The Power of Rewards (AKA In Which I Bribe My Kids to Behave…)

The Power of Rewards (AKA In Which I Bribe My Kids to Behave…)


I don’t know if bribing is good or bad in the Parenting 101 handbook, but I’ve been doing a lot of it lately and I gotta say – it works

Three examples:

#1. “If you don’t cry at drop off for a *month* I will buy you whatever you want!” – I blurted this out over dinner one night (one too many whiskeys), and my 4 year old’s eyes lit up like it was Xmas Eve… He’d been having trouble getting into preschool each morning (he LOVES it there but for some reason cries as soon as I’m about to leave him) and everything we’ve tried up to that point wasn’t working…

“I can get anyyyyyyything???” he says with a sly grin. “Yup, anything! Within reason!!” I start backpeddling, lol… “Okay, deal.”

And just like that it was on… Which a) surprised the crap out of me because it’s been such A THING lately and there’s no way this silly little trick was gonna work, right?, and b) I started to get nervous because all of a sudden I had promised him a big, probably expensive, prize, haha… But I knew he couldn’t ask for anything too crazy ‘cuz his imagination isn’t as developed as his older brothers’, and a few minutes later I was put to ease when he came back with, “I want a giant squishmallow.”

[A giant squishmallow – adorable, cuddly, under $40!]

Examples #2. and #3. Upon hearing this interaction and the joy emanating from little bro’s face, the two older bros wanted in on the action and promptly asked what challenge they can do too for a prize. I thought about the different areas they were currently struggling with, and came up with their respective challenges:

For older bro #1 (8 y/o): He has to go an entire month eating whatever we serve up for dinner that night – and not complain about it. We’d gotten into the bad habit of preparing him something different on nights he didn’t like what we were serving (a major fail on OUR part, of course, probably due to bad memories of our own childhoods of “if you don’t like it, starve!” LOL) and before we could get into more of the details he quickly complied, “I’m in.” And deal #2 was made.

This time, however, I was smart enough to put a cap on the prize FIRST ($50), to which he said he’d let us know later what he wanted so he can enjoy all the possibilities first… Something his old man likes to do too 😉 (So far he’s considered Pokémon cards, Robux credit, a music player he can have all to himself, and most recently a drone after a Target visit – the place where all dreams come true)

As for the oldest boy, 10 y/o Not-So-Baby Penny who’s perfect in almost every single way (I’m allowed to say that because I’m his dad!) the challenge tailored to him was to go a whole month *without asking any questions he already knows the answers to*, or those he can easily figure out if he thinks hard enough.

He’s currently at that stage of asking never ending questions, one after another after another – which is fine! We encourage curiosity in our house! – but many of them we’ve noticed don’t really need to be asked if he just took a few seconds to think about it first. And if he catches himself before we can answer his questions, it doesn’t count – that way he’s got some wiggle room since admittedly he’s got more opportunity to fail than his brothers who only have to overcome their bad habits *once* each day. We also put the cap at $50 for him too, though interestingly he hasn’t even so much as *hinted* to what he wants in the end so I’m super curious to what’s brewing in there!!

But we’re now into week #4 of them all, and if you can believe it – everyone’s on track to get their prizes!! A fall miracle!!

budget boys

Baby Dime hasn’t shed a single tear in three and a half weeks, much to the shock – and joy – of his teachers (they asked me what the trick was and thought it was hilarious when I told them I cheated and bribed him, lol…), Baby Nickel has eaten every single thing we’ve put on his plate so far, even if it takes him longer to finish than the rest of us, and Not-So-Baby Penny has since been learning how to answer his own questions in his head, saving everyone in the household major sanity 😉

I can’t tell you how proud of them I am. And of myself for coming up with the genius plan, hahaha…

Really goes to show how powerful rewards can be, though, both mentally and physically. All three of them had said over and over again how hard it is to overcome this stuff and that they “just can’t do it” before the challenges, yet here we are weeks later and they’re just breezing through it!! It was all in their head!! And of course ultimately I’m hoping it sticks WELL AFTER the deadline which was my ultimate motive for it all. Outside of just having some peace and quite for a little bit 😉

Here are some of the key parts I think that have made this so successful – in case you want to try it out in your household 😉

  1. Pick things that can go on to become better *habits*
  2. Pick things that are *doable* for each of them specifically (all 3 of my kids were saying “how easy” each others’ missions were, but that’s only of course because they’ve mastered ’em already! The point is to overcome their unique struggles, which will be different for each kid)
  3. Pick things that really annoy you/the entire family! lol…
  4. Put in the clause – “if you miss a day, the clock starts over”

I can’t tell you how often that last one comes up in conversation 😉 It serves as a perfect back up motivator on days when you think they may slip up!

We also incorporated some general leeway for each of them too, depending on the circumstance. For example, when my 8 y/o got sick he could “pause” the mission until he was feeling better, and for the oldest boy as I mentioned he was able to “take back” his question if he catches himself before we answer it. But for the most part this “clock starting over” clause has been enough to keep them all on track so far…

It’s also important to know *what* exactly motivates them too.

Some are excited over candy, others want cash, and then there’s the rare ones who just yearn for the inherent rewards of personal satisfaction 😉 Candy and money bribes did *not* work in my case (nor the personal satisfaction – they laughed in my face when I brought that up!), but turns out the “world of possibilities” under a certain amount did motivate them enough to take action. All of which not being that different for us adults.

