June 12, 2025 • 5 mins
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Episode Transcript
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Speaker 1 (00:03):
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.
Speaker 2 (00:17):
Greed episode generously off there, Michael, and.
Speaker 1 (00:20):
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
(00:40):
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.
Speaker 2 (00:50):
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
(01:12):
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
(01:34):
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
(01:56):
point eighty eight US sense or eighty eight US cents
for one Ossie dollar.
Speaker 1 (02:00):
Yep.
Speaker 2 (02:01):
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
(02:23):
things should cost if there's this parody across currencies.
Speaker 1 (02:28):
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.
Speaker 2 (02:40):
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.
Speaker 1 (02:57):
Yes, we have established for a long period.
Speaker 2 (03:02):
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
(03:23):
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
(03:43):
Mac Index does kind of work, okay, and it does
show kind of purchasing parody or not across economies.
Speaker 1 (03:53):
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.
Speaker 2 (04:04):
I could be going on.
Speaker 1 (04:05):
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.
Speaker 2 (04:23):
What's the Japanese haircut indicator.
Speaker 1 (04:25):
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.
Speaker 2 (04:43):
I don't ask I'm not going to ask you the
underbee one. That's not good.
Speaker 1 (04:46):
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.
Speaker 2 (05:02):
See that's one product, undies and socks. I would never
forgo there.
Speaker 1 (05:07):
Really, I'm forgoing them right now. Sean.
Speaker 2 (05:11):
You had to say that I had to get out
of here.
Speaker 1 (05:13):
Set me up perfectly, all right, Thank you very much, Sean,
well answered.
Speaker 2 (05:17):
Thank you. Michael.
Speaker 1 (05:18):
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
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.
Speaker 2 (00:17):
Greed episode generously off there, Michael, and.
Speaker 1 (00:20):
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
(00:40):
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.
Speaker 2 (00:50):
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
(01:12):
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
(01:34):
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
(01:56):
point eighty eight US sense or eighty eight US cents
for one Ossie dollar.
Speaker 1 (02:00):
Yep.
Speaker 2 (02:01):
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
(02:23):
things should cost if there's this parody across currencies.
Speaker 1 (02:28):
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.
Speaker 2 (02:40):
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.
Speaker 1 (02:57):
Yes, we have established for a long period.
Speaker 2 (03:02):
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
(03:23):
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
(03:43):
Mac Index does kind of work, okay, and it does
show kind of purchasing parody or not across economies.
Speaker 1 (03:53):
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.
Speaker 2 (04:04):
I could be going on.
Speaker 1 (04:05):
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.
Speaker 2 (04:23):
What's the Japanese haircut indicator.
Speaker 1 (04:25):
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.
Speaker 2 (04:43):
I don't ask I'm not going to ask you the
underbee one. That's not good.
Speaker 1 (04:46):
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.
Speaker 2 (05:02):
See that's one product, undies and socks. I would never
forgo there.
Speaker 1 (05:07):
Really, I'm forgoing them right now. Sean.
Speaker 2 (05:11):
You had to say that I had to get out
of here.
Speaker 1 (05:13):
Set me up perfectly, all right, Thank you very much, Sean,
well answered.
Speaker 2 (05:17):
Thank you. Michael.
Speaker 1 (05:18):
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
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