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Speaker 1: Welcome to Ask Fear and Greed, where we answer questions

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Speaker 1: about business, investing, economics, politics and more. I'm Michael Thompson

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Speaker 1: and hello Sean al Michael. This one falls into the

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Speaker 1: economics category, doesn't it?

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Speaker 2: Sort of?

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Speaker 1: It actually does, But it's not really a number as such,

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Speaker 1: is it. It's it's more of a trend. You know.

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Speaker 1: Maybe I'll just ask the question and let you answer, Sean.

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Speaker 1: What is the lipstick index?

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Speaker 2: Is the great index? So the idea is that when

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Speaker 2: facing an economic crisis, consumers are more willing to buy

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Speaker 2: less costly luxury goods. So this is not just the rich,

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Speaker 2: it's the rich and the poor, or the rich and

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Speaker 2: the middle class, shall we say so? The rich instead

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Speaker 2: of buying expensive purses and fur coats, they just buy

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Speaker 2: expensive cosmetics, like high end brands of lipstick. The middle

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Speaker 2: class they want to treat themselves, but they're not going

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Speaker 2: out for dinner, They're not doing that sort of thing,

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Speaker 2: so they go and buy lipstick. What's cool about this?

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Speaker 2: Lennae Leaed Louder as in Stay Louder, the Louder Family.

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Speaker 2: After the September eleven attacks in two thousand and one,

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Speaker 2: the economy went into recession, he just was really surprised

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Speaker 2: by how lipstick sales went through the roof. So a

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Speaker 2: few years later he just went through the company's sales

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Speaker 2: of lipstick and said, this is really weird that in

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Speaker 2: a downturn in economic recession, lipstick sales have gone through

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Speaker 2: the roof. And so this is how this hypothesis came up.

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Speaker 2: The idea is that lipstick's an affordable luxury, like a

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Speaker 2: small treat. You're not breaking the bank. You can just

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Speaker 2: you know, you feel better about yourself. It's an indulgence

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Speaker 2: even in the tough times.

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Speaker 1: It's like a self care thing.

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Speaker 2: Yeah when.

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Speaker 1: And pretty much any socioeconomic group is able to still

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Speaker 1: afford a type of it, yes, right, and so it

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Speaker 1: is resilient, it.

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Speaker 2: Is, and like there's more to it than just after

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Speaker 2: the September eleven attacks. So there's a lot of literature

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Speaker 2: that after World War II, places like Chanelle di or

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Speaker 2: Eve Saint Laurent, they sort of pushed towards luxury, cheap

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Speaker 2: luxury products. I mean, lipstick's a great example of it.

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Speaker 2: Because there was sort of empowerment of women in the

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Speaker 2: fifties and particularly the sixties who wanted affordable luxuries and

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Speaker 2: they couldn't really buy designer bag or suit. They could

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Speaker 2: buy perfume or cosmetics.

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Speaker 1: So when we talk though about the lipstick index, what

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Speaker 1: does it actually tell us is there when lipstick sales

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Speaker 1: go up, is that kind of does that correlate with

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Speaker 1: a downturn in the economy or is it just the

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Speaker 1: fact that there is just this trend. Notice that lipstick sales,

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Speaker 1: for instance, as an example of that kind of tier

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Speaker 1: of cosmetic products, are fairly resilient regardless.

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Speaker 2: So the problem with the lipstick index, and this is

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Speaker 2: the heart of what you've did asked, is that there's

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Speaker 2: no empirical evidence that it works. Okay, so in economics,

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Speaker 2: I remember in first year economics, there's something called a

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Speaker 2: Giffen good and a giff and good GI double fen.

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Speaker 2: The more expensive it is, the more people buy, So

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Speaker 2: it works totally the opposite to demand supply. And this

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Speaker 2: is sort of a little bit in that area whereby

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Speaker 2: when people can't afford stuff, they tend to buy lipstick.

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Speaker 2: Like lipstick isn't it doesn't really fit the definition of

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Speaker 2: a gift and good, but it's somewhere in that area. Now,

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Speaker 2: there has been recessions since two thousand and one. There

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Speaker 2: has been a sort of empirical analysis of this and

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Speaker 2: it just doesn't quite hold, which really really is quite

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Speaker 2: disappointing because I love the idea of the lipstick index.

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Speaker 1: I love the fact that you kept that for the end.

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Speaker 1: We got right to the very end, and then you said,

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Speaker 1: you know what.

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Speaker 2: It doesn't really work. So Domino's Pizza. Domino's Pizza have

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Speaker 2: its share price and sales therefore its share price have

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Speaker 2: sometimes done really really well in downturns. So after COVID

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Speaker 2: for example, or was during COVID, actually Dominoes did incredibly

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Speaker 2: well because people they don't can't afford to go out

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Speaker 2: for dinner, but they can't afford to buy Domino's pizzas,

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Speaker 2: and so it's kind of a bit the same, the

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Speaker 2: Domino's Pizza effect. I don't think that's going to hold.

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Speaker 2: But the problem with all these theories there's not a

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Speaker 2: lot of empirical evidence, but they're great stories.

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Speaker 1: Okay, you know, we might have to do a subsequent

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Speaker 1: it's a hard word for me to say today on

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Speaker 1: a follow up episode on a couple of other indexes,

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Speaker 1: like the mac index and things which I find though

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Speaker 1: they are fascinating, and those ones are there is a

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Speaker 1: bit more behind those ones in terms of the numbers

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Speaker 1: and the comparisons and what you can tell from that.

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Speaker 1: But we shall park the big mac index for now,

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Speaker 1: and we shall wind the lipstick index back into its container,

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Speaker 1: lipstick tube. I don't know, I don't know, no anyway,

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Speaker 1: not particularly familiar with it. And you know what I

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Speaker 1: think we have done here.

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Speaker 2: We have successfully put to put better any idea that

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Speaker 2: the lipstick index works.

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Speaker 1: Yep, also put lipstick on a pig. And we've done

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Speaker 1: our best. Thank you, sure, thank you.

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Speaker 2: Michael.

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Speaker 1: Oh got it fell apart there at the end, isn't it.

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Speaker 1: via the website Fear and Greed dot com dot au,

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Speaker 1: we will answer it asap. I'm Michael Thompson and that

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Speaker 1: was asked Fear and Great