This is an amusing way to look at the US Dollar: How much iPod nano does the US dollar buy around the world?
Just over 20 years ago, The Economist magazine launched an index based on a McDonalds hamburger – the Big Mac index – a practical way of assessing whether a particular currency was under or over-valued against other currencies. It was launched as a light-hearted approach to exchange rate theory, but has had a good track record in predicting the direction of currencies.
· The Big Mac index has some limitations, one being that hamburgers cannot be traded across countries. Additionally, the Big Mac index is updated only irregularly. So, in the same spirit as the Big Mac index, CommSec has compiled the iPod index – a comparison of prices for the popular iPod nano music player across the world. Results released today showed that Apple sold 21 million iPods in the past quarter.
· The CommSec iPod index is a similarly light-hearted approach to assess currency movements. And while the initial results are at odds with many analysts, we will have to wait and see. The index suggests that the US dollar has potential to appreciate against a range of major currencies, with the Aussie dollar around 15 per cent over-valued against the greenback.
2 gigabytes, US dollars
January 2007
| Country | Price |
| Brazil | $327.71 |
| India | $222.27 |
| Sweden | $213.03 |
| Denmark | $208.25 |
| Belgium | $205.81 |
| France | $205.80 |
| Finland | $205.80 |
| Ireland | $205.79 |
| UK | $195.04 |
| Austria | $192.86 |
| Netherlands | $192.86 |
| Spain | $192.86 |
| Italy | $192.86 |
| Germany | $192.46 |
| China | $179.84 |
| Korea | $176.17 |
| Switzerland | $175.59 |
| NZ | $172.53 |
| Australia | $172.36 |
| Taiwan | $164.88 |
| Singapore | $161.25 |
| Mexico | $154.46 |
| USA | $149.00 |
| Japan | $147.63 |
| Hong Kong | $147.63 |
| Canada | $144.20 |
Source: CommSec, Apple
It certainly isn’t a scientific way to look at it, and it has numerous problems, but it is definitely interesting. The amount that Brazil is higher than the rest is quite amazing.
Of note, many of the “high” countries are UK/EU area which are subject to an imbedded VAT. The UK, for example, embeds 17.5% VAT in retail prices for most goods.
In Canada (“cheapest” on the list) prices are quoted before the addition of national VAT and provincial sales taxes.
If the index is going straight off an Apple list price sheet without adjusting for VAT, the result is pretty meaningless.
This ‘news’ item ran on Monday with Erin Burnett on CNBC.
It follows that there should be a trading opportunity playing the spread between the Big Mac index and the Ipod index. Maybe an ETF?
Another reason why Canada rules!
Here’s something I’m more than a little curious about and am certainly interested to hear others’ opinions.
Obviously the dollar has weakened considerably over the last five years, and during that same time the euro has appreciated almost the same amount. It’s often stated that the weak dollar is a sign of a weakening U.S. Is a stronger euro therefore a sign of a strengthening Europe? Are Europe’s future prospects that much brighter than the U.S.?
In 1995 the dollar was only a little higher than where it is today and then appreciated throughout the late 1990s. It continued on up during the worldwide stock market from 2000-2002, and from there it’s fallen. Given how high the euro is, how much more can the euro climb and the dollar fall?
Lastly, it seems everyone is short the dollar. I’ve yet to hear anyone who is bullish. With so many people already on one side of the trade, how likely is a reversal?
You still a firm believer in Apple? Moving based on fundamentals,kicking MSFT and other generalized bullish views or are you in the bubble camp? An awesome bubble highlighting the marvelousness of hedge fund momo investing. I’m quite amazed and impressed by how far they have driven this stock. If it doesn’t fall too quickly, I plan to pad my retirement on the way back down.
Mike, Europes economy is starting to go flat to down, as we speak, along with Japan, and China, Brazil, (The BRIC has been Braced!. India is the only one that is expanding, according to what I have been reading; and I read an awful lot!
Off Topic: Barry, just read an article about the “richest woman in china, and all the wealthiest over there comes to only 120 Billion, that is chump-change compared to our wealthiest. Is the Chinese Economy being over-pumped like it was back in the early to mid 90’s?
Berry- Buy low, sell high, Dollar.
There’s an old saying on Wall Street: “Don’t Fight the Fed.”
They want a lower dollar.
Look at me, I over-exaggerated decimal points by a large factor and decimal places may exaggerate the precision of worth. Precision in alphabet letters can also change all measuring, just one letter can change everthing. Pretending to
be something one is not is a zero value game. Determining the relative value of an amount of money or dollar or worth compared to another is more complicated than it seems and the Fed knows this.
Hamlet “Though this be madness, yet there is method to it.” – William Shakespeare
They forgot to include Mother Russia… Tovarish Boris can get you one NIB for $39.
Who pays retail anyway.
@Mike
I’ve had some of the same thoughts regarding the dollar. The one large bullish factor I see is that a lot of loans were made, but not too many people have the dollars to pay those loans. To me that means those with dollars call the shots, and dollars means actual cash.
There is also the issue of foreign central banks holding a large sum of our debt… but that debt isn’t exactly dollars (bonds, agencies, etc). I can see a scenario in which interest rates shoot up with a tidal wave of defaults because cash would be scarce. I can also see our government printing dollars to give to foreign central banks to make the dollar toilet paper money. My problem is each scenario requires a completely different course of action portfolio-wise.
This Nano comparison seems moot to me. Isn’t the purpose of the Big Mac index that many of the ingredients can be had from local sources and therefore more accurately reflects the cost of living in each of these countries? There is nothing about the Nano that is sourced locally.
Also, as mentioned above, many of these counties have big tariffs/VAT’s on importing manufactured goods, which is reflected in the price.
Is this “Nano Index” really relative, or just more cable news filler?
http://yahoo-compare.buscape.com.br/apple-ipod-nano-6-8gb.html?pos=11
6Gb nano going for 772 BR or $442 over hear.
http://finance.yahoo.com/currency/convert?amt=772&from=BRL&to=USD&submit=Convert
1.) @safarilama: Yes, you’re correct. The Big Mac Index and the iPod Nano Index say different things and should be used appropriatly.
2.) And well, the Big Mac Index may be published too seldom, but the iPod index is old as well: “19 Jan 2007”.
With the recent Dollar drop, these numbers should look very different today.
having recently been to brazil, i can confirm that iPods are indeed way more expensive there. as were clothes/shoes (an average/decent pair of running shoes would set you back $200), and food prices also seemed somewhat high.
my general view from my world travels are:
Europe – expensive
UK – insanely expensive
Asia – dirt cheap
South America (well, Brazil) – surprisingly expensive
Scandinavia – Insanely insanely insanely expensive
Canada – inexpensive
US – pretty damn cheap
Dollar needs to appreciate to close these price differences (as do some Asian currencies).
For All The Ipods in China
From the Big Picture Blog, which (at least for me anyway) makes economics fun comes a post entitled, US Dollar/iPod Index, postulating that the way to compare currencies/speding power is via iPod nano pricing. It does so by asking “how much iPod nano d…