We finally get the answer to the question we have been asking since 2007: When will GM get kicked out of the Dow?

The editors at Dow Jones are now hinting what everyone else already knew: GM is going to be replaced in the Dow Jones Industrial Average — and replaced sooner rather than later.

John Prestbo, an editor and executive director of Dow Jones Indexes, said “There are two choices for GM: bankruptcy or increased government ownership. Both of those events are negative for continued membership in the Dow. Definitely the trend is in the direction that would force us to remove it. I’m not going to say absolutely.”

While GM is not yet officially out, it is only a matter of time.

My bet for its replacement is Cisco (CSCO). As hard as it may be to believe in 2009, this internet thingie, which I think will be big one day, is not represented in the DJIA index. Cisco is a manufacturer who makes all of the plumbing for the net.

The closest thing to an internet company in the index is Verizon (VZ), whose market share in the net is relatively small, and whose income from internet related activities is even smaller.

There’s less risk in a pick like CSCO than say a Yahoo! which is no longer in ascendancy, or a Google, which could be perceived as a one trick pony by the Dow index editors.  I doubt we want any more financials in there (i.e., Master Card ro Goldman Sachs) as we have 4 already). And as much as I have been a Mac guy my whole life, I seriously doubt the editors at DJ are ready to “Think Different.”

Tom Petruno at the Money & Co blog of the LA Times noted this clever reader suggestion:

How about [adding] the U.S. government? They make cars, money, insure, provide mortgages, invest in securities, provide rail transportation, health insurance. You know, a real all-around company.

Good stuff, Tom!

>

Previously:
When Does GM Get Kicked Out of the DJIA? (November 7th, 2007)

http://www.ritholtz.com/blog/2007/11/when-does-gm-get-kicked-out-of-the-djia/

When Does GM Get Kicked Out of the Dow, part II (June 26th, 2008)

http://www.ritholtz.com/blog/2008/06/when-does-gm-get-kicked-out-of-the-dow-part-ii/

Sources:
GM Faces Ouster From Dow as Automaker Mulls 60 Billion Shares Share
Eric Martin
Bloomberg, May 7 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_HrdoOgKB8g&

Got an idea for a Dow stock? GM may get booted soon
Tom Petruno
LATimes, May 6, 2009

http://latimesblogs.latimes.com/money_co/2009/05/the-dow-jones-industrial-average-may-have-an-opening-soon-dow-jones-co-is-signaling-that-its-ready-to-boot-general-moto.html

Category: Index/ETFs, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

112 Responses to “GM: Out of the Dow”

  1. cvienne says:

    CSCO would probably be as good a choice as any…

    I wonder exactly what types of things they consider (besides the obvious ones, like market cap, and how the business is intertwined with the real economy)…

    For example: GM employed A LOT of workers. You could say that the lack of viability to maintain it’s workforce by being saddled with their legacy costs was their ultimate undoing)…In any case, ‘should’ the company be one that has a lot of workers that fall into various strata of income levels (like MCD, or MSFT, or many others)?

    Basically, if you went with GS, how would you really rate that because all they basically do is conjure up $$ from their sleeves (or from behind OTHER people’s ears as the case may be)…

    Also, should you go for a relatively STABLE company (one not subject to a wide sine wave of price fluctuations)…The market probably doesn’t need VOLATILE stocks in the broad indices right now 9and it probably doesn’t want stocks that have the potential to go to ZERO (so ANYTHING involving the UAW should automatically be disqualified)…

    This also begs a different question…What to do with C and BAC? What about AIG?

    Heck, if they want to manipulate the DOW back to 14,000, they could probably easily do it by tossing out the jokers and putting in survivors…

    That’s why i’d be interested in watching any “divergence” between the DOW and S&P in coming months if stuff like this goes on…

  2. ben22 says:

    CSCO doesn’t pay a dividend, is that normal for a stock to get into the DOW 30 that pays no div?

  3. CNBC Sucks says:

    “If they want to manipulate the Dow back to 14,000″…?

    What do you think this is all about? Manipulation is even built into the very definition of the Dow Jones False Prophet Index.

    Ritholtz, how do you keep a straight face when you are interviewed on TV about the stock “market”?

    ~~~

    BR: Since when do I have a straight face on TV? I am invariably smirking or rolling my eyes …

  4. ben22 says:

    This interview with John Rogers from Ariel Investments is really very interesting on CNBC this morning.

    w quotes like this “we deserve to go higher after all the pain last year”

    Hope people realize what they are getting when they give Ariel money, he doubled down on GCI according to this interview, now he thinks we deserve to go up. Is that a strategy?

    Gold looks like it’s going above 919 today, I may need to change my shorter term call for it to correct to 680.

    seen a couple retail comps that seemed to come in good this morning. Mannwich, I wonder how much that has to do with tax refunds.

  5. Marcus Aurelius says:

    Gold is at $920, as I write this.

    As for the Dow and Cisco, maybe w need to redefine the word ‘industrial’.

    As for the Fed Gov being added — their core business is the production of blue smoke, mirrors and high quality printed materials. They have a captive customer base that is contracturally obligated to provide revenue as far into the future as can be foreseen. Their preferred stock holders (called ‘citizens’), are docile and easily manipulated by management. They also have an iron-clad monopoly.

