Welcome to Ask Fear and Greed, where we answer questions about business, investing, economics, politics and more. Are Michael Thompson and hello, Sean alem Hi Michael short after yesterday's the extraordinary success of yesterday's Ask Fear and.

Welcome to Ask Fear and Greed, where we answer questions about business, investing, economics, politics and more. Are Michael Thompson and hello, Sean alem Hi Michael short after yesterday's the extraordinary success of yesterday's Ask Fear and.

Greed episode generously off there, Michael, and.

Greed episode generously off there, Michael, and.

Well someone has to. We were talking about the Lipstick Index and it led us rather neatly into another index, the Big Mac Index. And so this is our first time I've ever done a two part Ask Fear and Greed. Really, what exactly is the Big Mac Index? And there's a whole stack of these things, aren't there. There's a whole stack of different indexes, and some of them are more useful than others. Shall we say this one actually is fairly useful.

Well someone has to. We were talking about the Lipstick Index and it led us rather neatly into another index, the Big Mac Index. And so this is our first time I've ever done a two part Ask Fear and Greed. Really, what exactly is the Big Mac Index? And there's a whole stack of these things, aren't there. There's a whole stack of different indexes, and some of them are more useful than others. Shall we say this one actually is fairly useful.

So it was introduced by the Economist the magazine in the mid eighties, I think was nineteen eighty six, and it's supposed to illustrate what they talk about what economists called the purchasing power of parody. What that means is how much you can buy with your currency. So if I've got US dollars, are living in the US, I can buy a big max for X amount if I'm in Australia with Australian dollars buying a big MAC, I need to spend why amount, And they're basically comparing those to try and show which economies can buy more stuff with their currency. Okay, So what it does. It suggests that with the right exchange rate, the cost of big Mac in the US should be the same as the cost of big Mac anywhere else. So if the exchange rate is at the right point, a big Mac in the US, big MAC in Australia the same costs. So if we compare Australia and US Big Max based on the Big Mac Index, the Bussie dollar should be worth point eighty eight US sense or eighty eight US cents for one Ossie dollar.

So it was introduced by the Economist the magazine in the mid eighties, I think was nineteen eighty six, and it's supposed to illustrate what they talk about what economists called the purchasing power of parody. What that means is how much you can buy with your currency. So if I've got US dollars, are living in the US, I can buy a big max for X amount if I'm in Australia with Australian dollars buying a big MAC, I need to spend why amount, And they're basically comparing those to try and show which economies can buy more stuff with their currency. Okay, So what it does. It suggests that with the right exchange rate, the cost of big Mac in the US should be the same as the cost of big Mac anywhere else. So if the exchange rate is at the right point, a big Mac in the US, big MAC in Australia the same costs. So if we compare Australia and US Big Max based on the Big Mac Index, the Bussie dollar should be worth point eighty eight US sense or eighty eight US cents for one Ossie dollar.

Yep.

Yep.

Okay, now we're training at sixty five. So what that suggests with the big Mac index is that the Aussie dollar is ferociously undervalued versus the US dollar. Now there is actually some method in this madness. I mean, it kind of is humorous, but it actually does demonstrate what things should cost if there's this parody across currencies.

Okay, now we're training at sixty five. So what that suggests with the big Mac index is that the Aussie dollar is ferociously undervalued versus the US dollar. Now there is actually some method in this madness. I mean, it kind of is humorous, but it actually does demonstrate what things should cost if there's this parody across currencies.

And so the purpose of choosing the big Mac is to find something that is pretty much universally available and is a roughly consistent product in every single market, so that you can do a like for like comparison.

And so the purpose of choosing the big Mac is to find something that is pretty much universally available and is a roughly consistent product in every single market, so that you can do a like for like comparison.

That is a genius of the Big Mac index, because big Macs are available pretty much in most economies, in most economies, and you're right, their uniform and so you can compare. Now it's trend is your friend, Michael.

That is a genius of the Big Mac index, because big Macs are available pretty much in most economies, in most economies, and you're right, their uniform and so you can compare. Now it's trend is your friend, Michael.

Yes, we have established for a long period.

Yes, we have established for a long period.

