The US Dollar Is Now Overvalued Against Almost Every Currency In The World

Tyler Durden's picture

Submitted by Simon Black via SovereignMan.com,

In September 1986, The Economist weekly newspaper published its first-ever “Big Mac Index”.

It was a light-hearted way for the paper to gauge whether foreign currencies are over- or under-valued by comparing the prices of Big Macs around the world.

In theory, the price of a Big Mac in Rio de Janeiro should be the same as a Big Mac in Cairo or Toronto.

After all, no matter where in the world you buy one, a Big Mac generally consists of the same ingredients– two all beef patties, special sauce, etc.

A Big Mac currently sells for 49 pesos in Mexico, for example; at the current exchange rate, that’s about $2.23 US dollars.

Meanwhile in Switzerland, a Big Mac sells for 6.50 francs, or roughly USD $6.35.

This means that a Big Mac in Switzerland costs 2.8x as much as the exact same burger in Mexico.

Obviously there are a LOT of differences between Switzerland and Mexico that would ordinarily lead to some difference in price.

But 2.8x is clearly excessive, suggesting that the Mexican peso is undervalued relative to the Swiss franc.

The most recent Big Mac Index was just released last week.

It shows that the US dollar is currently OVERVALUED against almost every currency in the world.

Canada. Russia. UK. South Africa. Turkey. Poland. Colombia. Philippines. Euro Area. Australia.

The average price of a Big Mac in each of these countries is dramatically cheaper than in the United States.

The Economist’s data show, for example, that the average Big Mac price in the US is $5.06.

(By the way, that’s 17% higher than the average US price of $4.37 that the newspaper reported in January 2013… not that there’s been any inflation.)

In Canada, however, the paper reports an average price of $6 Canadian dollars, or USD $4.51 at current exchange rates.

This suggests that the Canadian dollar is about 11% undervalued relative to the US dollar.

In the Euro area, the average price of a Big Mac is 3.88 euros, about $4.06 based on current exchange rates.

That implies the euro is 20% undervalued against the US dollar.

In places like Malaysia, South Africa, and Russia, it’s even more extreme, with local currencies 60%+ undervalued against the US dollar.

It’s important to understand what this means.

The fact that the dollar is overvalued isn’t some big prize. It’s not an indication that America is #1, the dollar is King, or that the US economy is strong.

This is a bubble.

Currencies, just like stocks and bonds, are assets traded in global financial markets.

And just like stocks and bonds, currencies can be in a bubble.

You may remember the dot-com bubble of the 1990s, when the stock prices of laughable websites (like Pets.com) soared to unimaginable heights.

As with all bubbles, that one eventually burst, and stock prices crashed.

The US dollar has been in a bubble for more than two years.

Yes, there are clearly a number of fundamental differences between the United States and other countries that would lead to natural exchange rate imbalances.

But again, we’re not talking about the US dollar being overvalued by 5% or 10%. We’re talking about EXTREME differences that are completely irrational.

And it’s not just Big Macs either.

Nearly every shred of objective data suggests that the US dollar is overvalued.

The “US Dollar Index,” for example, which measures the US dollar’s value against an entire group of currencies like the euro, Japanese yen Canadian dollar, etc., is currently at its highest level in 14 years.

Politicians and policymakers hate this.

They ignore all the benefits of a strong currency, and instead claim that a strong dollar makes US goods and services too expensive for foreigners to buy, which hurts exports.

Donald Trump told the Wall Street Journal last week that the US dollar is “too strong. And it’s killing us.”

On that single statement alone, the dollar index fell 1%.

Fed Chair Janet Yellen has also weighed in on the overvalued US dollar, calling it “a drag on U.S. growth”.

No one has a crystal ball, and it’s impossible to predict precisely WHEN this bubble starts to deflate.

In fact, it’s possible that the dollar becomes even stronger than it is today.

But when the two most powerful policymakers in the country both want the US dollar to get weaker, it’s pretty clear what’s going to happen.

This means that, right now, if you’re holding US dollars, you have an opportunity.

The evidence shows that the dollar is irrationally overvalued, and both the Federal Reserve and the US government want it to be weaker.

The evidence also shows that there are plenty of foreign currencies which are heavily UNDER-valued against the US dollar.