    What’s not to like?

  6. hopeImwrong says:

    For CRE bears (including me) HRPT reported what I consider good results, especially for this environment. Big question is, will their results deteriorate rapidly? CRE, like other RE, is location based, and lessee based. For example, if you lease to the US post office, the revenue stream is safe compared to say Citi.

    Maybe HRPT will be one of the lucky ones. But, expect the sector to move based on this news.

    http://finance.yahoo.com/news/HRPT-Properties-Trust-bw-15163295.html?.v=1

  7. hopeImwrong says:

    HRP -

    During the three month period ended March 31, 2009, HRP repurchased 4,050,000 of its common shares at an average price of $3.57/share. Because of changing market conditions, HRP has not purchased any additional common shares since March 31, 2009. During the three months ended March 31, 2009, HRP also purchased $31.8 million face amount of its publicly issued debt securities and realized a gain on early extinguishment of debt of approximately $7.5 million, net of unamortized issuance costs. Since March 31, 2009, HRP has purchased additional debt securities with a face amount of $67.7 million, which resulted in a gain on early extinguishment of debt of approximately $11.5 million, net of unamortized issuance costs and discounts, that will be reported in the second quarter of 2009.

  8. John from Concord says:

    If the DJIA is really still pretending to be largely about industrials then they need a car company… F? TM? HMC?

  9. CNBC Sucks says:

    @Ritholtz: Finally, you have acknowledged my presence on your blog, besides modifying or deleting some of my comments, I mean. I am now fulfilled.

    @ben22: On 3-on-3 shirts-and-skins, I would take John Rogers, but intellectually, I have more affinity for Jim Rogers. However, as I have written recently, intellect is no match for money printing with impunity. John Rogers has influence over the money printing, so if John Rogers wants a bull market, by God, you are going to get a bull market. Nevertheless, Jim Rogers will eventually be proven right and be glad he left for Singapore so that his daughters can learn Mandarin.

    I hereby introduce the term “token correction” into the investing lexicon. With its unstoppable money-printing power, the government has so much control over asset prices now that it can and will actually introduce token CORRECTIONS into the market, lest the facade of free markets become even more obviously bogus. We will get to Dow 15K and beyond, but you will have a feigned hiccup here and there.

    Traders, your job now is to guess what you think the government wants asset prices to be on a given day.

  10. Marcus Aurelius says:

    hopeImwrong:

    Residential RE was smoking hot and profitable — until it wasn’t. The informed know what’s in the pipeline for CRE, as they did for Residential. Business, generally, is contracting at an alarming rate, driven largely by the consumer pull back on retail purchases and an increased commitment to paying down debt and a renewed interest in saving. The ripple effect from this pull back will reach business that have nothing to do with consumer/retail — even those whose sole income is derived from government contracts (as the tax base is shrinking along with the employment numbers).

    The markets will move on any news nowadays — good or bad. Strangely, those moves bear no relationship to the news that caused them.

    The CRE debt story will not end well.

  11. CNBC S,

    we’ve been there b4 w/ St. FDR, people would do well to review the “reflation” propaganda of the ’30s

    looks like we’re going to get: “All roads lead to WDC v.2.0″, too..

  12. SmokeandMirrors says:

    Considering the level of Government intervention in the economy and stock market, leaving a federally controlled car company in the Dow might actually make the index more reflective of the U.S. Economy as it exists today.

  13. CNBC Sucks says:

    Hoffer: Is a Libertarian a progressive who became disillusioned by government intervention? We obviously have radically different world views on individualism versus collectivism, but we seem to be arriving at the same endpoints.

  14. hopeImwrong says:

    @Marcus – I agree with your opinion. I’m just not 100% certain anymore. All the gov’t money being pumped into the system may actually have enough impact to frustrate the bears. The bears were finally proved right (in spades) with the recent crash. I get the feeling they may be over confident about current predictions. I’m a current bear. I see the bear case. It makes sense to me. I do think caution is warranted. That’s why I haven’t placed any big bets. That’s why my investments are mostly trades with tight stops.

    Even for bears who are right, Calling the turn is the hard part. The big question is, even if the bear case on CRE is right, when will it fall apart? Sub-prime, and it’s related cousins, when on for a long time before imploding, and the stock market is still over-valued in my opinion. So, how long will it take before CRE goes down. Actually, when will is go down AGAIN!, because it took a huge hit in the last 8 months.

  15. hopeImwrong says:

    @Mark Hoffer – Can you elaborate or provide any pointers to depression reflation propaganda?

  16. some_guy_in_a_cube says:

    Companies are born, live and die. The price of every company alive today will eventually go to 0.

  17. KidDynamite says:

    it’s absolutely SICK that you’ve been asking when GM will get booted from the DOW for 18 months, and they’re MAYBE getting around to it now… gross attempt at manipulation of GM’s price – some wizard thought that if they kicked GM out of the DOW, it would be even worse for the stock, which may be true,

    yet the especially ironic thing is that if the DOW had replaced GM with a real company, they probably would have tacked on several hundred DOW points when said company rallied…

    in any case, the DOW is such an absolutely ridiculously constructed index, i get flustered just thinking about it. it EPITOMIZES our country’s ignorance about our own markets.