Oh, and here’s one more silly example of the power of rewards:

book find rewardSo cash hasn’t lost its edge entirely! Lol… Different situations call for different rewards 😉

What type of challenges are you currently working on? What are the rewards you have set up for yourself?

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Managing Your Retirement Budget with YNAB

Managing Your Retirement Budget with YNAB


So, you’re living the dream. Through hard work, diligent saving, and solid financial planning, you’ve reached the long term financial goal that so many strive to achieve: the golden years of retirement. 

Now what? 

Well, your daily life is going to look a little different (in a good way!), but so is your monthly budget. Making your retirement savings last for the long haul is a priority and having a solid spending plan is essential, but what’s the best strategy for setting up and managing a retirement budget? 

Let’s get some real world advice based on the real life situation of a YNAB user named Beth, who wrote into the podcast to ask Jesse Mecham, YNAB founder, author, and podcast host, for personal finance advice about her retirement budget.

Prefer to listen to the episode? Find it here: Ask Jesse: How Do You Budget After Retirement?

Budgeting During Retirement

Beth and her husband have been using the YNAB Method to manage their money for two years now and have recently retired. They have a nice little nest egg in the form of a  savings account and a retirement account, but opted to delay receiving their social security benefits until age 70 since deferring your social security boosts your payments a bit. So, they have the funds to cover their living expenses out-of-pocket until then, but aren’t used to budgeting with a pile of money versus the regular sources of income they’ve had in the past.

When living on her pre-retirement income, Beth found a lot of peace of mind using YNAB’s Four Rules to guide their spending decisions: 

Rule One: Give Every Dollar a Job

Decide how to allocate each and every dollar you have. To accomplish this, think of your budget categories like envelopes labeled with the different jobs your dollars have to do (Mortgage, Groceries, Car Payment, etc.) and then assign your dollars to each budget category (just like you’d stick cash in an envelope) based on their priority or importance until you’re all out of unassigned money. Repeat the process every time you get more dollars. 

Rule Two: Embrace Your True Expenses

Be realistic about irregular, infrequent expenses that feel unexpected but really aren’t. Holidays, home repairs, health insurance premiums, property taxes, annual membership fees—they’re going to happen, so prepare accordingly by breaking those anticipated expenses into manageable monthly chunks so that you’re ready when they’re due. 

Rule Three: Roll With the Punches 

Life happens. And it will continue to happen. Even the “best” budgeter experiences unexpected expenses, so adjust your spending plan as needed by moving money from one budget category to another without feeling guilt or shame about doing so. 

Rule Four: Age Your Money 

Your ultimate goal is to build up a buffer of time between when you earn your money and when you spend it. As you start paying closer attention to your finances, you’ll start spending less and saving more. This gives you some breathing room when it comes to making spending decisions. Eventually you’re paying next month’s bills with last month’s money

Once she hit retirement age, Beth realized that she wasn’t sure how to incorporate the first two rules of the YNAB Method into a retirement budget:

“My question for you is how would you approach drawing money out of the retirement accounts to fill up the categories each month? Part of what I love about YNAB is budgeting for True Expenses (non-monthly expenses), but I’m wondering if it makes sense to pull money out of higher earning accounts into my checking account for things like a future car?  That’s probably, what, a five or ten-year horizon expense. Or an unknown but inevitable house repair—a  roof would be 20 years at the longest, right? A water heater—eight, right? If I don’t pull it out and assign those dollars to specific jobs, I feel like I lose the joy and peace that comes from having planned.

This is a valid question from Beth—let’s look at how this might work for ultimate joy and peace. 

How to Use YNAB for Your Retirement Budget

Having a clearly defined plan to cover essential expenses empowers you to feel in control of your future and your finances, but how do you enjoy that without losing some of the advantages of keeping that cash  in your retirement account? Jesse thought of a couple of different ways to approach it: 

For Monthly Expenses

If you didn’t really care about maximizing the passive earnings, you could do quarterly withdrawals. So, on January first, you’d draw for the next three months and assign that month to three months’ worth of categories and any upcoming irregular expenses. Then on April first, you would do another quarterly draw. 

If you want to maximize a little more, you could pull money out every month or even every two weeks. 

Either way, you’d put it all on autopilot, so it’s an automatic withdrawal to your checking account from the retirement account. It almost functions just like a regular paycheck, only, you’re paying yourself from your nest egg. Once the money hits your liquid account, the amount will appear in Ready to Assign and you can give every dollar a job as you fill up your categories. 

Planning for Large Expenses: 

Although convenient, the solutions above aren’t the best strategy when it comes to funding those larger irregular expenses. If we’re setting aside money for a roof repair that may happen nine years from now, we’re pulling money out of a retirement account for an average of four and a half years before you actually need it, and four and a half years out of any interest-bearing asset is a pretty long time. 

So, for the big stuff, like a new car, leave that money where it is—just make sure that you’re invested in something that isn’t very volatile. 

Then how do you earmark money for the far-in-the-future expenses, like a new car or roof?  

Even if you know (or think) you have enough money for that stuff in your pile of retirement expense dollars, the comfort that comes from being able to see that those funds have a plan that aligns with the future you hope to have is a significant benefit. That was the root of Beth’s question—how to keep that peace of mind without sacrificing the appreciation of her retirement assets.

