Starbucks Index
If someone were to ask us how much their currency is worth, we’d ask them how much it costs to buy a tall latte. Not necessarily because we’re thirsty, although anytime is a good time for a latte, but because the price of a tall latte is an excellent indicator of a currency’s strength against the U.S. dollar. At least, that’s the thinking behind the “Starbucks index,” which basically says that when lattes cost more in one country than they do in another, the first country’s currency is more valuable.
Of course, that’s assuming there’s the same level of demand for lattes in both countries. If in one country people drink lattes all day every day, and in another everyone despises them, then obvi they’re going to cost more in Country #1. That’s just basic supply and demand. But let’s assume everyone everywhere loves lattes equally. If a tall latte costs $5 here in the United States and $6 in Russia, we could say, “Wow, that’s more.” But if we also take into account the currency exchange rate between the American dollar and the Russian ruble, we might find that $6 in Russia actually feels more like $13 or $14 here. It’s this number that the Starbucks Index is looking at.
Is the Starbucks Index the same thing as the Latte Index? Kind of, except that the Starbucks Index is the brainchild of The Economist, and the Latte Index is handled by the Wall Street Journal. Same idea, though. Might make us think twice the next time we treat ourselves to a latte.
Related or Semi-related Video
Finance: What is tax loss selling?4 Views
Finance a la shmoop what is tax loss selling okay it's been a great year
overall you own a dozen stocks eleven of them are up nicely one however is a pig [Stocks appear]
down big there's a week left in the year before the taxman closed with his books [Calendar of year appears]
and gains and losses are calculated for tax purposes well of the 12 stocks you
own one has gotten really pricey now trading at eighty times earnings and
it's making you really nervous as you know that Dell if they don't have an [Company earnings graph appears]
awesome earnings every quarter the stock will get cut in half or worse so you
have a thousand shares of chap my hide a company that sells leather scented
chapstick the stock is now at 80 bucks 80 grand worth which you bought three
years ago for ten grand or ten bucks a share huge $70,000 gain nice work but
you know that if you sell it since you live in a high tax blue state you'll pay [California highlighted blue]
dearly about 35% tax on that gain or almost 25 grand in taxes leaving you
just fifty five thousand dollars in cash after the sale well luckily you
carefully watched this video and you know about tax law selling in this case [Tax loss selling video appears]
well you have one big fat pig there to draw from ok another stock yeah a
totally different outcome the pig you paid 50 grand for scratch-and-sniff [Scratch and Sniff diapers appear on the shelf]
diapers when you bought your 2000 shares at 25 bucks each two years ago fifty
grand and now after SSD shockingly missed [Actual earnings appear on company graph]
three-quarters earnings estimates in a row while the stocks down to three bucks
a share basically just the two dollars of cash per share the company holds plus
$1.00 to value everything else the company has had to abandon its plans to [Person scratches sock]
expand into scratch-and-sniff dress socks so well this is a big blow but for
some reason you still believe in the company and want to buy the stock back
someday you have way more than a month before this pig heals itself if it ever
in fact does and if you bought it back sooner than a month after you sold it [Man scribbles bought back into calendar date]
well then you wouldn't get credit for that tax law sale because you would have
violated the wash sale rule which says that you can [Wash sale rule appears]
sell a stock and then buy it back within 30 days claiming it as a loss with the
IRS to then pay lower taxes so you've lost hope you're ready to take your
losses in lumps and just sell it and that's usually a good thing to do here
with tax loss selling you just sell your shares for 3 bucks each booking a loss
of 22 dollars a share times 2,000 shares or 44 thousand dollars in losses [Tax loss selling equation appears]
well that 44k directly offsets the gains that you realized with chap my
hide so from the IRS perspective you won't pay taxes on the 70 grand of gains
you made from the sale of CMH you'll subtract the 44 grand of pig losses from [Tax loss selling formula appears]
that 70 grand of gains and pay long-term gain taxes on the realized gains of 70
minus 44 or $26,000 your blue state 35% tax still applies but now it's on a much
smaller base as you multiply 0.35 times 26,000 and you'll get about 9 grand in
taxes much easier to digest than the 25 grand you are gonna have to pay
otherwise so yeah that's what happens when you've got a pig that's a badly in [A pig rolling in the mud]
need of a wash
Up Next
What is the Super Bowl Indicator? Back in the late 1970s, a NY Times Sportswriter attempted to make a correlation between whether an NFC or AFC tea...
How do you judge the performance of an index fund? For index funds, they're really just a reflection of the stocks and bonds they, uh... reflect. S...