  18. hopeImwrong says:

    We have seen this before, but for anyone who hasn’t, good info on FAS and FAZ performance for holding periods longer than a day trade (or a few days of a trend). Year to date they are way down.

    http://seekingalpha.com/article/135816-year-to-date-performance-of-leveraged-etfs?source=yahoo

    Also see URE and SRS year to date (both way down).

  19. cvienne says:

    Another 25% up on JPM and it gets to it’s ALL TIME HIGH…

  20. Onlooker from Troy says:

    cvienne Says:
    May 7th, 2009 at 9:37 am

    Another 25% up on JPM and it gets to it’s ALL TIME HIGH…<<<<<<<<

    Isn’t that just the most absurd thing you’ve heard?! When you know that their balance sheet is weighed down with crap. This fairy tale of a recovery is mind numbing.

  21. hope,

    here’s a starter list: http://www.youtube.com/results?search_type=&search_query=FDR+reflation&aq=f

    BR had one a while back, as well..

    CNBC S,

    if you’re still sold on ‘collectivism’, you might do well to read http://www.econlib.org/library/Mises/msS.html
    or, in pictures: http://www.mises.org/books/TRTS/
    or, some of the works by Robert Higgs: ht tp://ww w.independent.org/aboutus/person_detail.asp?id=489
    though, the ‘Progressive’-era, under TR, was, merely, the first, concerted, use of using the PR of ‘Gov’t Regulation’ to entrench the gains of, then, Establishment.

    the current crop are no different, but, this time, couple w/ “Greens”–who are Watermelons–are even more dangerous to Liberty.

    and, so you know, there are libertarians who think I’m a ‘Statist’

    past that, there, really, are, market-based solutions to many of the ‘problems’ that Gov’t uses as excuses to expand its powers–it, just, takes, a citizenry willing to do a little homework, and more thinking–preferably, of the Critical style..

  22. hope,

    here’s a starter list: ht tp://ww w.youtube.com/results?search_type=&search_query=FDR+reflation&aq=f

    BR had one a while back, as well..

    CNBC S,

    if you’re still sold on ‘collectivism’, you might do well to read http://www.econlib.org/library/Mises/msS.html
    or, in pictures: http://www.mises.org/books/TRTS/
    or, some of the works by Robert Higgs: ht tp://ww w.independent.org/aboutus/person_detail.asp?id=489
    though, the ‘Progressive’-era, under TR, was, merely, the first, concerted, use of using the PR of ‘Gov’t Regulation’ to entrench the gains of, then, Establishment.

    the current crop are no different, but, this time, couple w/ “Greens”–who are Watermelons–are even more dangerous to Liberty.

    and, so you know, there are libertarians who think I’m a ‘Statist’

    past that, there, really, are, market-based solutions to many of the ‘problems’ that Gov’t uses as excuses to expand its powers–it, just, takes, a citizenry willing to do a little homework, and more thinking–preferably, of the Critical style..

  23. KidDynamite,

    how are you liking these daily ‘opening spike-ups’?

    to me, it’s pretty amusing… (:

  24. [...] Out of the Dow (Big Picture) Blogger Barry Ritholt predicts Cisco will replace GM on Dow Jones Industrial [...]

  25. bogwad_seigneur (the smelly one) says:

    @CNBC
    Dude this is a classic….really….kudos. Complete with tongue placed in the requisite “in cheek” position, I laughed my ass off….

    I hereby introduce the term “token correction” into the investing lexicon. With its unstoppable money-printing power, the government has so much control over asset prices now that it can and will actually introduce token CORRECTIONS into the market, lest the facade of free markets become even more obviously bogus. We will get to Dow 15K and beyond, but you will have a feigned hiccup here and there.

    Traders, your job now is to guess what you think the government wants asset prices to be on a given day.

  26. KidDynamite says:

    Mark –
    i turned on CNBC today (why?!?!?!?) and there was some monkey talking about the “liquidity trade” – “all the dollars being pumped into the system have to find a home -that’s why multiple asset classes are rising”

    hey buddy – it’s called INFLATION!

  27. cjcpa says:

    hello all.

    Holding the SRS or the FAZ overnight is discouraged on the front page of the company website, and sleeping with the FAZ was discouraged by leftback. I have been sleeping with the faz for a few weeks. My attempts to profit from a short trade have not panned out, and now the decay of those funds will be eating away until:
    either the cascade event, or a decent pullback occurs
    or I bail on the short idea.
    As a ‘sentiment’ comment…. if there are a lot of people like me who dipped their toes into a short etf in order to try to make more than .01%, then there will be a lot of short covering that may cushion any downdraft. Conjecture.

    I have been garnering some additional insight, but trying to generate revenue. That excludes participating in the discussion. Actually, it excludes reading the blog, but I have been doing that mostly after the fact/evening.

    I have a question about the inflation – deflation debate. AT said in the fall, and I made a note, that with Deflation, prices of all asset classes will fall. Obviously, the answer is not clear, but what’s the feeling about an objective measure of inflation/deflation? If asset classes are rising, we have inflation…. and if falling across the board, we have deflation. Looking at that. What are we experiencing? Are more asset classes up, or down??

