Ruble undervalued according to the Big Mac index

marsman · Aug 1, 2016

Big Mac index shows ruble should be much stronger than it is
Published time: 1 Aug, 2016 15:03
https://www.rt.com/business/354167-ruble-big-mac-index/

DallasCowboysFan · Aug 1, 2016

As long as oil stays low and Russia gets 75 percent of their foreign currency from it, there is no overwhelming reason for it to go higher.

Handle123 · Aug 2, 2016

I would trade it more but the risk is too much and can't hedge, so have to wait for Secondary signals and not look for extremes.

Zestilio · Aug 2, 2016

DallasCowboysFan said:
As long as oil stays low and Russia gets 75 percent of their foreign currency from it, there is no overwhelming reason for it to go higher.

Totally agree. You really can't call an economy completely tied to a single recource that's near its lows "undervalued".

Sig · Aug 2, 2016

marsman said:
Big Mac index shows ruble should be much stronger than it is
Published time: 1 Aug, 2016 15:03
https://www.rt.com/business/354167-ruble-big-mac-index/

View attachment 165791
© Paul J. Richards / AFP

I'm curious what PPP actually is. Obviously the "Big Mac Index" is a little senseless since a Big Mac costs much less in BFE Kansas than in Times Square, and clearly a Kansas dollar isn't undervalued compared to a NY dollar. PPP does a better job of teasing out the data using the same underlying concept.

marsman · Aug 2, 2016

Sig said:
I'm curious what PPP actually is. Obviously the "Big Mac Index" is a little senseless since a Big Mac costs much less in BFE Kansas than in Times Square, and clearly a Kansas dollar isn't undervalued compared to a NY dollar. PPP does a better job of teasing out the data using the same underlying concept.

The marketing guys divide each country into Purchasing Power regions based on avg income, standards of living etc...
https://en.wikipedia.org/wiki/Big_Mac_Index
https://en.wikipedia.org/wiki/Purchasing_power_parity

Zestilio · Aug 4, 2016

Sig said:
I'm curious what PPP actually is. Obviously the "Big Mac Index" is a little senseless since a Big Mac costs much less in BFE Kansas than in Times Square, and clearly a Kansas dollar isn't undervalued compared to a NY dollar. PPP does a better job of teasing out the data using the same underlying concept.

Imo PPP is not perfect as well. It takes averages, which is quite useless in highly stratified states like India or China. In many ways BM index (average by the country) is much more representative.

doggyfx · Aug 4, 2016

Anybody knows why volatility on ruble decreased significantly while oil make 1-2% daily, ruble can stay near last day close? It becomes weird, I guess there their CB keeps USD/RUB in check..

Sig · Aug 4, 2016

Zestilio said:
Imo PPP is not perfect as well. It takes averages, which is quite useless in highly stratified states like India or China. In many ways BM index (average by the country) is much more representative.

Can you expand on the highly stratified states comment? I don't have a lot of experience in India so I'm curious about PPPs limitations there. Thanks.

Zestilio · Aug 9, 2016

Sig said:
Can you expand on the highly stratified states comment? I don't have a lot of experience in India so I'm curious about PPPs limitations there. Thanks.

I put India there as an example. Can't be sure I'm 100% correct, but to my knowledge it's a country with a really uneven income level. Middle class is a smaller part of their society, about half of their population lives around the poverty line, and at the same time the amount of the rich is disproportionally high. So as you can imagine, their PPP being quite high doesn't really represent actual social and economic situation in the state.