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Understanding Economic Analysis: Growth, Inflation, and Return on Investment

This analysis explores the interconnections between economic growth, inflation, budget balance, and trade deficits, particularly in the context of return on investment and market valuation. It discusses the intrinsic value of securities through earnings, price ratios (PE), and their relationship to required rates of return. The analysis also examines macroeconomic factors that influence price ratios and delineates a composite rating system (economic, financial, political) that incorporates real GDP growth, budget balance, inflation, and foreign debt.

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Understanding Economic Analysis: Growth, Inflation, and Return on Investment

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  1. Economic Analysis

  2. Real Growth

  3. Inflation

  4. Budget Balance

  5. Trade Deficit

  6. Foreign debt

  7. PE… another way to look at the required rate of return • Intrinsic value (no growth)=EPSo/R=EPSo x PE • PE ↔ EP • Thus EP  R or PE 1/R • Duh, think about it …EP…earnings to price…return on investment  this is a return! • You can do the same analysis with PCF • Macrofactors as determinant of PE? • Crystal Ball PE using Macrofactors…

  8. Composite rating

  9. Economic Rating

  10. Financial Rating

  11. Political Rating

  12. Real GDP Growth

  13. Budget Balance

  14. Current Account

  15. Inflation

  16. Foreign Debt

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