The old saying in investing is “Buy Low, Sell High.”

It also works the other way: “Sell High, Buy Low.”

And that is precisely the opportunity right now: to SELL overvalued US dollars at their 14-year high, and BUY top quality, undervalued foreign assets at their record lows.

Do you have a Plan B?

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VWAndy's picture

 Yep its hard measurin stuff with rubber bands.

ParkAveFlasher's picture

Big Macs have a shelf life roughly comparable to elemental gold.  I like this metric.

Nemontel's picture

Gold will be on a rise soon.

38BWD22's picture

 

 

My favorite US$ per Peruvian Sol is the "Haircut Index".  If my haircut at the local cuttery (Lima) is less than US$3.50, then the dollar is strong!  Else, weak.

peddling-fiction's picture

Here in Bolivia it is exactly USD $3.50 at a neighborhood barber shop.

38/11, is that in Surco?

More upscale joints will be more expensive.

This is considering that the Boliviano is pegged at 6.96 to the U.S. Dollar.

NidStyles's picture

It's not overvalued unless no one is buying. Looks like plenty of people are buying.

HowdyDoody's picture

it is a mighty thing when a country has turned on the printing presses like there is no tomorrow and their currency is considered strong.

NidStyles's picture

Well, we didn't QE stopped a while ago. Everyone else is still printing as far as I know. China, I have no idea why anyone buys that currency. It's obvious they are just printing that crap and handing out to insiders and party members.

 

The US really went off the road when the sanctions against RU were created.

mtl4's picture

Dollar is up because it's the best place to park money right now and could get alot more overvalued if confidence in govt in Europe starts to falter in the near future.

38BWD22's picture

 

 

Yep, in Surco, mere STEPS away from where I work (Ameru) when I am down there.

peddling-fiction's picture

That is pretty cheap considering that Surco is well-accomodated middle to higher-middle class.

My pricing is from a neigborhood a bit below Surco, and can get it cheaper. Probably for 2 bucks downtown.

rejected's picture

$11 in my area is cheap...

Kirk2NCC1701's picture

How much for a Wash & Cut, or Wash, Cut & Happy Ending?

Rainman's picture

This means QE 4 will only make the dollor even stronger bitchez !

anarchitect's picture

It's overvalued because it's the primary reserve currency.  Much like everyone is forced to transact in fiat, which is therefore overvalued compared to monetary metals.

Lynx Dogood's picture

So before Trump got in it was at it's real value. Holy crap, the propaganda ministers are working over time. Value is what people are willing to pay, so lets write a bunch of crap to de-value it for politicle reasons.

post turtle saver's picture

the petrodollar is talked about constantly here...

when it doesn't take many US dollars to buy a barrel of oil, the dollar is strong... when it takes more, the dollar is weak... lather rinse repeat... this is pretty easy to figure out, if you think the dollar is going to become weak then go long on oil...

Jethro's picture

So...the transition between exporting inflation and importing deflation...or not yet?

Iconoclast421's picture

Can someone tell me who actually predicted the dollar would be worth so much 8 years after the start of QE? How about even just some predictions from 2011, when gold was peaking?

rejected's picture

Gold is about the same

Food has went up bigtime.

Housing / Rents up huge.

Fuel down a little.

sprintjump's picture

Icon421, to the disappointment of some, Martin Armstrong did.

Livermore Legend's picture

Indeed......

"King Dollar" (2008)......or "Capitalism Reigns" (2010)........

And as to Gold, et al.,  "Golden Myths" (2012).......

The List goes on, including "President Trump".

And by the way, Thank You Mr. President for the Inagural Address !!!

"Jobs, Jobs, Jobs" !!!

Nothing like the President providing Historical Validation.

These "Pretenders to the Throne" only wish they had such a Record......

The above article and every single one like it, pure nonsense.

Doug, Peter, Simon, Willy Lunchmeat, Billybob, Juanito, etc., etc. 

And by the way Simon, et al., as I said in "America" (2014)  "The Euro is Worthless".

As for "Bill" and "Jeff", very Talented Men; but Not My Equal, even Put Together....

2.6, 3.0, etc., etc., all the Wrong Questions.

Thus to the Most Important Question of All:

Is the "Bond Bull" over or Not ?

