When Does GM Get Kicked Out of the Dow, part II
By Barry Ritholtz - June 26th, 2008, 2:00PM
With GM now at 53-year lows, its time to revisit the question. Back in November, we asked "When Does GM Get Kicked Out of the DJIA?"
Let’s start a pool: At what point in the future will General Motors
(GM) ignominiously join Eastman Kodak (EK), Woolworth and others and
get tossed out of he Dow Jones Industrials? And, who will replace them?I am betting this happens within 5 years, and perhaps even within 3.
As to the replacement, I might have said Google (GOOG) — but I
assume the DJ Editors learned their lesson top ticking Microsoft (MSFT)
and Intel (INTC). Instead, my bet will be Cisco (CSCO).
Did I say three – five years? Let’s change that to 12-24 months and I still think its Cisco over Google . . .
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June 26th, 2008 at 2:08 pm
Anyone just catch Cramer on CNBC? The suits told him to be very calm and we got Prozac Jim…they must be in sheer panic. He also said GM is not going to go BK, so you may want to short it now at fresh 53 year lows.
June 26th, 2008 at 2:13 pm
I do not see this happening
– Dow has to reflect the “US economy” and some Auto representation is required else it is a poor index. They can relace that with F? I do not think so. TOYOTA — Opps! That’s not made in USA/local company.
I will bet one or two financials getting kicked out of that in next two years
AIG, AXP, BAC, C & JPM — five out of thiry? that’s more than the financials future weight in the economy. Either one of the three banks or AXP gets booted out first.
MHO and I can get a cup of McCoffee on that :)!
June 26th, 2008 at 2:18 pm
I just bought some GM. I like their emerging markets postioning..
June 26th, 2008 at 2:20 pm
My bet is on Corning. Plastic is on its way out. Glass is on its way back in. Mirrors are the cheapest way to do-it-yourself back yard energy production. Do the math.
We’re beginning to see the switch from an entertainment first society to a premium on getting energy society along with the stop eating cancer causing teflon and plastic society. Look around at all the plastic eating and kitchenware made of plastic. Do the math.
June 26th, 2008 at 2:22 pm
Now oil is spiking…is Bernanke the boy with his fingers and toes in the dike? Keep calm Cramer.
June 26th, 2008 at 2:26 pm
Hey Vermont Trader,
Did you buy some IBM too? Essex Junction is changing its’ name to Flint. Why don’t you buy a nice $400,000 house in Woodlands or Wall Street, Colchester while you’re at it?
June 26th, 2008 at 2:33 pm
AGG – I’m a northest kingdom boy, don’t get to the big city much…
I’m also a contrarian and I can’t think of a more contrarian stock to buy than GM.
In fact, I’m starting to get bullish..
That’s just how I roll.
June 26th, 2008 at 2:33 pm
It wouldn’t be Google unless they split 10:1 since they would dominate the index otherwise. Cisco seems like a safe bet.
June 26th, 2008 at 2:40 pm
My 1-cent opinion is that GM will get kicked out when concerns of GM chap. 11 start brewing in the very likely event that GM’s 0% financing sales campaign falls flat.
Remember GM’s core customers are most likely upside-down on their SUVs and in no mood to change cars. They’ll probably just walkaway from their cars hurting GMAC which is already hurting from ResCap.
Chrysler-Cerberus will probably flirt w/bankruptcy too.
F will survive only by the grace of Mullally….
Naturally YMMV.
June 26th, 2008 at 2:41 pm
How about a pool on the first ex-WSJ reporter to write a “tell-all” book about Murdoch’s meddling with the news side of the biz? :-)
June 26th, 2008 at 2:44 pm
Vermont Trader,
Bullish? Stay warm this winter, pal. I’ve read your posts.
We River Rats in Winooski know how to swim in all the currents. We also know where the waterfalls are. Buy Corning if you want to make real money. GM has been a sell since they started dumping there financing cash cow.
June 26th, 2008 at 2:46 pm
I say it goes down a little more and the company goes private.
June 26th, 2008 at 2:49 pm
AGG- OK I just bought some GLW.
It better work or you are buying me breakfast at Sneakers..
