude oil, gold and a broad array of commodities -- and a steep decline in stocks. In the afternoon, bargain hunters emerged, and the market modestly trimmed its losses.

The Dow Jones industrials ($INDU) were down 118 points, or 1%, to 12,264. The blue chips had been down as many as 148 points. The Standard & Poor's 500 Index ($INX) dropped 10 points, or 0.8%, to 1,314, and the Nasdaq Composite index ($COMPX) was off 27 points, or 1%, to 2,745.

Crude oil settled down $3.67 to $106.25 a barrel in New York. Brent crude was down $3.34, or 2.7%, to $120.64 a barrel in London.

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Chinese Purchases Of U.S. Real Estate Poised To Rise

Growth in the number of well-off mainland Chinese, an increase in overseas study by their children, and a drop in U.S. property prices are leading to more purchases of U.S. real estate by buyers from China. Where are they buying and why? How can U.S. developers and other sellers connect with Chinese buyers?

To find out more, I talked to Steven Lawson, CEO of the Windham Realty Group of Michigan. He opened the company’s China headquarters in Shanghai in 2008 and has lived in the city since 2007. Excerpts follow.

Q. From a Chinese point of view, why is it a good time to buy U.S. property?

A. The U.S. represents a good value for what we consider to be a rapidly globalizing Chinese investor. Permanent private ownership and the market adjustment in the last five years represent a good time for people who are well funded with cash to take advantage of market conditions.

Q. What do you mean by good value? The market is still coming down on the whole, according to some news reports.

A. The U.S. on the whole does have some softness. In particular, Las Vegas, Detroit are Atlanta are really dragging down the market. But when you look at the two cities that our clients are most interested in – New York, particularly Manhattan, and the L.A. area, they are not behaving in the same way as the U.S. market. In L.A, properties are still in many cases 20% below their 2007 peak, and there is some room for capital appreciation.

Importantly, a lot of our clients have some level of self- use intention, whether it’s a business connection, a children’s education connection, or an immigration intention connection. In terms of the clients who’ve transacted, I think we would say 60% + have an education connection. Education is a huge driver. So Boston is a rather natural market for us to kind of dig into. It’s only more recently that we’re seeing more purely investment-driven clients.

Q. How long have you been doing business with Chinese customers, and how are you approaching this new business?

A. We probably started thinking about China and investigating China a little later that we should have. It was in 2006. We started making trips to China in about 2006-2007. Now we have set up our infrastructure in China — an investment consulting business. In the U.S., we have a brokerage company. We’re able to work with our clients here (in China), and give them information. Then, we’re able to refer them to our U.S. company. It functions legally. In the U.S., we have two types of clients – self-use clients and about 20 developers spread out between New York, California, Florida and Michigan. Relative to our total business, China is still not proportionally big, but we anticipate that it’s still going to grow bigger and bigger.

Q. You mentioned that there is growing interest in investment in U.S. commercial properties among Chinese. How will that play out in the next few years?

A. I think it’s going to grow substantially, because the U.S. commercial market has some stress and difficulties, and it’s going to create opportunities. We are getting more inquiries from people who are interested in purchasing commercial property, primarily hotels, shopping centers and office buildings. One of the things we have done is to open a New York office. So we see a trend of emergence (of demand) on the commercial side.

Q. Who is a typical buyer?

A. We had a group in town this week, three to four people represented some typical Chinese diversified companies. They’re in the education field, they’re in the travel field and they’ve made other overseas investments but they’ve been more in Singapore and the UK. Now, they’re interested in acquiring U.S. property. I think the trend is moving in that direction.

Q. What’s a typical trip to the U.S. like when you have a group that is going over?

A. We arrive in New York, we show New York and New Jersey, and we go down to Florida. We show Miami and say, “Here’s a place where there isn’t a tremendous Chinese population but that we think one day there will be. Then we go to Vegas. That’s usually just to play, and then we do L.A. and San Francisco. This spring we’re going to alter that: we’re going to have Boston, too, because there’s just so much interest in education.