    Barry,
    A repost of the humpty dumpty cover about wrecking the currency seems appropriate.

    Many people noticed the fed was going ALL IN. The fed is not feckless and will make a difference.
    We are seeing, IMO, the effect of massive gov’t intervention. as intended.
    Long term this may or may not create real growth. Short term, it does not appear to matter.
    INJECTIONS work, to cross a medical and financial term. Whether it’s a “one shot” cure, or a regimen that is ultimately required, well, we’ll see.

    cjc

  28. MRegan says:

    OT GAO’s Mar 09 report on SEC.

    for those who care to view it:

    http://www.gao.gov/new.items/d09358.pdf

  29. cvienne says:

    If it is THIS easy to re-inflate asset prices and make everyone feel better from a psychological standpoint, why in the world do we need an 800 billion stimulus package…CANCEL IT!

    Do you suspect that Bernanke factored in this much of an inflated rebound in such a short time span?…Is it time throttle back the QE thesis?

    I’d say if we get back to DOW 10,000+ (with equity prices in the “bubble” range versus valuations), somebody is going to have some ‘splainin’ to do…

    It would be time to bring back Greenspan…He was the master of inventing crap like “productivity enhancements”, and sung the praises of ARM’s…

  30. call me ahab says:

    cjc-

    I am in the same boat- stuck with a few shorts- cannot jump in long because I anticipate a correction- but keep in mind- those that went long in March did so with a lot of faith because all the news was “off the cliff” variety”- they had to move against the prevailing wind blowing at that time

  31. Andy T says:

    Given the traditional impeccable timing of DJIA editors, I’d recommend that after the announcement to go out and buy a basket of car companies, and short whomever they add to the index. Not joking. – AT

  32. Mannwich says:

    @CNBC Sucks: And those “feigned hiccups” are 15-20 pt down days on the DOW and 3-5 point down days on the S&P maybe once or twice a week, but never two days in a row. Three days in a row would be incomprehensible.

    Weekly unemployment claims came in above 600K again but LOW 600ks’ this time. I’m sure this data is “massaged” as well (with Jack Welch’s consultation, I’m sure). Continued clams at 6.35 Mil. Another record. Oh, who cares anymore? Nobody needs to actually work anymore anyway. Nevermind.

  33. ben22 says:

    @cjcpa,

    Not long ago I thought we would get wicked inflation, most people did/do though which worries me. To watch for credit deflation, as that’s what this is, you can simply use the Fed website, and look at the tables on consumer debt, which you can then turn into a chart on consumer debt so that might be easier to visualize.

    Going back to the 1950′s Q4 2008 saw the first quarter to quarter decline in consumer credit on record.

    Now prices have remained sticky on a lot of things so I still understand there is no true clarity on this yet but lately I’m able to find more cases of deflation than inflation, regardless of wherever the S&P trades over a very short term period of time.

  34. Mannwich says:

    If we’re just going to fake it every day (nudge, nudge, wink, wink), why not just cancel all taxes on everything and also send everyone a nice clean check every week for say, $2,000 or something? We don’t actually need to work or produce anything anymore. Just print the necessary to dollars to cover everything. If we’re going to do it, let’s do it right. Go all the way with it.

  35. KD,

    CNBC has been putting kabuki-theater to shame..it’s too much for me to deal with.

    MR,

    the GAO could publish that the US Gov’t is Bankrupt, and they have, and no one would care/ no one reads those things, and, worse, many, when you show it to them, become hostile..

    file it under: “No molestar de Animales”

  36. williams says:

    BR,

    No comment on whether Cisco will or should join the DOW. Just a correction on your statement “Cisco is a manufacturer who makes all of the plumbing for the net”. Cisco market share varies over network market segments (their strongest segment is in routers @ ~60%) but as a whole they have less than 40%.

  37. ben22 says:

    @AT,

    That would have been sound advice after they added BAC and KFT for sure.

    @Cvienne,

    Do you suspect that Bernanke factored in this much of an inflated rebound in such a short time span?…Is it time throttle back the QE thesis?

    I will view that, if it comes around S&P 965-1000 as a wonderful top indicator. Someone made the comment today on CNBC that struck me as worth paying attention to when discussing the stress tests. There are something like $10 trillion worth of assets with these 19 banks, if they are off by 3% in the estimates of “adverse conditions” then that’s $300 billion error. The Fed only tried QE once before and it didn’t work, now they are trying it again with a much larger problem, they didn’t get it right this time in a couple of months.

  38. ben22 says:

    Here is just some ground floor observation for all. I talked with two retail FA’s this morning, one in philly, one in boca, FL. Both of them said the same thing to me:

    the claims numbers were good today!

    now what do you think they are going to start telling clients to do with money after a 30% gain on the index and all these “good” econ data points.

  39. Mannwich says:

    @ben22: Not surprising. This is the mass delusion we’re dealing with. I find it truly bizarre. Maybe it’s me that’s bizarre? I don’t know anymore…..

  40. jpm says:

    I can’t think of a better sell signal on CSCO than being chosen for the DOW(N).

  41. CNBC Sucks says:

    Hoffer, thanks for the links. As a registered Republican, I am hardly a true collectivist. I just wanted to keep whatever mountaintops in West Virginia that have not already been blown up for coal to remain intact.