Budgeting with Retirement Accounts

One possible solution is to add your retirement accounts as unlinked checking accounts in YNAB. (Don’t define these as tracking accounts if you want to incorporate this money into your budget.) It’s not perfect since that asset goes up and down in value—so you won’t have a perfectly accurate balance, but precision isn’t necessary to make this work and you could reconcile that account in YNAB on a quarterly basis, which I’ll explain more later. 

Adding your retirement account as an unlinked checking account allows you to budget for future expenses without withdrawing money before necessary.

So once those retirement accounts are added, create one big category group called something like “Future” or “Long Term Expenses.” Within that category group, create categories that would cover anticipated future needs, like a new car, large home repairs, travel, etc. 

You wouldn’t need to get too granular about it; you should also include a catch-all category called Not Yet Allocated in that group. You’re past the point of needing to give every dollar a specific job, but earmarking money for predictable future expenses creates that scarcity mindset that helps guide spending decisions. 

Screenshot of retirement budget categories for future expenses.
A category group in a retirement budget that helps account for future expenses.

The money in that Not Yet Allocated category still has a loosely defined job, and that’s to be available in 10, 15, or 20 years from now. You can still say, “This money is not for the day-to-day expenses. It is not for new boots, it is not for sushi, it is not for golf clubs,” which transforms that undefined pile of money into a plan of action that keeps you in control of your finances. 

Reconcile Retirement Accounts

To manage the fluctuations of your retirement account, create a habit around going into that account in your budget on a quarterly basis to hit the Reconcile button. YNAB will ask you if the number shown is your current balance—it won’t be. So hit “No” and add the correct current balance that your actual retirement accounts (wherever they live) show at the moment.

Screenshot of reconciliation process to update balance of retirement accounts.
Reconcile your retirement accounts quarterly to maintain a more accurate balance estimate for allocating money to future expenses.

Let’s say your retirement assets appreciated by $10,000 since the last time that balance in YNAB was updated. YNAB will make an automatic adjustment once you reconcile that account, and that money will appear in Ready to Assign.

Move it to the Not Yet Allocated category you created. If your assets depreciated, you’d assign the “overspending” to that category.  Doing this allows that unassigned future money to absorb the fluctuations in the market, while leaving day-to-day spending and anticipated “True Expenses” intact. 

Screenshot of a retirement budget with $10,000 earnings from a retirement account in the "Ready to Assign" section
Assign any earnings or losses from your retirement account to a Not Yet Allocated category once you’ve reconciled to update the balance of that account.

By doing the above, you can continue to enjoy the benefits of keeping money for future expenses in a retirement account without losing the peace of mind, clarity, and sense of scarcity that Rule One and Rule Two of the YNAB method help bring to your budget. 

No one can answer exactly what a big pile of money will do but we can start to answer what small piles will do, so go ahead and give those dollars their jobs, and enjoy your retirement. 

Ready to do some next step retirement planning? If you don’t have a budget yet, set one up for free so that you can see what you’re missing. Our complimentary 34-day trial doesn’t require a credit card or a commitment.

If you’re interested in getting more organized with your money and more clear about your mindset, our free DIY Budget Planner is the perfect starting point!



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Gust | Startup Smarter

Gust | Startup Smarter



DAVID S. ROSE
, FOUNDER AND CEO
, GUST INC.


4 Nov 2022

[The following is an edited excerpt from David S Rose’s book The Startup Checklist: 25 Steps to a Scalable, High-Growth Business.]

Every great business starts with a great idea. You probably wouldn’t be reading this book unless you already had at least the glimmerings of a business idea. In this chapter, you’ll learn how to take your raw, perhaps unproven idea and measure its likelihood of success—then enhance, improve, and solidify it.

Elements of the Business Model

A business model is the idea that underlies a successful business. It describes how the business creates value for customers, delivers that value to them, and captures a portion of the value for its owners. Every successful business, no matter how large or small, complex or simple, operates according to a business model that makes sense. (Of course, some large, complex companies operate according to several business models at once, since they include divisions or departments that create, deliver, and capture value in varying ways. But don’t let that confuse you.) Therefore, one of the most important steps you need to take as an entrepreneur is to transform your business idea into a business model that shows how you’ll create, deliver, and capture value.

There are many ways to think about a business model. One of the most effective is described and illustrated by Alexander Osterwalder and Yves Pigneur in their best-selling book Business Model Generation1. In their structure, a business model includes nine basic elements:

Customer segments. The specific, different groups of customers the business serves—that is, the identified customers for whom it will create value.
Value propositions. How the business solves problems and meets the needs of its customers, creating value for them in the process.
Channels. How the business reaches its customers and delivers the value to them—for example, through direct online sales, retail distribution channels, Value Added Resellers , company-owned storefronts, or affiliate programs.
Customer relationships. The ways in which the business connects with, relates to, and retains customers.
Revenue streams. Where the money comes from: how the business generates income from the value propositions it offers to customers.
Key resources. The assets required to create and deliver the value propositions to customers—for example, physical assets such as buildings and machinery, and human assets such as employees with particular skill sets.
Key activities. What the business does to make the business model work, such as inventing, buying, building, distributing, operating, and so forth.
Key partnerships. Outside organizations, such as suppliers and partners, who help the business model work.
Cost structure. The costs that the business incurs in operating its business model.