For the Party with $ 100 Million in Cash, I will Provide that Answer and Lead the Way.

And that would be in US Dollars.

As I've said, Got US Bills ?

 

P.S. This Message is intended for Mature Audiences

 

Kirk2NCC1701's picture

You should know by now, that Bias and Affirmation Bias is as strong here as anywhere.

Don't ever embarrass ZHers with facts, stats and predictions about PM.  They won't thank you for it. Not when so many PM pushers support this site.

That said... PM will not go up because of QEx. It will go up if the Dollar goes down. That's the only mathematical correlation I have seen since 2011.  All else is BS, smoke and snake oil.

manofthenorth's picture

A Big Mac is shit FAKE food.
The dollar has been rendered into shit FAKE money.

Abbie Normal's picture

At least there's about 15% less fake food than in 2013.  Didn't the burger used to be bigger than the bun?

rejected's picture

Alaska has a currency?

Didn't Switzerland have the $45 hotdog?

vasallo7g's picture

The US jobs went to Mexico, but not the jobs salaries, now nobody has money to buy the things that are being produced. 

gatorengineer's picture

And China, I agree totally but there are a crap ton of 50k+ new cars and trucks on the road, so there is a fuckton of money somewhere.  Lets say they are leases... Who is swinging a now 35k used ride after 2 years.... I agree with your comment but it doesnt match what I see.  the $20 a plate restaurants are empty the $100 a plate ones are packed.

jomama's picture

Just Making America Great Again, folks.

TeethVillage88s's picture

Looks like Corporate Taxes have been lowish since 2008.

looking at recovery from the Recession between Individual Tax Revenue & Corporate Tax Revenue. Maybe someone can explain how Individual Taxes took a Dive, then recovered but Corporate Taxes Did not??? (Fiscal Year Data from Monthly Treasury Report)

Corporate Income Taxes Receipts 1998 = $ 188.7 Billion
Corporate Income Taxes Receipts 2002 = $ 148.0 Billion (Recession)
Corporate Income Taxes Receipts 2006 = $ 353.9 Billion
Corporate Income Taxes Receipts 2007 = $ 370.2 Billion
Corporate Income Taxes Receipts 2008 = $ 304.3 Billion
Corporate Income Taxes Receipts 2009 = $ 138.2 Billion (Recession)
Corporate Income Taxes Receipts 2012 = $ 242.3 Billion
Corporate Income Taxes Receipts 2013 = $ 273.5 Billion
Corporate Income Taxes Receipts 2014 = $ 320.7 Billion
Corporate Income Taxes Receipts 2015 = $ 343.5 Billion

Individual Income Taxes Receipts 1998 = $ 828.6 Billion
Individual Income Taxes Receipts 2002 = $ 858.3 Billion (Recession)
Individual Income Taxes Receipts 2006 = $1.044 Trillion
Individual Income Taxes Receipts 2007 = $1.163 Trillion
Individual Income Taxes Receipts 2008 = $1.146 Trillion
Individual Income Taxes Receipts 2009 = $ .915.3 Trillion (Recession)
Individual Income Taxes Receipts 2012 = $1.132 Trillion
Individual Income Taxes Receipts 2013 = $1.316 Trillion
Individual Income Taxes Receipts 2014 = $1.395 Trillion
Individual Income Taxes Receipts 2015 = $1.541 Trillion

So Corporate Profits are up:
http://research.stlouisfed.org/fred2/series/Cp
And Dividends are up:
http://research.stlouisfed.org/fred2/series/DIVIDEND
BUT Somehow Corporate Tax Payments are still down???!!!

http://research.stlouisfed.org/fred2/series/CES9091000001 (Trend is about 2.8 Million Federal Employees)

gatorengineer's picture

because of the Massive move over seas by corporation, the tax base went away....  Now if you really want to be entertained look at giverment spending over the same period.

Justin Case's picture

This is killing industry and export for merica. Corporations can't manufacture goods cheaper than other countries with lower taxes, labor and regulations. Trade deficits and unemployment balloon in merica.

The bosses of the big corporate enterprises always threaten that if wages and conditions are not worsened, they will take their business to another country where wages are lower.

alexcojones's picture

I over value ALL my dollars cuz I have so few of them.