    I thought we had gotten rid of the feudal system, but we have been rigging a new one of sorts. You either have to be smart, willful, disciplined, energetic, and healthy enough to get on top of it, or wish you were dumber to not be frustrated for the rest of your life by your awareness of its existence.

  42. ben22 says:

    @Mannwich,

    For these two guys I’m not too surprised, they still don’t know what happened last year but they control about 150 million of capital between the two of them which is what’s important.

  43. call me ahab says:

    regarding QE-

    call me “old fashioned” but I have problem with electronically created capital-

    Mannwich had a point- why not just create new money and send it to the taxpayer- how easy could that be-

    no work involved- people can pay their bills- everyone’s happy-

    the game is always about keeping everyone on the hamster wheel- I am inclined to give Keynes the bird and wish everyone would follow the “Paradox of Thrift”-

    screw Keynes

  44. call me ahab says:

    and the horse he rode in on

  45. I-Man says:

    CSCO… Nah. How’s about some real industrials, like a railroad or steel stock? Maybe X or BNI?

    Some quick comments on tech and financials.

    Looks like the Q’s might be setting up to test that 34 level of support today, which would be a healthy sign for those short the Naz 100… which is a pretty glaring short if you ask me. Huge rollover going on here. Whether its just rotation remains to be seen.

    Now for that pesky little bitch XLF… I am watching 12.40 for a first test of support, if fail, then a fill of yesterdays gap at the open which was defended so well by the longs yesterday… If sellers can push this through 11.50 we might see some acceleration to the downside as the late comers realize they’ve been fleeced again… Just when everyone was getting all positive and frothy again. Yesterdays sesssion screamed to me of late comer panic buying…

  46. ben22 says:

    ahab,

    be patient, I think that whole paradox of thrift is coming to a town close to all of us soon enough.

  47. MRegan says:

    MH-

    RE GAO reports, yeah, that’s just the way that it is. The issue which concerns me is the need to recognize the fundamentally corrupt nature of how capital markets are managed. If that element isn’t in the forefront of one’s thinking when interacting with the markets then the likelihood of suffering increases. It is a dirty game. Keeping your eyes open helps.

  48. dead hobo says:

    ben22 Says:
    May 7th, 2009 at 10:21 am

    I will view that, if it comes around S&P 965-1000 as a wonderful top indicator

    reply:
    ————
    At this rate, S&P 1000 will be next week, S&P1100 will be before 5/31. Oil will be +/- $70 by 5/31. Gas will be closing in on $3. (PS we have an oil glut) Nat gas will be about $6 soon (we have a nat gas glut) I’m not ruling out S&P12oo this summer.

    The markets are going into perpetual bubble state. This should make mark to market valuations very interesting as they yo-yo quarterly.

    Enjoy.

  49. franklin411 says:

    New claims reach the lowest level in 3 months…Green shoots, friends…green shoots!

  50. ZackAttack says:

    You figured Dow had to do something like this… price-weighted index, GM was about to do a 1:100 reverse split with a huge share issuance, that would make it the largest Dow component otherwise, right?

  51. Andy T says:

    ben22: there are several famous examples of Dow Jones lagging and making terrible decisions….from wikipedia

    On November 1, 1999, Chevron, Goodyear Tire and Rubber Company, Sears Roebuck, and Union Carbide were removed from the DJIA and replaced by Intel, Microsoft, Home Depot, and SBC Communications. Intel and Microsoft became the first two companies traded on the NASDAQ exchange to be listed in the DJIA. This move was widely (in retrospect) criticized since it involved moving into “tech” names just before the top of the tech bubble. On April 8, 2004, another change occurred as International Paper, AT&T, and Eastman Kodak were replaced with Pfizer, Verizon, and AIG. On December 1, 2005, AT&T returned to the DJIA as a result of the SBC Communications and AT&T merger. Altria Group and Honeywell were replaced by Chevron and Bank of America on February 19, 2008. Chevron had gained about 140% during the time it was “out”, while all three names that replaced it had lost about 30%.

  52. call me ahab says:

    Obama, Obama
    he’s my man
    if he can’t do it
    no-one can- franklin

    (please- no-one independent thinking while the O is the house)

  53. Mannwich says:

    @ben22: Is franklin411 and FA at your firm?

  54. ben22 says:

    Franklin @ 10:42

    LOL, I was waiting for that. Franklin you should manage money instead of teaching, you’d fit right in.

    @ hobo,

    I’d never rule anything out, but this rally is getting tired, I tried, as many others did to present some evidence last night of what I’m seeing to indicate that. I suppose it could happen but I’m highly doubtful we get an almost 100% rally from the March lows by this summer.

    AT made a good warning the other day not to try and fight the seasonal trends. The dow was still at 12k this time last year. Not sure if you have ever seen the almanac data on the best six months period but it is pretty amazing.

