"Are Quirky Indicators Just Plain Stupid? Or IsThere Some Logic That
Investors Can Profit From?"

"Reseach For Yourself - Are
The Facts Just Co-Incidence Or
Do The Numbers Stack Up?"

Introduction

Quirky Indicators are, in our opinions, everyday items made to co-incidentally fit a set of criteria.  In other words - B.S. 

But please read on and you be the judge.  Do some of your own research and make your own conclusions.

• The Big Mac Index, created in 1986, is a quirky way of measuring the Purchasing Power Parity (PPP) between two currencies. We think it's all a bit daft.
  
  
• The Skirt Length (or Hemline) Theory is a superstitious idea that the length of a woman's skirt can predict the direction of the markets.  We think this theory is even dafter than the Big Mac one.
  
  
• It gets even dafter.  The Lipstick Indicator suggests that any increase in cosmetic sales, especially lipstick, can lead to a recession. 

And there are other wacky theories out there.  Predicting this and predicting that.  And pigs might fly!

We think it's all a load of bull.  Co-incidental and superstitious. But you be the judge.

"The First of The Quirky Indicators:
The Big Mac Index"

Of all the Quirky Indicators, this has got to be the most wacky idea ever thought up.

By some strange co-incidence it happens to "fit" the criteria it is intended to highlight.

If you haven't realised what this "Index" is all about we can confirm it really is about kids favourite hamburger from McDonalds. 

It was founded in 1986 as a humorous decription of PPP but has turned into what it is now.  The term "Burgernomics" has even entered our vocabularly.

The Big Mac was chosen because it is generally available in most places, and because McDonalds is a franchised outlet, the product is more or less the less wherever you get it.

The theory goes like this: the exchange rate between two currencies should adjust naturally so that a basket of goods in one country shoud cost the same as a basket of goods in another. 

This, to us, is a fundametal flaw in this "Index".  You could hardly describe a Big Mac as a 'basket of goods.'  It's only one item. 

The Big Mac PPP exchage rate between two currencies is ascertained by dividing the price of a Big Mac in one country (and its currency) by the price of a Big Mac in another country (and in its currency).

The value obtained can then be compared with the actual exchange rate.

If the rate is lower, it would imply that the first currency is undervalued relative to the second.  Conversely, if it is higher, then the first currency is overvalued relative to the second. 

It is, perhaps, best explained with an example:

The price of a Big Mac is $4.50 in the U.S.

The price of a Big Mac is £3.30 in the U.K.

This implies  PPP of 4.5/3.3 = 1.36

This compares with an actual exchange rate of, say, $1.5 : £1

Therefore:  (1.5 - 1.36)/1.36 = 10.3%

Thus implying that the UK Pound was overvalued against the dollar by 10.3%

Very nice, but what practical use is all this?  We're not sure. Unless you want to play the international currency markets - for the private investor, that's gambling - something that this website does not encourage.

There are many analogies to the Big Mac Index.  For example, a cup of Starbuck's coffee could have been used instead of a Big Mac and we're sure, similar results would have dropped out.

"The Second of The Quirky Indicators:
The Hemline Theory"

The Hemline Theory is a hideous idea that the length of women's skirts can predict stock market movements.

The theory states that if short skirts are popular then markets are ready to go up. 

Conversely, if skirt lengths are getting longer, this is an indication that the markets may be ready to fall. 

It's sheer co-incidence that skirt lengths got longer just before the 1929 Stock Market crash (we weren't around at the time). Exactly the same thing happened just before the market crash in 1987 (but we do remember this one).

Sorry, but for us there's is absolutely no mileage in this one.

"The Third, and Last, of The Quirky Indicators: The Lipstick Indicator"

The Lipstick Indicator might have just a smidgeon of logic to it.

The theory being that in times of poor consumer confidence the public tend to spend more on minor luxuries, such as cosmetics.  It makes them feel better apparently.

This economic indicator was "discovered" by Leonard Lauder, the chairman of Estee Lauder.  He noticed that just after the 9/11 attrocities that sales of his company's lipstick doubled.

On further investigation, he noticed that sales of lipstick always increased in times of economic uncertainty. 

Unfortunately, the theory is a little thwarted by the fact that lipstick could also increase during good times.  But, the bigger sales did occur during the bad times.

Maybe looking good made women feel good in times of uncertainty. 

Conclusion

We've included this web page for illustration purposes only.  We do not see much sense with any of these Quirky Indicators.

We can understand the 'feel good factor' and that's all these Quirky Indicators are - I.O.H.O.

You may come across these, and perhaps some others, during the course of your analysis.  Take them all with a pinch of salt.  For sure, don't take them seriously.

We don't.

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