These nine elements can be mapped in a diagram that Osterwalder and Pigneur called the Business Model Canvas, which provides a standardized, visual way of analyzing, developing, and refining your ideas. You can print out a large-format version of the Business Model Canvas and post it on a wall or spread it out on a table so that you and your co-founders can work on it together.

One benefit of the nine-elements model in the canvas is that it forces you to think through all the key pieces that need to be in place to make a business idea into a viable basis for a profitable, self-sustainable company2.

Figure 1.1 The Business Model Canvas


Figure 1.1 Business Model Canvas

Copies of printed templates for the Business Model Canvas can be downloaded for free from businessmodelgeneration.com. An online, interactive version of the Business Model Canvas specifically designed for high-growth startups is available at LeanMonitor.com. Another comprehensive online version is available at Strategyzer.com.

The Importance of Understanding Your Business Model

These days, it seems like everyone is a wannabe entrepreneur—just as everyone used to be an aspiring actor or have the Great American Novel in their back pockets. And while I have heard many clever ideas for products and services over the years, in my experience, the number one differentiator between an aspirant and a real founder is that the former is in love with his product, but the latter is in love with her business model. I have often had discussions with other investors about companies that have approached us for funding, and we have all had the same reaction: “I can’t wait to buy the product when it comes out…but no way would I invest in the company!” That is because a product or service can be cool, or innovative, or beautiful, or even useful, but it only becomes a viable business if the aggregate economics of the value being created is significantly more than the aggregate economics of the costs of operating the business. And if you are aiming for a scalable business, then you’re further looking for a viable business that gets better—not worse—as it gets bigger.

How can you determine whether your business idea has the potential to become a multi-billion-dollar unicorn? In general, there is a simple math equation that estimates basic viability by multiplying four factors:

Number of potential purchasers X Percentage of capturable market share X Absolute dollar amount of each sale X Percentage margin of profit = Total potential profit

The perfect new business idea would be one that would check all four boxes—that is, it would be appropriate for a very large number of potential purchasers, be plausibly attractive to a high percentage of those possible customers, generate sales with high dollar value, and promise a high profit margin on each sale. And then, to make it truly scalable, you’d want to check a fifth box—the business would need to get even better as it got bigger.

For example, if you were trying to evaluate a concept for a house-cleaning business, it would be great if everyone in the world needed their house cleaned; if you had a way of locking up the entire global market and servicing every house in the world; if everyone would be willing to pay a large amount for this service; and if your cost to clean a house was low, and dropped with every additional customer. I assume you would take that business, right?

Unfortunately, these five propositions turn out not to be true in regard to house cleaning—which explains why no one has yet ascended to the top of the Forbes list of the world’s richest billionaires by launching an international house-cleaning business.

As you might imagine, business concepts that check all the boxes are exceedingly rare. However, when you look at successful businesses, you’ll discover that even three out of the five can make for a viable—and even potentially scalable—business.

For example, take the business of sending tourists up for a visit to the International Space Station. There’s obviously not a giant market for that, since it can only accommodate one visitor every few years. But it so happens that one of my portfolio companies actually does that. Why? Because the ticket price is around $50 million per person, they have decent margins, and they have 100 percent market share. (It was also a business, believe it or not, that could be started relatively inexpensively, because their customers paid in full, in advance, before the company was required to pay the Russian government for the actual experience.) And while it’s not scalable per se, the company has leveraged its experience into allied areas such as zero gravity airplane flights, astronaut training, and jet fighter missions.

Furthermore, when you do the analysis, it’s important to be clear about what the business is actually doing. Let’s go back to the idea of a house-cleaning business, for example. It would be very problematic to try to grow “house cleaning” into a truly large business. The logistics of service delivery around the world would make it extremely difficult to eke out a decent profit margin, and the minimal cost of entry by competitors (who need only a van, some tools and supplies, and a few employees to set up a rival cleaning company) means that you would probably never develop a large market share.

But if we’re talking about something like Angie’s List or HomeAdvisor, the first thing we need to realize is that the business these companies are in is not actually “house cleaning.” Instead, it is “lead generation and/or booking and intermediating payment for house cleaners.” Looked at in that way, it completely changes the equation. Your marketing and service delivery costs are at “Internet scale,” and therefore both low and decreasing the larger you get. On the other hand, the value you are delivering to the person willing to pay for it (the actual house cleaner) is quite high relative to their opportunity costs (which means you can extract a decent margin), and because you can target everyone on the Internet, you have a sizable addressable market (even if only the top one percent would be willing to pay to have their houses cleaned).

This is also the case for other apparently small or low-margin businesses, such as urban taxis (Uber), errands (TaskRabbit), cups of coffee (Starbucks prepay cards), and free radio (Pandora, Spotify, IHeartRadio, etc.) Once you add in the dozens of potential future revenue streams for each of these enterprises based on their same existing infrastructure (Uber providing “just in time” delivery services, online music sites selling concert tickets and memorabilia, Starbucks selling music and coffee machines, etc.), these apparently quixotic businesses become potentially very large profit centers.

One way to get into the right mindset is to study the business models that have been developed and employed by other company founders—including both the successes and the failures. Some great companies have been launched by adapting a business model from one industry to another, or by tweaking a familiar and proven model in a way that unleashes a remarkable flood of new resources, customer demand, or technological creativity. In certain circumstances, it’s possible to create a successful new company by simply altering one of the nine business model elements in the Business Model Canvas as applied by competing businesses in the same market sector—for example, by discovering and applying a new channel for delivering value to customers; by devising a new way of forging intimate, lasting relationships with customers; or by identifying ways of improving the cost structure of the business and thereby making it more profitable3.