June 26th, 2008 at 2:53 pm
Ooh, also, what if Dow Jones decides to replace GM with News Corp? :D
June 26th, 2008 at 2:57 pm
Next out? P&G – well at least its CEO AG Lafley should be booted out of a Dow firm where he works for what he told the FT…
“… AG Lafley, chairman and chief executive of Procter & Gamble, told the Financial Times he was concerned by the “woe is me and ain’t it awful” rhetoric adopted by Hillary Clinton and Mr Obama during their fierce battle for the Democrat nomination.
“In my business we don’t need excessive negativism,” said Mr Lafley. “You know we are in a business where psychology matters – even in the staples business – and in the economy psychology matters. It could go negative on the economy, that could be a problem . . . We will talk ourselves into a worse recession.”
So the Great American capitalist machine is going to get blown off course because of some politcian’s hot air? Is Lafley wearing is big blue shoes and matching hair on today or only during interviews? How does he measure this “excessive” negativism’s affect on sales? …by seeing how long it takes to drive his tiny trike around it?
Where was this guy when they were impeaching a President because of a cigar trick? Where was he during the Bush/Rove scare-mongering re Gore, re Kerry? The Twin towers were driven into the ground and we’ve survived. Vietnam? Nixon? Iranian hostages? Did P&G go under after Pearl Harbor was attacked?
Don’t worry Bozo you’ll make your bonus this year, you’re an American fat cat CEO. Yup, the circus is in town.
June 26th, 2008 at 3:04 pm
AGG on Corning,
Corning has long history in China, new facilities there, dominates LCD production, history of sharing tech with Japan, Korea, could be a lot of potential there. I’ve sourced domestic glass manufactures in China and prices are incredibly cheap even with shipping costs. Lots of potential competition but Corning has the brand. INteresting…
June 26th, 2008 at 3:06 pm
Another CNBC ploy…Dow drops 304…rallies to down 294…announcer will always say “market off its lows now”
June 26th, 2008 at 3:14 pm
Did I say three – five years? Let’s change that to 12-24 months and I still think its Cisco over Google . . .
I’d disagree on either. It’s almost a requirement to be a blue chip company to have regular dividends, which neither Google nor Cisco do.
Looking over the current list of DJI stocks, I’d rather place a bet on Dow Jones looking to add representation from a sector that’s not either well or currently represented. Like agriculture (ConAgra, Kraft Foods, etc.) or tobacco (Altria, Philip Morris, etc.), before they’d add another high-tech company.
I think we can flatly rule out any financials for the foreseeable future….
June 26th, 2008 at 3:15 pm
There is NO blood in the streets..in fact, it’s quite tranquil. Stay short until 10 day put/call hits 1.20…looks like this could go on for another month
June 26th, 2008 at 3:20 pm
Steve Barry:
What are the chances it ends down 400 for the day? 50-50?
June 26th, 2008 at 3:23 pm
Vermont Trader,
With all that money you’re going to make with GLW you can help your neighbors.
That’s all I ask. As to buying you breakfast at SNEAKERS, I don’t know you.
June 26th, 2008 at 3:27 pm
Joe,
It doesn’t matter…they could rally it to down 150…all the more for it to drop on next bad news. Follow my chart on when to cover shorts and you’ll be fine.
June 26th, 2008 at 3:31 pm
Proctor & Gamble makes an interesting mouthwash. My dental hygenist recommended it. I used half the dosage and within 7 months began to see ugly stains on my bottom teeth like heavy nicotine stains and I don’t smoke. Look up the active ingredient in Crest mouth wash. Great business for dentists who want people rushing in to keep their teeth white. Yeah, Proctor & Gamble is in the perception management for profit business. I stopped using the mouthwash and the stains are gradually fading.
June 26th, 2008 at 3:40 pm
If GM goes out the boneheads at S&P will toptick a fertilizer, coal, or steel name. Learn their lesson from MSFT? Barry, please!
June 26th, 2008 at 3:40 pm
GM will get kicked out within 18 months because Dow Jones will not want a company that has filed for bankruptcy to be in the index.
June 26th, 2008 at 3:42 pm
sorry boneheads at S&P, I meant the boneheads at Dow Jones…
June 26th, 2008 at 3:46 pm
People don’t appreciate what a small island GM’s common equity is in a vast ocean of debt obligations. It doesn’t take much of a change in sea levels to just wipe it out. Consider that the common equity of General Motors is worth less than that of Sun Microsystems!