  55. cvienne says:

    I have been (and still in the bear camp), and I must admit that this rally since March is nothing like i’ve ever seen before (except on charts from WAAAAY back)…

    However, to keep it all in perspective, consider the following:

    If you draw a downward straight line on the S&P chart (easier to see on a WEEKLY chart rather than DAILY) from the all time high in ’07, you’ll see you can cause it to intersect a few critical points…The MAIN CRITICAL POINT would have to be the 9/15/08 collapse of Lehman…

    So if you look BEFORE and AFTER that trendline, you’ll notice that BEFORE the Lehman collapse, the market tended to gravitate towards that trendline…

    If you follow it through…You’d see to “re-establish” that trendline, the S&P has room all the way up to around 1050-1070 level by the end of this month…

    Maybe the market is just playing “catch-up” with that trendline…Maybe it will pull back in these days, then go back up in June or July to touch it at a slightly lower level (as the trendline would be down to around S&P 1,000 by the end of July)…

    Perhaps this is all simply reflective of the idea that we’re STILL in a bear market, but we’re past the WATERFALL which was the period after the Lehman collapse…

    In my bones, I’ve always felt that the NEW BULL MARKET wouldn’t start until around 11/11 (two years out)…If that is the case, that would MESH with the macro trendline down (from the ’07 high), and a upward trendline that started with the 1932 low and intersected the 1974 & 1982 lows…

    That would put the S&P low somewhere in the 600 range (give or take a little)…

    Anyway, that thesis gives EVERYONE a little to chew on…

    -The present bulls have their way up to 1,000
    -The BEARS have their way when the market meets resistance there and eventually trades back to 600 (albeit I’d predict S-L-O-W-L-Y lasting two years)
    -The economy has time to work through its problems without panicking
    - Doug Kass get’s to be SORTA right in having called a “generational low” (although the ultimate low might be just a little lower)
    - Those who said we “haven’t reached the bottom” would be right
    -Meredith Whitney & Roubini would be right
    - Cramer would change his tune 6 times in the process and ALWAYS be right
    - Kudlow would green shoot himself and the world would be right
    - GS could sell OUT OF THE MONEY calls for 24 straight months and make a fortune

    I don’t know…That’s just how it looks like it’s shaping up to me…

    I headfake pullback here in May…
    A rally through July ultimately topping out at a little over 1,000
    maybe a ‘mini-Black Swan’ in August to jolt the market back into reality
    Recvery by the end of year off of that
    But basically a slow grind lasting 2 years (until 11/11) down to S&P 600

    It’s just a thesis I’m playing with, so don’t laugh too hard :-)

  56. globaleyes says:

    When it comes to The Dow, IS IT TRUE that GM stands for Gone Momentarily ?

  57. MRegan says:

    http://www.bloomberg.com/apps/news?pid=20601013&sid=aWeQYzBkMloo&refer=emergingmarkets

    Dollar peg in Saudi Arabia, Bahrain:
    Interesting tidbit:

    “A decision on the date for a single currency shared by Saudi Arabia, the U.A.E., Kuwait, Qatar and Bahrain hasn’t been taken yet, according to al-Jasser.

    Qatar’s central bank Governor al-Thani said today he still thinks meeting the 2010 target for the currency between Saudi Arabia, the U.A.E., Kuwait, Qatar and Bahrain is possible.

    “We will still continue with 2010 and we’ll be working hard on the schedule to achieve our goals and objectives,” he said.

    Heads of state from the Gulf Cooperation Council met in Riyadh this week and chose Riyadh as the site for the new central bank.

    “We have made great strides in the monetary union,” al- Jasser said today. “We are making progress.” “

  58. ben22 says:

    AT,

    That’s interesting, never really thought about that. I just remembered right away when you said what you did above that not long after KFT and BAC entered the DOW they tanked.

    I know from a VIP at BAC right before they got into the Dow Ken Lewis was asked at an internal meeting at BAC why they were not a DOW stock and his response was along the lines of:

    “if those idiots that ran it new what they were doing we’d be in there”

    I guess the idiots heard him.

  59. ben22 says:

    @Mannwich,

    considering most of the people I know at the company, yeah, he could be.

  60. [...] All Into Perspective (Zero Hedge) GM posts $6bn loss as bankruptcy looms (FT) GM: Out of the Dow (The Big Picture) Asia’s Export-Led Growth Model ‘Broken,’ Roubini Says (Bloomberg) ECB Cuts Rates ! (WSJ) [...]

  61. cvienne says:

    They ought to force GM to change it’s ticker symbol to MG (as in “midget”)

  62. hipster says:

    God Damn CNBC…Whalen was interrupted just as he was getting into the meat of his analysis

  63. MRegan says:

    http://4.bp.blogspot.com/_7Se7iswAanA/SgKB-1bw_pI/AAAAAAAAHOE/2xpWcr8HFzo/s1600-h/part_time_labor.jpg

    This chart has an unusual resonance with the ongoing claims chart put up by Mannwich. So, what is the story with unemployment? Does subtracting the ‘de-jobbed’ from the numbers (eventually) offer a means 0f papering it over? Persistent uncounted unemployment? Does it even matter? Clearly corporations are not focused on employing Americans. Maybe the de-coupling is more an internal/domestic dynamic than an international one. Separate the profitable and productive economic circuits from the national reality. Sounds like a plan. Now all we need is a new measuring stick, I mean shekel.

    Who gets GM’s China operations?

