Many a sucker has regretted taking
my word for anything --- . But don't take it from me --- take it from
a rag actually named after economists, The Economist.
I bet, McGonigle, you'll live
to wish you'd known that, every year since 1986, The Economist
has compared the prices of the Big Mac Hamburger in different countries
all over the EGA ( the
empire where the sun never sets, the Empire of the Golden Arches
- which is bigger than the British Empire ever was). A week ago The
Economist found a hamburger containing exactly the same quantity
of cholesterol and trans fats and anything else bad you can think of -
that exact self-same hamburger sold in Shelby, Montana for only $3.57
but sold in Calgary, Alberta for $4.09US; sold in Oslo, Norway for $7.88US!!!
but sold in Beijing, China for only $1.83US.
By comparing prices
of Big Macs globally --- aka all over the EGA, The Economist
put together what they call the Big Mac Index. If a Big Mac
sells in a foreign country for more than it does in the USA, The Economist
says that that country's currency is overvalued. So The Economist
says that the Canadian Dollar is 15% overvalued; the Norwegian Kronor
is 121%; but the Chinese Yuan, on the other hand, is 49% undervalued.
And the European Euro -- a Big Mac is selling in Paris for $5.34US
--- is overvalued by 50%.
McGonigle --- when
you saw the Euro rocketing up ... you wanted to get in on the easy money
... you mortgaged your house and bought Euros. I have to tell you, sir,
the money traders are really hosing you, you poor old sod. According to
the Big Mac Index, if you had bought Euros with American dollars,
you'd have paid 50% too much. But because you bought
them with Canadian dollars and Canadian dollars are overvalued by 15%
therefore, according to my calculations --- and I'm seldom wrong ---
you probably paid about 43% too much. What's
going to happen at some time --- just like the sun gets up in the east
in the morning --- the Euro will fall. A laddy like you, McGonigle, of
course, thinks some sucker will come along and be even a bigger sucker
than you are and will pay you more than an extra 43% for a Euro --- and
that same next laddy on the sucker list will be motivated by the belief
that another even bigger sucker will come along and pay even more. Well
you can see where it's going --- it's called speculation --- most people
who get involved lose big money and the really stupid ones mortgage their
houses. And sitting calmly on the other side are the value investors ---
people who do the same thing Warren Buffet does in the stock market ---
buy low/sell high --- they know the market for a currency will head towards
its real value eventually and, therefore, when one currency is overvalued
--- they sell it --- when another is undervalued --- like the Singapore
dollar --- according to the Hamburger Index --- it is 18% overvalued
--- they buy it. But McGonigle you'd never do that because you're not
a contrarian - you're the very opposite of a contrarian.
Lord Strath --- are you saying that the Big Mac Index can scientifically
predict what the dollar will be trading at in the future?
"science" is called "Burgernomics". Burgernomics
is is based on a theory of economics called "PPP". PPP doesn't
stand for some kind of roadside marijuana test where the kops'll zap you
if you don't give a sample --- no PPP means "purchasing-power parity"
--- the theory of the learned economists who peddle the PPP is that red-blooded
loyal consumers are made from the same mold all the world over/ EGA and
will --- eventually --- pay the same price all over the world for the
same product being, in this case, the Big Mac hamburger, cholesterol,
trans fats and all. --- In this Consumer Heaven, Old Timer from Pincher
Creek, you'd pay the same for a Big Mac in Calgary, Alberta, Kingdom of
Canada, as would Sam Slick in Shelby, Montana, United States of America.
Don't forget it's just a theory no different from David Suzuki's theory
that CO2 causes global warming or that a cat has nine lives --- a theory's
fine but you have to prove it --- What surprises me is that I cannot find
anywhere where The Economist magazine has compared all of their
statistics over the 22 years since 1986, the year they started using the
Big Mac Index --- for instance --- did the Big Mac Index in 1986 predict
what the Canadian dollar would trade for in 1987? Why, all a person would
have to do would be to sit down with every Economist report since
1986. Well I can't see anyone's done it. A
couple of Hungarians, Antonio Fatás
and Ilian Mihov compared the cost of living indexes in Australia and England
- converted them to U.S. dollars and plotted them from 1975 to 2003.
And then plotted out the exchange rates for the Australian dollar and
English Pound over those years. I saw a chart there on page 15 of Chapter
18 of Fatás's
and Mihov's report that seemed to give some proof to the PPP theory. And
my gut tells me that the learned Hungarians are right and that's why I
sold the Euros McGonigle bought. I've never been bankrupt (mind you I've
been plenty close ... like the time we built the CPR) --- McGonigle's
been bankrupt as many times as he's been convicted of impaired driving
--- 17 times going on 18. And the Canadian Dollar has gone down from $1.00US
on July 25, when the Economist published it's latest Big Mac report to
96 cents today.