Developing a Scalable Startup Business

The sub-title of this book is “25 Steps to a Scalable, High-Growth Business,” and the word scalable is included for a very good reason. There are many enterprises that are successful, profitable, and contributing much to society, but that would be unrealistic, unprofitable, or at least overly challenging for you to start building as a one-man or one-woman startup on your way to becoming a unicorn4.

If you’re reading this book, then you are unlikely to be building a Death Star, opening a barber shop, or offering xylophone master classes in your living room. That’s because while all of those might be interesting opportunities, for different reasons, none of them are scalable.

There are three characteristics that together make a startup business model truly scalable:

1. You have to be able to start small.
Unless you happen to be the long-lost daughter of the Palpatine Emperor, the odds are that you do not have enough capital to build your first Death Star, nor will you be able to raise the funds to do so5. The ideal startup is one that can be bootstrapped from its own early revenues—or at least funded from the founder’s personal savings account.

2. Your marginal costs must drop over time, so that each additional dollar of revenue costs less than the previous dollar.
This is the core of what most people mean when they discuss business scalability. For example, Amazon’s Kindle publishing business is scalable because, after the cost to Amazon of selling the first digital copy is taken into account, each additional copy is almost pure profit. In contrast, if you wanted to expand your barbershop, the second shop would cost you almost exactly as much as the first one (for rent, equipment, and barber salaries). Since no business is infinitely scalable (that is, there is no business where all costs drop to absolute zero), an associated consideration is relative scalability, which means that a business needs to be scalable over a longer range than its competitors6.

3. Your scalability needs to be built into your business model, rather than relying on any special exogenous factors.
Subway, for example, currently has 45,000 sandwich store locations around the world. And they are opening more than six new stores every single day, including weekends! They would not be able to do that if they had to find world-class cordon bleu chefs for each location. Similarly, if your business depends on recruiting a never-ending supply of xylophone virtuosos who are also good teachers, I’m afraid that it is simply not scalable.

Footnotes
1. New York: John Wiley & Sons, 2012.
2. Another good guide to the process of analyzing and sharpening a business model is The Startup Owner’s Manual by Steve Blank and Bob Dorf (2012, K&S Ranch Inc.), which walks you through the process of developing and refining the Business Model Canvas within the context of a startup.
3. A great place to examine other companies’ business models in an easily digestible form is businessmodelgallery.com, which has re-created over 100 well-known models in Business Model Canvas format. Browse through them by industry or type of company to be inspired.
4. A “unicorn” is a term used to describe a company with a market capitalization of over $1 billion.
5. In case you are curious, students at Lehigh University worked out that the cost to build the Death Star would be about $8,100,000,000,000,000 ($8.1 quadrillion), which is 13,000 times the world’s GDP.
6. For a longer discussion on scalability, see the article by my fellow New York angel investor Christian Mayaud at

Gust Launch can set your startup right so its investment ready.


This article is intended for informational purposes only, and doesn't constitute tax, accounting, or legal advice. Everyone's situation is different! For advice in light of your unique circumstances, consult a tax advisor, accountant, or lawyer.



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Strong or Volcker? The Fed and Global Financial Stability

Strong or Volcker? The Fed and Global Financial Stability


Mark J. Higgins, CFA, CFP, and Raphael Palone, CFA, CFP, will be presenting at the Planejar Annual Conference in Sao Paulo, Brazil, on 24 October 2022. Their program compares the US Federal Reserve’s response to post-COVID-19 inflation with its policies following the Great Influenza and World War I in 1919 and 1920.


“I think the major impediments [to international coordination of monetary policy] are that it sounds fine in theory, but when the exchange rate objective seems to conflict with domestic urgency, domestic urgency wins out. It’s very difficult politically to appear to be subordinating domestic policy to international exchange rate stability, even though in the long run that may be a desirable thing to do.” — Paul Volcker

The US Federal Reserve’s aggressive monetary tightening is at a scale that the world has not seen since the early 1980s. Over the past year, US securities markets have suffered substantial losses, yet the US economy and financial system remain on reasonably solid ground. The situation abroad is more precarious. Higher US interest rates and a strong dollar are disrupting cross-border capital flows and straining the finances of countries holding large amounts of dollar-denominated debt.

The impact of Fed policy on the global financial system is yet another feature of the COVID-19 pandemic that caught investors off guard. But much like post-pandemic inflation, it is hardly unprecedented. Ever since World War I ended, US monetary policy has shaped cross-border capital flows, central bank policies, and debt-servicing sustainability throughout the world. This is a power that the United States assumed when it became the world’s largest creditor after World War I and the world’s primary reserve currency issuer after World War II.

Fed policies will undoubtedly rattle the world again over the coming months. In fact, the United Nations Conference on Trade and Development issued an ominous report earlier this month warning of potentially severe ramifications in some of the most vulnerable nations. Beyond these generalities, however, how Fed policy will play out across the globe is difficult to predict. But one question is worth pondering: Will the Fed adjust its policies in the interest of global financial stability?

There are two scenarios from history that may help answer this question.