  64. cjcpa says:

    Another thing that I’ve figured out is that TA does not give you conviction or certainty. It presents targets and levels in an either – or format.

    This is not very helpful to me, but it is apparently very helpful to active traders. As Karen stated, real time screens, which would be the death knell to my billable hours.

    I have something in common with SB — the realization that people don’t want to hear me say the same thing. But, just to be clear, living through a “trader’s market” is very irritating for people who don’t want to quit their job to “trade. ”

    Still, we seek solutions. PRHYX has a yield of around 11%. One could, say, buy this and not have to watch it every day. This is my new (proposed) solution to near zero investment returns.

    Another aggravation is that with inflation/deflation on the menu, you have to worry about the risks of just holding money. That just pisses me off that I have to worry about a zero yield position. It also bothers me that I have to worry about the actions of the gov’t such that I have to be cautious about short term gov’t bonds.
    anyway, //end rant//

    but hey, it might stop raining in a few days……

  65. dead hobo says:

    cvienne,

    Everyone is entitled to their opinion and best guess. I’ve drawn lots of stock trend lines that are based on logical relationships. They are rarely right.

    Right now, as I see it, you have too much money chasing too few investment opportunities. The concept of bubbles is ignored by many and/or exploited by those with capital. Obama is counting on a rising market revive the wealth effect, which he hopes will spur consumer spending. He is either ignoring or ignorant that rising stock prices will be offset by rising energy prices due to the bubble. Thus, consumer spending will be impacted downward and cost-push inflation will return. It will hurt housing, not help it. Ditto with car sales.

    He is likely hoping that bubble gains will improve mark to market valuations and strengthen the banking sectors via bubble economics. This will be considered a return to health in the banking sector.

    Please note that, historically, asset inflation hasn’t been considered ‘real’ inflation. It’s always the market, or supply and demand, or some other hyped excuse.

    Basically, this is the beginning of a massive inflation play. Asst inflation is just beginning in the markets and will be ignored. Cost push inflation via rising commodity prices will also be ignored because of whatever fad reasoning is prevalent in a few months.

    Unfortunately, housing will not share this fate. Rising commodity prices and cost push inflation will just make people hunker down even more. People will buy cars only when necessary. Govt guaranteed warranties will be ignored by most because resale value will be nil the day after the warranty expires. Thus, the real economy will suffer.

    As I write this, its really an end of the world scenario, all done with the best of intentions. The correct play would be to take all artificial ‘liquidity’ props out of the market and reign in commodity speculation via realistic regulations that limit speculation. Then do something to encourage real PRIVATE investment that creates jobs that don’t involve wall street. Then, just be patient. It will take a few years.

  66. Mannwich says:

    @MRegan: I have a hunch that many are resorting to freelancing these days and scrapping together various jobs/projects to make ends meet. Saw an article in the WSJ yesterday about that topic. For some, it probably works just fine but I can’t imagine that this will totally replace all those lost jobs. Maybe I’m wrong though.

  67. cvienne says:

    @dead hobo

    I actually agree with you 100% (and therefore agreement that the WORST CASE scenario either inflated upwards or downwards can, and likely will occur)…

    I only use the TA aspect of it to effectively FRAME a deviation out of that box (as in: as it escapes the box in either direction, at some point gravity will entice you back)…

    That’s why Tom Hanks eventually had to let WILSON go in Castaway

  68. James says:

    this internet thingie, which I think will be big one day, is not represented in the DJIA index. Cisco is a manufacturer who makes all of the plumbing for the net.

    The closest thing to an internet company in the index is Verizon (VZ), whose market share in the net is relatively small, and whose income from internet related activities is even smaller.

    ———————-

    Highly debatable. Microsoft is certainly a big Internet play, with a bevy of SOFTWARE contributions. It’s certainly been a much bigger player than Verizon (????).

  69. ben22 says:

    @cjcpa,

    Not any of my biz what you do with your own money but that is not a mf you can put your money in and not watch. In fact, no mutual fund is something you put your money in and don’t watch, even if it isn’t managed. High yield bonds are high risk, they will move more like stocks. Not to mention that fund has a worst three months return of over -25%. Not exactly something you just put away and don’t worry about.

    The fund doesn’t hold a lot of stock as many HY funds do, but if you just want to do a little better than 0 there are much safer places to allocate capital.

  70. Bruce N Tennessee says:

    Holy Misogyny Batman…Look at that 10 year bond go! Wowzers!

  71. HCF says:

    @MRegan:

    The measures of employment are much like the idea of “quality of earnings.” The numbers may look good, but once you dig in past the glossy headlines, it’s ugly. I like the graph you posted on part-time workers… I think if we look at full-time workers who have been recently laid off, we’ll see a similar trend. Many are in a position where they may never regain a position to match their previous income. A former GM assembly worker making $30/hr and working full-time might one day have a $7/hr job at the Gap. Even though he/she is technically “employed,” I’m sure the standard of living is forever changed. These stats don’t really show unless you dig deep into the more esoteric underemployed stats.