This year, we’re going to try to do a golf-related tour. We find a lot of clients have a lot of enthusiasm for golf, so we’ll (visit) some great golf courses and then enjoy looking at some golf real estate. You have to show some hospitality. You have to show you care before people develop some trust in you. We try to make it fun. We try to make it light. We have had transactions that have occurred as a result of a tour, but much more often it comes six months or a year later.

Q. How do you identify customers in China?

A. We have a website, and our web traffic is reasonably substantial. Of course we utilize search engine optimization and search engine positioning. The other thing we’ve done is to set up what we refer to as channel partners. They tend to be in the areas of immigration consulting, education consulting, financial consulting and real estate. These channel partners in essence send us clients, and we try to be reciprocal. We have clients looking for their services. We try to be reciprocal. It’s a big part of where we find clients to work with. Of course, there are exhibitions, such as the Money Show and also real estate exhibitions. We are working in Beijing with a pretty good media partner in the Beijing Media Group. We funded a small joint venture company with them for the northern China market, kind of mirroring what we’re trying to do in the southern and central areas.

Q. What are some of the best real estate “buys” in the U.S. today?

A. You can’t beat Manhattan overall, when you look at rental yields and when you look at how it’s been really restrained market over the last 10 years from a capital appreciation point of view despite everything that’s happened. Manhattan condominiums, for example, appreciated 60% between 2001 to 2010. We think that there’s still a lot of value there and a lot of stability there. If one of our clients says, “I want prime, I want stable, and I want safe,” we feel that Manhattan is very well aligned.

Some of our clients have more of a “want to see more rapid appreciation,” and we think that Miami, as long as you buy right, is well positioned from a 3-5 year viewpoint. The market saw some really substantial devaluation in properties, in some cases 50%+. Some very good developers (have) had some very prime properties that are selling for below construction cost.

Q. Would you say that for commercial property, too?

A. It’s primarily residential is what we’re advising people about now. We think that there are some very good oceanfront condominiums in good buildings where the building itself is not in any financial danger and is 50-60% sold. We think there’s a good opportunity for Chinese buyers who want to buy those now and do a 3-5 year flip.

Q. What about other markets?

A. The suburban parts of L.A. still offer some very good value — places like Arcadia, Pasadena, Orange County, and Newport Beach. These areas are still 20% – and in some cases a little better than 20% — below their 2007 peaks. The market took a pretty substantial hit in 2007, but it rebounded quite quickly. Again, these are places that are well aligned with different clients we work with.

Q. Jim Rogers said in an interview with Forbes recently that the agricultural sector holds a lot of promise for investors. Do you see much Chinese interest in U.S. agricultural land?

A. We do have two or three dairy farms in California that are on our website that are actively for sale, and we did bring a client to one. We have a client coming next month that has a fairly substantial dairy farming operation in China, not far from Wuxi, and it wouldn’t shock me if this group chose to transact on this dairy farm. The price of milk has gone way up proportionally to what this dairy farm is on the market for.


Q. Historically speaking, there isn’t a lot of connection between Florida and China. You’re working with developers there. Could you say more about how you pitch Florida’s potential to a Chinese investor?

A. The good part about Florida is that Chinese have heard of Disney and Orlando, but it’s amazing how little they’ve actually heard about Miami. And they don’t know how substantial it is. The state of Florida has engaged a PR firm in China to promote tourism and promote Florida as a destination, but it’s early. Could a university in a second-tier city in Florida attract Chinese students? I think the answer is yes, if they can integrate it with something. A partnership with a university in China would be a way that one could see flow thorough. Actually, in my home state of Michigan, is of course economically lagging in all kinds of ways. Three or four different universities have done an excellent job of attracting a really substantial number of Chinese students. That’s because they’ve made the effort and have done exceedingly well with it.

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Don't Give Up on Small Stocks

These days, it seems that nearly everyone is recommending large- company stocks. The big boys, according to many analysts, have attractive valuations, and the recovering economy should improve their prospects. But some pros are loath to dump the group of smaller stocks that have trounced the broader market for years.