Total science, to be honest, but it does sort of work, you know. So the Big Mac Index says, think places like Switzerland and Norway are very expensive places to live, and I think that's true, you know, I think Scandinavian countries generally are considered very expensive to live. And if you think about what goes into a big Mac, it's not just the beef patty, the cheese, the bun. It's also labor costs, you know, raw material costs, special costs and things like that. So it's kind of We talked about Lipstick index yesterday and you know, the final part of the Lipsticck indexes it doesn't actually work. The Big Mac Index does kind of work, okay, and it does show kind of purchasing parody or not across economies.

Total science, to be honest, but it does sort of work, you know. So the Big Mac Index says, think places like Switzerland and Norway are very expensive places to live, and I think that's true, you know, I think Scandinavian countries generally are considered very expensive to live. And if you think about what goes into a big Mac, it's not just the beef patty, the cheese, the bun. It's also labor costs, you know, raw material costs, special costs and things like that. So it's kind of We talked about Lipstick index yesterday and you know, the final part of the Lipsticck indexes it doesn't actually work. The Big Mac Index does kind of work, okay, and it does show kind of purchasing parody or not across economies.

I have a bad feeling that we're going to end up on a run of unusual indexes and indicators. So just while you were talking there towards the very end, I had been listening intently up until that point.

I have a bad feeling that we're going to end up on a run of unusual indexes and indicators. So just while you were talking there towards the very end, I had been listening intently up until that point.

I could be going on.

I could be going on.

I was, I really was, except for when I was googling other strange economic indicators. And we talked about the lipstick index, which is one of the first ones to come up, but the men's underwear index, the first date indicator, the baked bean sales indicator, the Japanese haircut indicator.

I was, I really was, except for when I was googling other strange economic indicators. And we talked about the lipstick index, which is one of the first ones to come up, but the men's underwear index, the first date indicator, the baked bean sales indicator, the Japanese haircut indicator.

What's the Japanese haircut indicator.

What's the Japanese haircut indicator.

Well, it's about Japanese haircuts, Sean, and quite simply, it is an indicator that women in Japan tend to cut their hair and keep them short when the economy is declining, and then let them grow out over time. Is that right? Yeah, that's some very nice speed googling. That was. Yeah.

Well, it's about Japanese haircuts, Sean, and quite simply, it is an indicator that women in Japan tend to cut their hair and keep them short when the economy is declining, and then let them grow out over time. Is that right? Yeah, that's some very nice speed googling. That was. Yeah.

I don't ask I'm not going to ask you the underbee one. That's not good.

I don't ask I'm not going to ask you the underbee one. That's not good.

No, No, I don't think we want to maintain a g rating. Actually no, it's very simple. It's basically that men will forego purchasing new underwear to save money during hard times. It doesn't really need to be men's under, does it. It could be kind of a lot of different products.

No, No, I don't think we want to maintain a g rating. Actually no, it's very simple. It's basically that men will forego purchasing new underwear to save money during hard times. It doesn't really need to be men's under, does it. It could be kind of a lot of different products.

See that's one product, undies and socks. I would never forgo there.

See that's one product, undies and socks. I would never forgo there.

Really, I'm forgoing them right now. Sean.

Really, I'm forgoing them right now. Sean.

You had to say that I had to get out of here.

You had to say that I had to get out of here.

Set me up perfectly, all right, Thank you very much, Sean, well answered.

Set me up perfectly, all right, Thank you very much, Sean, well answered.

Thank you. Michael.

Thank you. Michael.

Remember, if you've got your own question that you would like us to answer, or if you'd like us to explore and discuss an unusual economic indicator, then please get in touch Fear and Greed dot com dot au and send you a question through the website or through any of the social media platforms LinkedIn Instagram, Facebook, drop us a note, we'll pop it on the list our Michael Thompson, ask Fear and Greed

Remember, if you've got your own question that you would like us to answer, or if you'd like us to explore and discuss an unusual economic indicator, then please get in touch Fear and Greed dot com dot au and send you a question through the website or through any of the social media platforms LinkedIn Instagram, Facebook, drop us a note, we'll pop it on the list our Michael Thompson, ask Fear and Greed