Ben Strong and the Roaring ’20s

The Fed tightened monetary policy aggressively in 1920 for a familiar reason: to tame inflation. That led to a sharp but relatively short depression. The economy recovered in 1922 only to start overheating in the mid-1920s. This put the Fed in a difficult position. Blamed in part for having caused the depression of 1920 to 1921, Fed leaders feared repeating their mistake and were biased against raising rates prematurely. Complicating matters further, the Fed was under intense pressure from European central bankers to keep rates low. Why? Because if the Fed raised rates, gold would flow from Europe to the United States, as investors sought higher returns on capital. This would threaten post-war reconstruction by reducing the European money supply and forcing European central banks to raise interest rates to stem the outflow of gold.

Tile for Puzzles of Inflation, Money, and Debt: Applying the Fiscal Theory of the Price Level

The Fed’s commitment to European reconstruction was first tested by the United Kingdom in 1925. After World War I, the pound sterling had largely forfeited its reserve currency status to the US dollar. But the UK’s political leadership wanted to restore it. Amid calls from leaders of the Bank of England and his Conservative Party to reestablish the gold standard, Winston Churchill, serving as chancellor of the exchequer, caved to the pressure. The pound, he announced, would return to the pre-war fixed ecxhange rate of $4.86. This substantially overvalued the pound, instantly rendering UK exports uncompetitive. That increased gold shipments from the UK to the United States and created problems for both countries: The UK suffered a painful recession, while the US money supply went through a rapid and unwanted expansion.

In spring 1927, fearing the Fed would again raise interest rates amid increasing inflation and speculation, central bankers from the United Kingdom, Germany, and France traveled to the United States to lobby in favor of easy monetary policy. New York Federal Reserve Bank Governor Ben Strong helped convince his fellow Fed leaders to accede to the Europeans’ demands. But they went a step further: Instead of holding rates steady, they cut them. The Federal Reserve Bank of New York reduced the rediscount rate from 4.0% to 3.5%. The cut was approved with only one dissenter, Adolph C. Miller, whose words proved prescient. He described the decision as “The greatest and boldest operation ever undertaken by the Federal Reserve System, and . . . one of the most costly errors committed by it or any other banking system in the last 75 years!”

This was not an exaggeration. The Fed’s overly accommodative monetary policy fueled rampant speculation in the late 1920s. This concluded with the catastrophic crash in October 1929, which triggered the Great Depression. The Depression, in turn, created the harsh economic conditions that enabled the rise of the Nazi party and Japanese militarists.

Book jackets of Financial Market History: Reflections on the Past for Investors Today

Paul Volcker and the Great Inflation

Fed chair Paul Volcker announced his famous monetary tightening program on 6 October 1979. Volcker understood it would have enormous consequences outside of the United States. But he didn’t let that affect his policy decisions. His priority was taming US inflation first and then dealing with the consequences, both foreign and domestic, as they emerged.

Volcker’s monetary tightening persisted for nearly two years. As inflation moderated and the US economy could no longer sustain the austerity, the Fed began easing rates in July 1981. The US slowly emerged from the severe recession of 1981 to 1982, and the subsequent price stability helped fuel nearly two decades of prosperity.

Other nations did not fare as well. The situation in Latin America was especially painful. Indeed, the 1980s are often considered Latin America’s lost decade. The sharp and sudden increase in US interest rates caused the dollar to appreciate substantially against many foreign currencies. Many Latin American countries had loaded up on US dollar-denominated debt, often with floating rates, throughout the 1970s. Now they faced higher interest payments in dollar terms just as their own currencies were plunging in value. Mexico was hit especially hard, defaulting on its foreign debt in August 1982.

While the Fed did provide significant aid to Mexico, among other countries, the international pain did not dissuade Volcker from his course. Domestic US concerns took clear priority. This element of Volcker’s philosophy is what most distinguishes it from Strong’s.

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What Does This Mean Outside the United States?

The extent to which the Fed will adjust and recalibrate its policies based on their global impact is unclear. But we expect the Fed to follow Volcker’s model more than Strong’s. The current political atmosphere in the United States is focused on domestic concerns. All else being equal, the Fed will likely mirror the perspective of the American people.

So, when it comes to US monetary policy, foreign governments would be wise to prepare for a lot of Volcker and hope for a little Strong.

If you liked this post, don’t forget to subscribe to the Enterprising Investor.


All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/Douglas Rissing


Professional Learning for CFA Institute Members

CFA Institute members are empowered to self-determine and self-report professional learning (PL) credits earned, including content on Enterprising Investor. Members can record credits easily using their online PL tracker.

Mark J. Higgins, CFA, CFP

Mark J. Higgins, CFA, CFP, is an author, financial historian, and frequent contributor to Enterprising Investor. His work draws from his upcoming book, Becoming an Enlightened Investor, which will arrive in bookstores in fall 2023. Prior to founding The Enlightened Investor, LLC, Higgins served as a senior investment consultant for more than 12 years. In this role, he advised the trustees of large pension plans, foundations, endowments, and insurance reserves that had aggregate assets of more than $60 billion. As a consultant, he discovered that understanding financial history proved much more valuable than tracking the latest economic data. He also discovered that there was no single book that recounted the full financial history of the United States. Becoming an Enlightened Investor seeks to fill this void. The insights are intended to help investors contextualize current events and thereby improve their investment decisions. The book will be published and distributed by the Greenleaf Book Group and will be available for purchase online and in bookstores in fall 2023.