Indeed, while the Standard & Poor's 500 index was up 13 percent in 2010, small and midsize stocks gained nearly twice that. Over the past two decades, small- and midcap stocks have produced an average annual return of 14 percent, while the S&P 500 has returned an average of 11 percent annually, according to FactSet Research Systems. And some portfolio managers say there's still plenty of opportunity in the small and midsize outfits. Smaller stocks tend to outperform their bigger cousins at the beginning of periods of economic expansion. It's easier for niche companies to do well right now, experts say, because they're not as dependent on the overall economy to grow, just small segments of it. "We're still in the early stages of the economic rebound," says Craig Hodges, portfolio manager of the $64 million Hodges Small Cap fund. Plus, some smaller companies remain attractive takeover targets for big firms with lots of cash but few growth prospects.

Of course, there's more risk with small and midsize firms. Their stock values tend to move considerably faster—both on the way up and the way down—than large firms. Most don't have as much cash as big firms, so a downturn could hurt them harder and more quickly, analysts say. The small stocks aren't cheap, either. Thanks to their big rally, they trade at an 11 percent premium compared with large firms. Historically, they trade at an average 2 percent discount, according to market research from The Leuthold Group. The stellar performance of small-caps and midcaps for so long has led many strategists to wonder if their heyday is over; Goldman Sachs, for one, sees the S&P 500 gaining 23 percent this year. "Large-caps are the most attractive cap sector right now," says Will Muggia, portfolio manager of the $840 million Touchstone Mid Cap Growth fund.

But Hodges says smaller companies that are well managed and are increasing earnings at a faster clip than sales remain attractive. Men's retailer Jos. A. Bank ( JOSB: 46.11, -1.18, -2.49% ) , for example, has been able to open stores and unveil new clothing lines even as others have cut back. Analysts also like Luby's ( LUB: 5.35, -0.05, -0.92% ) , a cafeteria chain that bought a larger restaurant outfit, Fuddruckers, out of bankruptcy. The business isn't growing much, but Hodges says Luby's management has a track record of turning businesses around. In the financial sector, credit card company Discover Financial Services ( DFS: 21.75, -0.07, -0.32% ) intrigues some pros. The firm, considerably smaller than its rivals, recently bought The Student Loan Corp. and could become an acquisition target for a large bank, says Don Wordell, manager of the $1.6 billion RidgeWorth Mid-Cap Value Equity fund.

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A Portfolio to Keep Income Flowing

While pension funds are increasingly seen as relics from a bygone age, they can still teach investors a thing or two about managing money during retirement.


Pension funds and retirees have similar goals. A retiree is trying to maintain a certain standard of living, including the basics of having enough money to pay the bills for the rest of his or her life.

A pension fund, meanwhile, has to ensure it can make the payouts it owes to participants for the rest of their lives.

In both cases, the primary goal isn't to make as much money as possible or "beat the market." Instead, it's to create a portfolio of investments that will allow you to meet specific obligations -- no matter what happens in the markets.

This may seem like a distinction without a difference. But it requires a fundamentally different mindset and approach than investing to maximize returns.

It even has a name: liability-driven investing.

"You're not investing to maximize returns...you're maximizing the chance of being able to meet future income needs," says Christopher Jones, chief investment officer at Financial Engines, which provides asset-allocation services to 401(k) plans.

Compared with a growth-focused investment strategy, a liability-driven portfolio is more likely to have a heavier weighting toward safe bond investments that provide a predictable level of income and much less in stocks. And it's one where despite the high level of bond holdings, rising interest rates can actually be good news -- even though that hurts the day-to-day value of your bond portfolio.

The most straightforward form of liability-driven investing is a "bond ladder," a portfolio of U.S. Treasury bonds, which mature gradually over time and provide a guaranteed source of future cash.

Unfortunately, most individual investors don't have account balances big enough to make a bond ladder work. But it's possible to approximate the strategy with mutual funds, although it requires a more hands-on approach and discipline.

The challenge with mutual funds is that, unlike owning individual bonds, most funds don't mature and return a predictable amount of money at a specific date in the future. To approximate this key part of a bond ladder, an investor can buy a series of short, intermediate and long-term bond funds. However, it requires being diligent about gradually rolling the money down the maturity spectrum to shorter-term bond funds over the years.

