Big Mac, Dollar and 401K

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Yum Brand, the parent co. of KFC, Pizza Hut and Taco Bell, had a great quarter yesterday, thanks to the loyal customers in China flocking to KFC and Pizza hut. Maybe because they think the steamed bun in Beijing are unsafe? Yesterday I heard about this Big Mac index (link to Economist) from NPR. This is how a McDonald “big mac” burger costs in a country (converted to USD). In China the index is $1.49, which is low compared to Sweden (the highest): $7.00. Although “big mac index” is not very scientific, it’s a useful measurement tool for the purchase power of different currencies. In reality I think American and Chinese consumers enjoyed a greater purchase power because of the economy of scale, the cheaper manufacturing cost (from China), the infrustructure and logistics go with it.

big mac pic

On the other hand, the “green back” hit all time low yesterday. A dollar is worth less than CNY 7.60 now? Three months ago it’s still worth CNY 7.70. This is not good news for me. But this seems to be the trend. In the short term, it appears Chinese goverment are dumping the US treasury bonds, for the fear of further drop of USD.

I’m thinking to counter this, I need to add more international funds to my 401k. Right now I have 30% international in my 401k, I may boost it to 50% in the near future. The US companies are not always losing in this global economy. For instance, multinational companies like GE, Coca-cola, McDonald, Yum Brands and Goldman Sachs etc. are all benefit from globalization. But at the same time emerging market are growing much faster, and will have a bigger piece of the “global equity” pie in the long run. Developed economies (EU and Japan) may steal a slice from the US too. So the bottom line is I will put more international flavor to my 401k pie.

PS, I have limited 401k experience: I started putting money in 401k since year 2001. For 401k we should think really long term (I mean 20 to 30 years) for retirement.

I am not expert on international economics either.

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