Raphael Palone, CFA, CFP

Raphael Palone, CFA, CFP, holds an undergraduate degree in business management and economic sciences and a master’s degree in economics. He worked for 12 years as a corporate and investment banking professional at two of the largest banks in Brazil. Palone is a CFA charterholder® and a CFP professional®. He currently serves as a senior managing partner at FK Partners, one of the largest finance schools in Brazil. Palone's research primarily focuses on economics, business cycles, and capital market expectations.



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Mixed Results Actually Bring More Optimism Than Risk For AMD

Mixed Results Actually Bring More Optimism Than Risk For AMD


Image source: AMD (screen shot via YouTube)
  • Revenue and net income are up
  • Projected growth of more than 40% year-over-year
  • Earnings are currently but in line with overall industry
  • AMD shows more promise in several factors over peers

Semiconductor company Advanced Micro Devices (NASDAQ:AMD) just reported their fiscal Q3 earnings on November 1, 2022, with mixed results, but a few key points give them an edge. For one, revenue is up 29% YOY, to $5.57 billion.

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Furthermore, net income increased by 23% to more than $1 billion. And they managed to do this as the PC market softened thanks to a shortage in chips and other computer components.

Now, share value may have plummeted this year, but it should be noted that the price is still well above the historic low of $1.72 (June 2015). It should also be noted that AMD's lows have consistently rebounded, several times, for the last 40 years.

Moving forward, AMD remains upbeat, with a current share value of $60.60 and projected 2022 revenue between $23.2 billion and $23.8 billion. This could represent approximately 43% growth over last year.

Earnings And Sales Signal AMD Is Gaining Momentum

Yes, AMD is having a tough year. They started comparatively strong, beating the Q2 earnings per share (EPS) price target of $1.03 by a couple of cents. However, this was likely a vestige of the previous two quarters, when reported earnings beat the range high by at least a dime each time.

And the decline becomes more clear as we look at the most recent quarterly report, which indicates that earnings ($0.67) did not meet the estimate. Fortunately, it was still well above the range low ($0.53).

Although EPS has fallen by 8%, so far, it should be noted this is because share count dramatically increased. EPS is now $0.67 (just short of the $0.69 estimate) but the fact that investors want to hold more shares of the stock certainly implies its strength.

Sales for the respective quarters are perfectly in line with the earnings trend. Quarterly sales beat the range in Q4 of 2021 and Q1 of 2022 and then simply met the estimate in Q2 of 2022. Sales in the most recently reported quarter also failed to meet the estimate, just like earnings.

On an annual basis, the numbers follow a similar trend In both 2018 and 2019, sales comfortably met the estimate, and earnings followed, besting its estimate by a penny or two. By 2020, though, sales beat the range high, as did earnings.

This tells us that AMD's earnings are consistently influenced by sales; and if analysts' predictions are correct, earnings should grow because they expect sales to increase.

Their next reporting date could be as early as Jan 31, 2023.

Advanced Micro Devices Outpaces Its Peers

Advanced Micro Devices is one of the most notable names in the world of computers and technology, especially in terms of the components they make.

Another company with similar notoriety would probably be Intel, whose processors are often the benchmark. But while these two companies have a lot in common, their financials could not be more different.

For one, AMD currently has a [moderate] BUY rating while Intel (NASDAQ:INTC) has a HOLD rating. This is probably because AMD's upside (62.0%) is more than double that of INTC. In addition, AMD's P/E ratio ($25.37) is thrice that of INTC .

They also beat INTC in terms of Return on Equity and Return on Assets (15.17% and 12.02%, respectively), and expect about 30% higher projected earnings growth.

As a matter of fact, Intel really only bests Advanced Micro Devices sin a couple of areas. For one, INTC has a Price Sales Ratio (P/S) of 1.43, which is about four times better than that of AMD (5.93).

In addition, INTC is the only stock we are comparing right now with a net positive beta of 0.73, meaning it is 27% less volatile than the S&P 500. AMD has a beta of 2.04!

When it comes to beta measure, another AMD peer actually breaks even. Indeed, Texas Instruments (NASDAQ:TXN) has a beta measure of 1, and has better positioning than the other two, despite its HOLD rating.

First of all, their current share value ($157.39) is in the bottom 25% of the stock's 52-week range; INTC and AMD are in the bottom 7% and 5% respectively.

In addition, Texas Instruments rates extremely high in terms of net margin (44.21%), Return-on-Equity (63.68%), and Return-on-Assets (35.37%), all of which are at least 3 times higher than the same measures from AMD and INTC.

However, analysts expect that TXN will move backward this year, with a projected earnings growth value of -13.48%. This makes them a far riskier investment, even with other impressive factors.

When considering every variable, then, AMD may hold the most promise in both the long and short, which is why analyst have given it a [moderate] BUY rating.

Should you invest $1,000 in Advanced Micro Devices right now?

Before you consider Advanced Micro Devices, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Advanced Micro Devices wasn't on the list.

While Advanced Micro Devices currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

Article by Keala Miles, MarketBeat



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7 Quick Ways to Make Money with WhatsApp

7 Quick Ways to Make Money with WhatsApp


One of the lesser-known ways to generate income online is to use the WhatsApp application to earn money. Although WhatsApp is a free application, it is possible to make a profit with a little creativity and effort. Let’s see what you can do to make money with WhatsApp and what are the methods that work in 2021.