Financial Engines, for example, will create an income-generating portfolio for a 65-year-old that is 80% bond funds and 20% stock funds. This is a much lower stock allocation than many target-date mutual funds, which put more than half of investors' money into stocks at that age.

"You could do a fund that is 60% stocks and 40% bonds and simply consume 4% or 5% of what there is in the portfolio every year," says Mr. Jones. "If the market does well, your income goes up. But if the market goes down, your income goes down."

He adds that "when you're in retirement, you want to minimize the chances that your income is going to go down. You want to use bonds to structure the income floor you can count on."

Bonds, of course, do have their risks, such as the possibility that an issuer will default on its payments.

In addition, bonds will lose value when interest rates rise. For someone holding individual bonds, this isn't an issue because that won't have an impact on the amount of income the bonds pay out.

In fact, this is one area that requires a different mindset: Higher rates can be a positive.

"If interest rates go up, the amount of money you need to meet your liabilities goes down," says Aaron Meder, head of U.S. pension solutions at Legal & General ( LGEN.LN ) Investment Management America, which specializes in liability-driven investing.

Here's why: If you need your portfolio to pay out $10,000 a year, at 4% interest rates you need $250,000 in bonds. But with 6% rates, you need much less, only $180,000 in bonds.

Also, the stock portfolio is there to help offset any losses that have to be taken in a bond-fund portfolio. The stock holdings, which hopefully grow in value over time, should be slowly shifted into bonds and potentially reinvested at higher yields.

"A situation where rates go up might be a great time to move money from a growth portfolio to [bonds] to lock in a reduction in retirement income-funding needs," says Mr. Meder.

This highlights a key point. "The thing that's different is you're no longer focused on the value of your portfolio, but what is the ability of those assets to meet your future liability," says Financial Engines' Mr. Jones.

One final piece of the puzzle: Investors still need to hedge against outliving their money. This is where an annuity, which guarantees income for life but locks up your money, can come in.

Financial Engines recommends taking about 15% of the portfolio and buying an annuity. But the firm suggests waiting until you're in your early to mid-70s to do so.

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Why Stocks Are Tanking (It's Not Just Libya)

IT'S NOT JUST ABOUT Libya. There's another reason the stock market just took a hit. Everyone had become way too bullish and way too complacent.


Pride, as they say, goeth before a fall. When everyone's bullish, who is left to come in?

We're slap-bang in the middle of another mania.

How crazy have people become? Last week a portfolio manager I know told me about a conversation he'd just had with one of his clients. This manager runs a conservative practice. His clients are solid, sensible types—some old money, and some new money that thinks a bit like old money. One of his clients, a partner in a small private firm, had called him up and said, casually, that he and his partners were discussing this year's bonus pool. "We're thinking about putting it all in Apple ( AAPL: 353.13*, +4.97, +1.42% ) stock for the year. What do you think?" he asked.

The portfolio manager thought the guy was kidding. "No, we're serious," the client replied.

Huh?

"Why not?" he went on. "I mean, it's not like Apple's going to go down. It's a sure thing."

Yikes. You see this type of stuff when animal spirits are soaring.

No wonder IPOs are back on the menu. The time to take your company public is when the investors are rushing around with their checkbooks open.

A few days ago, while everyone was watching events unfold across the Arab world, an intriguing document came across my desk. It was the monthly Bank of America/Merrill Lynch survey of the world's top investment managers.

Bank of America ( BAC: 14.23*, +0.03, +0.21% ) spoke to 270 institutional investment managers—with a thumping $773 billion in assets—around the world and asked them for their views on the markets.

In a nutshell? They were about as euphoric as they have been since the late 1990s. "Institutions have record equity and commodity overweights, very low cash levels and the strongest risk appetite since Jan '06," reports Bank of America. Cash had fallen to 3.5% of assets—a dangerously low level. BofA research says that in the past, when it has fallen that low a stock market "correction" has usually followed in a matter of weeks.