June 26th, 2008 at 3:51 pm
Hell, if you’re going to end up with stained teeth you might as well do it the right way: morning coffee strong enough to strip paint, and plenty of good red wine at dinner.
June 26th, 2008 at 4:02 pm
The Dow Jones Industrial Average is meaningless and serves no current useful investing purpose. The average does NOT represent American industry, the broader stock market, or even so-called “blue chip” stocks. The DJIA is merely a franchise of the Wall Street Journal, who will continue to perpetuate its existence in spite of the average’s obsolescence.
The S&P 500 Index is designed to mimic American industry and serves as a much better broad market gauge than the DJIA.
The historical data for the first five or six decades of the DJIA’s existence might be of some use simply for lack of anything better. But today, quoting the DJIA, emphasizing round numbers, and the very silly focus on points instead of percentage changes is the mark of the ignorant, the amateur, or the lazy.
By the way, the NASDAQ is also a meaningless index.
(Sorry Barry, I know you use the DJIA and the NASDAQ, but they are simply not the best of any measure.)
June 26th, 2008 at 4:05 pm
John,
Nasdaq is not meaningless…it is the place to go to short overpriced crap.
June 26th, 2008 at 4:29 pm
Not exactly a magazine indicator, but possibly a leading magazine indicator:
One of the headlines on Yahoo! Finance right now is this:
Shorting Stocks Could Be Way to Play This Market- CNBC
June 26th, 2008 at 4:39 pm
The Dow is not remotely representative of the broader stock market but it does tend to track it reasonably consistently which is why it’s the useful shorthand everyone uses. The S&P 500 for the broader market and the Nasdaq for techs are really the gauges you have to look at which I thought was stocks 101. That said like everyone else I’m probably going to still be using the Dow shorthand.
June 26th, 2008 at 5:25 pm
Just finished a massive post on GM, dang you always beat me.
Side bet, does GM get kicked out of the SP500 before it gets kicked out of the DOW ? It’s market cap is darn near the bottom of the SP500. I’m betting they get rid of their dividend very soon.
Timeline: GM suspends dividend in 3-6 months. GM kicked out of DOW by year end. GM kicked out of SP500 by end of 2009.
GM is worth $6 billion now that’s 4% of Toyota.
June 26th, 2008 at 6:09 pm
Read it here first:
The Truth About Cars
General Motors Death Watch 181: Bankruptcy
June 26th, 2008 at 6:33 pm
Steve Barry,
“Meaningless” is not the same as “useless”. ;)
June 26th, 2008 at 7:27 pm
I think the American Auto industry is toast. They still had a chance 5 years ago, but they went for the hummers, SUV’s etc. They should have gotten the message in the 70′s but it didn’t last I suppose.
The only way to save the US auto industry is to give them time to adjust, this means tolls and tariffs etc.
But can a gas guzzling Yank really learn that burning excessive fuel is bad? I doubt it.
June 26th, 2008 at 7:28 pm
I think the American Auto industry is toast. They still had a chance 5 years ago, but they went for the hummers, SUV’s etc. They should have gotten the message in the 70′s but it didn’t last I suppose.
The only way to save the US auto industry is to give them time to adjust, this means tolls and tariffs etc.
But can a gas guzzling Yank really learn that burning excessive fuel is bad? I doubt it.
June 26th, 2008 at 7:45 pm
Why do I not feel bad about the company that put Hummers on my local streets getting hosed?
June 26th, 2008 at 7:46 pm
Why do I not feel bad about the company that put Hummers on my local streets getting hosed?
June 26th, 2008 at 8:26 pm
what’s that saying? “as gm goes down the toilet, so goes america”?
June 26th, 2008 at 11:02 pm
Goldman Sachs is my pick.
June 27th, 2008 at 12:17 am
ResCap is insolvent and so is GMAC.
They need to be and will be bankrupt.
When they go in, GM will go with them.
GM should just do a pre-packaged filing in October (’08) and get it over with,
making for an interesting election.
June 27th, 2008 at 2:08 am
“… what was good for the country was good for General Motors and vice versa.”
Charles E. Wilson, 1953.
May 7th, 2009 at 7:15 am
[...] We now get the answer tot he question we have been asking for about a year: When will GM get kicked out of the Dow. [...]