just as a precursor ..., page-10

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    Hi Chuck,

    There are 2 separate threads here.

    The first, to which I responded, talked of an appropriate valuation methodology for looking at the US economy (et al).

    The second, to which I have not yet responded, but to which others have already commented, reflected on the current state of the US economy (ie: immediately passing through to judgment).

    On the first thread, and in responding to DUB, I merely pointed out some of the same vexed issues as what listed companies have in arriving at an appropriate valuation regime. I did so in the belief that the same degree of complexity as applies in the corporate world will apply equally to the global village, in valuing /determining the relative worth of the US economy.

    Such comparative concepts, for example, include:
    aligning income concepts (ie: revenue recognition, treatment of deferred income, capitalisation of certain expenses, treatment of subsidies in the context of telecom stocks, etc);
    determining asset values (ie: on principles other than Directors' valuations), including by means of "tax effected life", various accounting principles (such as LIFO, FIFO, etc), accounting valuation techniques (including those applied by AVCAL, in the context of VC funds, and their investments, etc);
    determining profitability values (ie: on principles akin to DCF, base multiples-whether at the NPBT, NPAT, EBIT, or EBITDA levels, FCF, p/e ratios, etc); and
    determining liquidation values (ie: realisable values on an adjusted going concern basis, which factors in for risk, etc).

    As for the 2nd thread, I have not yet passed judgment on the US or global economy for 2003. Others, however, have already determined their views, based upon a mixture of "must have /must occur", a combination of war fears, and difficulties associated with understanding, valuing or dealing with the global corporation (ie: the global valuation concept).

    Simply put though, the US economy (and the US markets, for that matter) has to date performed more or less along the lines that I have been arguing throughout 2002. They have not collapsed, although some individual corporations within the system have collapsed (or, more to the point, filed for Chapter 11 protection). The DOW is also finishing the year more or less around the mid-8000 range.

    2003, however, awaits.

    But, if the USD does depreciate (it already has by ~12.5% against the AUD over the course of 2002, and by ~20% since mid-2001, as well as against most other major global currencies), then the AUD will appreciate further, hastening a deteriorating CAD for Australia.

    So, while depreciation of the USD in 2003 could well aid the US economy, it will not aid the Australian economy.

    Similarly, if we suffer the double whammy of losing value relative to the Euro, then our forward growth forecasts could well end up being cut by up to 100bp. And, all this against a backdrop where the RBA is -85bp below its neutral setting (ie: of 5.6%), and the FED is -175bp below its neutral setting (ie: of 3.0%).
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