Our old friends the hedge funds are back to where they were before the crash. According to the BofA report, hedge funds are betting as heavily on booming share prices as they were in July 2007, and the last time they were playing with this much borrowed money was in March 2008. Ah, the happy memories ...


There are no certainties in the markets, but the Bank of America/Merrill Lynch survey is among the better indicators. On the occasions when it has shown sentiment at extreme levels, it has often proven an excellent "magnetic south," pointing you in exactly the wrong direction. If you had sold when everyone was crazy bullish, and bought when everyone was crazy bearish, you would not have done badly over the years. After all, the big institutions are the ones that bet the big money. If they are already loaded up to the gunwales with equities, who's going to be the next buyer?

It isn't just the institutions, either. The individual American investor, who has been selling stocks for most of the past couple of years, has suddenly turned tail and started buying again. Portfolio managers will tell you their clients have been back on the phone since the start of the year, eager to get in on the action. The Investment Company Institute, a trade organization for mutual funds, reports big inflows of new money into stock-market funds since early January. Indeed, inflows into U.S. stock funds have been running at levels not seen—but for a single brief spike in 2009—since well before the crash.

Sentiment is one thing. Valuation is another. And Wall Street is frankly expensive by most measures. The dividend yield on the overall market, according to FactSet, is a measly 1.5%. The last time it was this low for any length of time was during the great bubble years of 1997 to 2001. According to data tracked by Yale University economics professor Robert Shiller, the market overall is priced at about 24 times cyclically-adjusted corporate earnings. That is very high; the average is about 16. Last week I screened the stock market for good dividend stocks: blue-chip companies whose shares are selling cheaply and which offer decent yields. The ranks are pretty thin these days. Everything has boomed.

White-shoe fund company GMO has just published its latest investment forecasts. From today's levels, it says, investors are looking at pretty slim long-term pickings. Indeed, it thinks typical investors in U.S. equities will be lucky to make money, after inflation, over the next seven or so years.

None of these indicators are dispositive. Nothing in the investment world is ever more than about 80% certain. Last week I spoke to a brilliant hedge-fund manager I know, and he was a raging bull. But then he's trading on short-term moves, and he's been buying things like distressed European financial stocks, where the bold (or foolish) may yet find bargains. It's a dangerous game.

For anyone looking to make long-term investments, the situation right now offers plenty of grounds for caution. And it's not just because of Libya.

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Will Silver Outshine Gold Again in 2011?

Everybody knows gold had a great year in 2010, rising 27% and beating most other investments. But silver actually did much better, climbing a breathtaking 83%. Can the "poor man's gold" continue to outperform its more expensive big brother?

Many analysts think so. Adrian Day, an asset manager and author of a recent book on commodities, Investing in Resources, says that for 25 years silver stockpiles were so huge that its price didn't move. But in recent months, the stockpiles have been exhausted.

"Supply-demand has been pretty tight" Day says. "I think silver could continue to go up." But he also cautions that the recent large jump, particularly since last August, means that "clearly the downside has increased."

Favored Ways of Investing

Peter Schiff, CEO of Euro Pacific Precious Metals in Westport, Conn., says he looks at the ratio between the prices of gold and silver. With gold at $1,400 an ounce and silver at $30.90, that ratio is 45:1, which is very high by historical standards.

"I think that still favors silver," Schiff says. "If the gold bull market continues, which I believe it will, people will continue to make more money in silver than in gold. If we have a big decline, then silver will go down more."

Day favors investing in silver in exchange-traded funds (ETFs), such as the iShares Silver Trust (SLV), while Schiff favors putting money in bullion. But a note of caution: Owners of physical silver (and gold) such as coins or via ETFs have to pay a collectibles tax of 28% on long-term gains, as opposed to the 15% tax on other long-term capital gains.

"As gold gets more and more expensive, there are a lot of people who cannot afford to buy an ounce of gold anymore," says Schiff. "So they take what's left of their paycheck and buy silver."