FYI; Franchise burgers in Rio de Janeiro cost MORE in US dollars than same burger in pricey Kodiak Alaska. Lived in both places in 2013 and compared.

 

BabaLooey's picture

More gloom and doom from Simon.

"The “US Dollar Index,” for example, which measures the US dollar’s value against an entire group of currencies like the euro, Japanese yen Canadian dollar, etc., is currently at its highest level in 14 years.

Politicians and policymakers hate this."

The Euro - shit on toast.

The Yen - Banzai! Like THAT is a "strong" currency.

The Loonie - Trudump.

Black forgets that many currencies he lists are either too illiquid, or out of reach for any American investor to profit from. 

It would be helpful to list - perhaps - some vehicles TO invest in, rather than just spew that the USD is "over-valued".

Stan522's picture

Over valued, or higher valued..... Perhaps a nice vacation to a undervalued currency nation is in order....

FreeShitter's picture

29'.....Time to make the great depression, great again.

invest-in-bullion's picture
invest-in-bullion (not verified) Jan 23, 2017 4:14 PM

Might want to buy gold now while the dollar is overvalued: https://www.invest-in-bullion.com

besnook's picture

the last stage before the collapse of the system is unwarranted dollar appreciation because the alternatives are worse not because the dollar is better. this is a very dangerous time. you better own some real assets if you want to have anythingleft when this is over.

SDShack's picture

All this means is the $ is the cleanest dirty shirt in the "Elite Ponzi Race to the Bottom" laundry. Rinse and Repeeat, over and over and over.

truthordare's picture

or as my old granny used to say....    "first out, best dressed"

falak pema's picture

Hahaha !

Rope, rope, rope...give em enuff rope and they'll hang themselves.

A bubble is a bubble if you don't own your own paper debt 100%.

If the bubble is own debt fed it is 100% owned by the FED and the US corporates, its self contained.

But like in the case of Japan, you lose two decades as your debt makes you unable to go out and invest! You are in stagflation bigtime!

In the case of the US the $ is universal currency.

It happened in 1971-1974 when petrodollar/eurodollar took over the monetary world as floating Friedmanian wankomania.

So today, everybody can shit on you! Yikes!

The US now has some choices :

1° let $ go to 1/3 of its value and use that to payoff $ debt. You end up like Argentina!

2° Rescind debt like in middle ages. Tell the world FO. You lose your $ and world dominance, like Argentina.

3° Tighten belts and lose your wealth and spend 2 decades to pay it off by productivity increases, like China did before 2008.

You are  a coolie country for  a decade at least.

4° Go Genghis Khan and invade China and then... thats that!

Dr Strangelove looms !

The Duck has to choose... Not easy !

Meanwhile at home its raining...snowflakes bigtime, for four moar years! 

 

TeethVillage88s's picture

My question relates to WRC, USD, and it's value, perceived value.

I Wonder. I wish I could really know who invests in the USA, what they invest in, how foreigners invest, if foreigners are buying mortgages (yes), Subprime Auto Loans (yes), US Debts (Yes) and how much foreigners... and rich foreigners like bankers invest in the USA.

Is it possible our wealthy & Banks don't invest in the economy, but rather just are Rent Seeking in the main (Mainly)?

Who IS INVESTING IN THE USA?

Rest of the world; foreign direct investment in U.S.; asset, Level
2014:Q1: 3,249,001.2 Millions of Dollars (+ see more)
Quarterly, Not Seasonally Adjusted, ROWFDNQ027S, Updated: 2014-06-05
http://research.stlouisfed.org/fred2/series/ROWFDNQ027S

compare

Gross Private Domestic Investment
2014:Q2: 2,829.3 Billions of Dollars (+ see more)
Quarterly, Seasonally Adjusted Annual Rate, GPDI, Updated: 2014-07-30
http://research.stlouisfed.org/fred2/series/GPDI

US Corporations are Not Loyal, Not Investing, Not Patriots, Don't have a "Good" Vision for the USA, and apparently are out of Ideas other than cutting US Labor Rates, Labor Benefits, and Cutting the Workforce.