How much money can you make with WhatsApp?

There are many ways to earn money using WhatsApp, so the amount of money you can earn varies depending on the method you choose. The first thing to clarify is that WhatsApp (or its owner company, Facebook) will never pay you directly. However, there are creative and simple methods that will help you earn money using this application.

For example, if you would like to earn some extra money online, WhatsApp is an excellent application to achieve this. It is reasonable to expect to earn an extra $50 to $100 a month with very little effort using one method we will show you.

However, you can get to earn much more money (between $1000 to $2000 dollars a month) by using the WhatsApp Business strategy (we will show you what it is). Also, if you have your own business, WhatsApp gives you an excellent opportunity to get more customers and more sales for your products or services.

Best ways to earn money with the WhatsApp messaging application

There are many messaging applications available, but WhatsApp remains the most used. This application is very simple and is used by millions of people all over the world. In addition to that, Facebook, the company that owns WhatsApp, guarantees security and privacy when sending and receiving information. Next, we will show you several ways to use WhatsApp to earn money online:

1. You get paid to share VIRAL CONTENT

There are millions of websites on the Internet flooded with articles, advertisements and content. You can earn money with WhatsApp by sharing that useful content with your contacts.

A practical way to make money with this method is by using paid link shortening services like Adfly. These services pay you for each visit your users make using your link. The user will see an advertisement for a few seconds and you will receive money for each click. Getting started is very easy. You just sign up and share interesting stuff with your contacts (like viral articles, news, and videos).

Follow these steps to earn money sharing viral content on WhatsApp:

  1. Sign up with a link shortener (Adfly)
  2. Shorten the link of any article, web page or video that you want to share with your WhatsApp friends
  3. Send your link to all the WhatsApp contacts you can
  4. The more people visit the link to read the content, the more money you will earn.

2. Affiliate Programs with WhatsApp

Affiliate marketing is one of the most lucrative ways to make money online. Previously it was necessary to get your users to buy something or spend money so that you can get a commission, but in 2021 you can make money online without having to sell.

You can earn a lot of money promoting offers, products and services by signing up for recommended affiliate marketing programs. Registration is FREE and it is not very difficult to get approved. Steps to make money with WhatsApp doing affiliate marketing:

  1. Sign up for recommended affiliate programs (it’s free)
  2. After being approved, look for offers that interest your contacts
  3. Create a special link that will identify you as an affiliate and share it with your WhatsApp contacts. You can also recommend a product that you like and earn money for each sale on Amazon.
  4. Every time someone signs up or purchases a product using your link, you will earn a commission. It’s that easy!

3. Make money with WhatsApp Business

WhatsApp Business is an application that was designed with small businesses and businesses in mind. It’s optimized for getting more customers, answering questions, and providing information about the company to interested people.

You can earn money with WhatsApp Business by managing business profiles and charging for your services. Every company is interested in obtaining more clients, and WhatsApp is a fast and reliable method to achieve this. You can also earn more money by combining the WhatsApp profile with the company’s Facebook or Instagram page.

Your job will initially consist of answering questions, taking care of the company’s image and getting potential clients using WhatsApp. You must create a business profile on WhatsApp with all the company information. Although it will take some effort to get businesses to work with you, offering customer service through WhatsApp is a creative and safe way to market (and get more customers) for any business.

4. Use WhatsApp to publicize your own business

If you are a business owner, you can use WhatsApp to inform people about your product, company or service. All you need to do is create a WhatsApp group with your potential customers and send them a message with a text or video of your product/service. It is the same way you would promote your local business on Facebook.

5. Seminars by WhatsApp

Did you know you can organize seminars through WhatsApp? You can earn money by making group video calls. In addition, by integrating WhatsApp with PayPal, interested attendees will pay you and you will receive your money online. Best of all, trainings and seminars can be offered to people from anywhere in the world.

6. Get more traffic for your blog/website

Having your website will help you generate passive income, so you will earn money without having to work every day. You can start a blog for very little money and earn money in several ways. Having your own website will help you start an Internet business. The amount of money you can earn is virtually unlimited, as long as you post some really useful material.

The best way to make money with a blog: identify your key audience for your blog and start producing quality content. The content can be in YouTube videos, text or web lectures.

As soon as you publish the text or video on your blog (we recommend WordPress to achieve this quickly), create a group of contacts on WhatsApp. You can send the link to your blog or website through WhatsApp and get visits for your blog.

7. Promote applications on WhatsApp

Several companies that need to publicize their applications and games will pay you to promote them and get your contacts to try them. They will pay you for each download you get, so you can earn money with WhatsApp by recommending them to your contacts. These programs are known as PPD for its acronym, Pay Per Download.

The easiest way to make money with WhatsApp recommending applications is through referral programs. Start by registering in the Ibotta application and they will pay you from $3 to $10 dollars for each registered user. This is a very useful money-saving app that pays you to take photos of your receipts.

Can you really make money with WhatsApp Messenger?

Definitely yes. There are multiple ways to earn money with WhatsApp. Although WhatsApp will never pay you directly, since it is a free application, but you can use several creative ways to make money through this application.

WhatsApp is also an excellent tool for getting more sales and marketing. You can also use it smartly to get more views for your YouTube videos, blog or website using recommended methods.

However, you must remember that you must control the number of messages you send via WhatsApp, since you never want to send unwanted messages (which is known as spamming) to your contacts.





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