Imagine an investor from an exoplanet looking for interesting investments in the universe.

It (there is no she or he on such exoplanet) stumbles on the solar system and finds out that the Planet Earth has an attractive business model that may warrant further evaluation.

Data available from global institutions such as the IMF or the World Bank shows that:

• The World Gross Domestic Product in 2010 is estimated to be $62 trillions (6.2·10¹³)
• Over the past thirty years the avarage World GDP annual growth has been 3.32%.

What is the value of such a World producing so much worth every year and growing so steadily?

Two assumptions need to be made:

• Perpetuation: the future annual growth rate will repeat the historical one, i.e. 3.32%
• Yield expectation: for such an investor a minimal return on invested capital should amount a modest 8%

In a Net Present Value calculation:

• the GDP will augment every year by g (growth rate),
• and its value will be discounted at i (interest rate).

In the case of perpetuation, the calculation formula is:

And the result is…      the fantastic sum of $1368 trillions!

What does this tell us?

Put in relation with the stock market:

In June 2010 the total market capitalization of all the major exchanges in the World was amounting to $47 trillions (source World Federation of Exchanges).

But publicly traded companies are not making all the world business. A rough estimate (if someone has data this will be better than this guess and very welcome) is that other privately held companies represent as much value as publicly traded ones: so if these would be valued at the same level as public ones, we would have a Global Market Cap of $94 trillions (47/0.5).

But another 50% of the World economy is run by state institutions, so if these would be valued at the same level as public ones (a generous assumption) the Global Market Cap could be $188 trillions.

Compare with the calculated Net Present Value one can conclude that the World is globally underevaluated by a factor of 1368/188= 7.27

So for our investor from an exoplanet it could be a good deal to acquire our Planet Earth at current market value!

Put in relation with public debt:

To fulfill political objectives without instantaneously having to pay for it, governments at all levels (municipal, regional, national) are accumulating debt.

In 2009 the total external debt of all sovereign nations was 56.9 trillions (source CIA Factbook, cited in Wikipedia), or almost exactly 100% of GDP.

In 2010 this will have worsened a bit since large countries made huge public deficits that will be transformed into further indebtness.

But compared with our NPV of $1368 trillions, only 56.9 or 4.1% are engaged as debt by the goverments of sovereign countries. Why wouldn’t they continue this trend?

Solvency:

If you cannot trade what you own you just are stuck with it, and it remains equivalent to worthless

So we still have to wait on our exoplanet investor. And if it would pay us so much for the World: what would we be doing with the proceeds?

Final word:

All this may be wrong: World GDP cannot be confused with net cash flow for a discounted calculation.
But isn’t it “interesting” to look at these things with such an approach?

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