Interesting of the $26 Trillion in Foreign Owned US Assets put out by BEA.GOV on IIP Data, looks like about half is accounted for in the 2013 Data Report as Equities, LT Corporate Debt, LT Agency Debt, LT Treasuries. Which leaves me to conclude foreign owned US Real Estate must be about $12-14 Trillion (page 30). But I am not an Economist or Financial guy. Maybe Europeans are also buying US Real Estate.

http://www.treasury.gov/ticdata/Publish/shl2002r.pdf (short term & Long term investments in Treasuries and Stocks)
http://www.treasury.gov/ticdata/Publish/shla2013r.pdf
http://ticdata.treasury.gov/Publish/mfh.txt
http://www.bea.gov/newsreleases/international/intinv/iip_glance.htm

Here is 2014 data, long term foreign holders of US Treasuries, a possible indication of growing wealth or safe harbor in US Dollar/Treasuries... Something going on... and they combined caribbean islands and petro countries in recent years.

Last Data is from December 2014.

Belgium 2002 = $10.8 B, then 2013 = $163 B, Today $335 B
Bermuda 2002 = $14 B, then 2013 = $94 B, Today ??
Cayman Islands 2002 = $10.7 B, then 2013 = $66 B, Today ??
Canada 2002 = $8.4 B, then 2013 = $46.6 B, Today $69 B
China 2002 = $95 B, then 2013 = $1,272 B, Today $1244 B
France 2002 = $11 B, then 2013 = $42.4 B, Today $79.2 B
Germany 2002 = $38 B, then 2013 = $54 B, Today $72.7 B
Hong Kong 2002 = $37 B, then 2013 = $89 B, Today $172.6 B
India 2002 = $5.2 B, then 2013 = $56.6 B, Today $83 B
Ireland 2002 = $6 B, then 2013 = $91 B, Today $138.6 B
Japan 2002 = $260 B, then 2013 = $1,023 B, Today $1231 B
Luxemburg 2002 = $20.2 B, then 2013 = $107 B, Today $172 B
Mexico 2002 = $16.7 B, then 2013 = $52.7 B, Today $84.8 B
Norway 2002 = $5 B, then 2013 = $74 B, Today $81.6 B
Philippines 2002 = $3 B, then 2013 = $36 B, Today $40.6 B
Poland 2002 = $7 B, then 2013 = $31 B, Today $27 B
Russia 2002 = $3 B, then 2013 = $138 B, Today $86 B
Singapore 2002 = 19.4 B, then 2013 = $82 B, Today $110 B
Switzerland 2002 = $28 B, then 2013 = $157 B, Today $190 B
Taiwan 2002 = $0 B, then 2013 = $183 B, Today $175 B
Turkey 2002 = $2 B, then 2013 = $18 B, Today $77 B
United Kingdom = $45.7 B, then 2013 = $130.6 B, Today $189 B

$64 Trillion USD in Current Total US Debt... is the dollar supported by Military Actions around the world or what? Hegemony?

http://research.stlouisfed.org/fred2/series/TCMDO

esum's picture

A Big Mac currently sells for 49 pesos in Mexico, for example; at the current exchange rate, that’s about $2.23 US dollars.

Meanwhile in Switzerland, a Big Mac sells for 6.50 francs, or roughly USD $6.35.

YES AND IF YOU DRINK A BEVERAGE WITH ICE THE MEXICAN ONE  YOU WILL AHVE THE SHITS FOR A WEEK....  

 

besnook's picture

to be fair, it's not like you need help to shit after eating at mcds.

Bear's picture

or eat 'special sauce'

Hohum's picture

It's all relative.

MASTER OF UNIVERSE's picture

USD is always overpriced, and CAD is always underpriced because of lies, God-damned lies, and statistics. The top has been called on USD for about 5 days now, and I am pissed at the state of our dollar in CANADA. Clearly, the USD must crash n' burn along with the DOW until I am a happy camper IMHO. Furthermore, when BIG Macs came out they were palatable, but if you tasted one today you would vomit the swill back up in minutes. When McDonald's opened they used Angus Beef, and today I don't think they even use beef anymore let alone Angus Beef. In brief, today I would not buy a BIG Mac in CANADA, or the USA, unless I felt like getting sick.

 

Someone should index currency by grams of Marijuana instead.