Not "Particularly Cheap"

Data from the U.S. Mint confirms this trend. It says sales of its American Eagle gold coins fell 14% last year, while silver coin sales were up almost 20%. Of course, that could be simply because investors had switched to investing in ETFs rather than owning physical coins, but the greater demand for silver is plain.

Another possible investment alternative is to buy stocks known as silver-stream shares. Both Day and Schiff say they own (SLW), and Schiff also owns Endeavour Silver (EXK). Silver Wheaton has outperformed the underlying silver price, climbing 162% in the last year. "None of the silver stocks is particularly cheap," says Day.


Silver isn't actually mined directly anymore. Rather, 75% to 80% of its production is the byproduct of other mining activities such as copper, lead or zinc. Silver-stream companies purchase a portion of the silver output of these byproduct mining operations, usually by offering an upfront payment in return for a steady supply at a fixed price.

One of silver's attractions is that it has many industrial uses. As supplies get consumed, upward pressure is put on silver prices. Gold, on the other hand, has very little practical use apart from jewelry and some applications in electronics, so prices are more determined by speculators.

Both metals are considered a safe hedge against inflation and as a store of value. For the small investor, however, a $30 silver coin is a lot more approachable than a $1,400 gold investment.

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Bucking a Trend: Why the Dollar Could Rally in 2011

Despite a likely third straight year of $1 trillion U.S. budget deficits, and the U.S. Federal Reserve's controversial quantitative easing program, the U.S. dollar has basically remained flat against the world's other major currencies. Compared to the British pound, it has barely budged over the past year, going from $1.6153 to $1.6093. At the same time, it fell a relatively small 4% against the Canadian dollar and went up 5% against the euro.

Admittedly, the dollar lost a substantial 10% of its value against Japan's yen, but unless you're willing to "park" your money in Japan's famously low-interest banks for almost no return, the yen is not a worthwhile option. By extension, that same drive for yield/return will probably discourage many institutional investors from trading in their dollars for yen.

If the dollar's resiliency in 2010 didn't surprise you enough, try this on for size: There's a decent chance the dollar may rally in 2011, rising in value against other major currencies. Here's why:

U.S. budget deficit reduction progress. First, it seems likely that there will be progress in reducing the budget deficit in 2011. That may be hard to believe, given that the Democrats and Republicans in the past week courageously said "you go first" regarding entitlement reform, but the important point is that the structure of the debate has changed. The debate is no longer focused on spending increases; instead, it's looking at how much will be cut and where the slashing will occur.
Analysis: Dollar bullish.

Euro-zone debt concerns. The European Union has made strides addressing its sovereign debt woes; for example, it's poised to increase the size of its bailout fund. Still, at least two large-debt nations, Spain and Portugal, remain under "24-hour observation." While the pair will probably will avoid a bailout, the chance that they might need one -- and the negative impact that such a bailout would have on the euro -- is likely to keep investors nervous about the euro for the next year.
Analysis: Slightly dollar bullish.

Dollar as global reserve currency. Eventually, globalization may lead to the adoption of several reserve currencies. In fact, the euro, yen, British pound and Swiss franc already play supporting roles. For the time being, however, institutional investors are not yet ready to abandon the dollar-dominated reserve currency system -- a status that continues to boosts the dollar's value.
Analysis: Dollar bullish.

U.S. economic expansion. Finally, there's the U.S. economy. After the longest and most painful recession since the Great Depression, the world's largest economy appears to be headed for a better-than-adequate performance in 2011. U.S.-based companies, including many multinationals, are lean, cash-flush (they've amassed about $2 trillion in cash), and are well-positioned to take advantage of the global growth cycle. That bodes well for earnings growth. And because these are largely dollar-denominated investments, it will increase demand for dollars.
Analysis: Dollar bullish.

So whether you're talking about the deficit reduction, Europe's debt woes, currency reserves or the multinational-led U.S. economic recovery, the stars appear to be lining up for a decent year for the dollar. Of course, the outbreak of another war involving the U.S., an unforeseen natural or man-made calamity (such as terrorism) or a major and sustained disruption in the flow of imported oil could all result in a bad year for the buck. But minus those, look for the dollar to hold its own in 2011.

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