    HCF

  72. cvienne says:

    @Mannwich

    You’re right about “scrapping jobs together”…A lot of friends of mine who have fairly high paid ‘technical’ jobs are also being asked to take unpaid furlough & vacations…Their friends have shifted to 4 day workweeks…None of this shows on the gov reported numbers…

    Think of all the students coming out of college right now and trying to enter this workforce with that going on…A house on my street was on the market for 2 years…It finally got sold to about 20 el salvadorians who, I guess, had a way to pool some cash together…This is how it is in America (and I live in a county that is only 5% unemployment (because of a lot of government jobs)…

    But NFP will come in tomorrow “better than expected”, and we’ll be off to the races again!

  73. Mannwich says:

    @cvienne: And most of those students are saddled with outrageous student loan burdens. In debt slavery right out of the chute, or is that shoots?

  74. Mannwich says:

    I think phrase “better than expected” will end up being the phrase of the year, maybe this entire time period.

  75. call me ahab says:

    cjc-

    if you are more of the mind of a long term buy strategy- a pretty good book on the subject is-

    “Rule #1″ by Phil Town- pretty common sense approach- follows the Buffet strategy- pretty good explanation of some good trading tools- MACD & Stochastics

    You may want to wait for a correction before jumping in though-

    http://www.amazon.com/Rule-Strategy-Successful-Investing-Minutes/dp/0307336131

  76. 10 cc says:

    That last bit didn’t make sense. You can’t add the US Government to the Dow Jones Index. It’s privately owned.

  77. dead hobo says:

    Mannwich Says:
    May 7th, 2009 at 11:26 am

    I think phrase “better than expected” will end up being the phrase of the year, maybe this entire time period.

    reply:
    —————
    Maybe, but you can’t argue with perfection. This one ranks up there with “But Wait, There’s More” or “Call Now” or “Free! Just Pay Shipping And Handling”. You can’t kill it. It won’t die. It will eat your brain.

  78. call me ahab says:

    dh-

    so how many ShamWows do you own? Snuggies?

  79. cvienne says:

    @Mannwich

    For curiosity, I just GOOGLED “better than expected” and got 61,300,000 hits

    I GOOGLED “armageddon” and got 12,400,000 hits

  80. SavetheWhales says:

    A few days ago, I offered the hypothesis, that we may have been party to a two-month long feedback loop driven by ultra-shorts willing to lose money betting on a big spike (fall in the markets). The loop worked as long as old investors were willing to sell at a loss (thereby driving the underlying index up) and new investors were willing to step in with fresh money. The market would rise nearly monotonically and the ultra-shorts would fall exponentially. Perversely, as the ultra-shorts got “cheaper”, the loop would draw in even more people betting on a big payoff.

    A reasonable argument could me made about why a loop developed on the ultra-shorts vs. the ultra-longs. The answer is simply that knowing the market is “overvalued” means that speculators will pick the short side for their bet.

    Under this hypothesis, outside of a series of external news events that dramatically increase volatility and risk, this negative feedback loop could persist until every speculator is disgusted with ultra-shorts.

    Alternatively, if the rest of the investing world begins to agree that we’ve gone too far too fast, then it can also stop.

    But barring these two events, this trend could continue.

    To those that doubt such a cycle could organically develop, I encourage you to read about ‘strange attractors’: http://en.wikipedia.org/wiki/Attractor

  81. Mannwich says:

    Green shoots? Hhhhmm, now how can we spin this data positively? Let…….me………think. Should be good for another 25% drop in SRS.

    http://www.calculatedriskblog.com/2009/05/hotel-revpar-worst-year-over-year.html

  82. dead hobo says:

    cvienne Says:
    May 7th, 2009 at 11:38 am

    @Mannwich

    For curiosity, I just GOOGLED “better than expected” and got 61,300,000 hits

    I GOOGLED “armageddon” and got 12,400,000 hits

    reply:
    ————
    I suppose this means armageddon will be better than expected.

  83. cvienne says:

    @ dead hobo

    LMAO :-)

  84. MRegan says:

    HCF et al-

    I am glad that the graph was of some value to you all- I found it at Inca Kola News and he cribbed it from Casey Research (?).

    A week or so ago, a cashier at the supermarket we do some of our shopping at was telling all of her customers that she used to work at X jewelry store (which went belly up just recently-locally owned, decades old, sad). As I listened to her I had the awful feeling that I was hearing the flight of future prosperity covered by the lamentations of a very wounded person. I try to identify with people across the spectrum of employment, professions etc (I will note that anthropologists hate being anthropologized) and I see some very sad things.
    I would hope that more people come to understand the truly pernicious effect of debt and its use as an instrument of theft and wealth extraction.

  85. Mannwich says:

    @MRegan: I think that our college graduates coming out now are going to have a big lesson on the effects of debt in the coming years. It’s going to be painful.

  86. Onlooker from Troy says:

    @SavetheWhales

    Yes, that is a very interesting hypothesis and I could see it playing out. The ignition given to that loop by the strategic leaking of Q1 bank “earnings”, some flat out lies by Ken Lewis, etc., the extreme level of the market (divergence from the MAs), and then encouraged on the way up by the tendency for people to want to see a light on the horizon. Then the brokers, etc. keep pumping it up to strengthen the trend, and momentum players follow the trend making it stronger and stronger.

    Then it hits the resistance levels (even for the year, approaching the 200 day MA) coincident with the sell the news event. Then the cycle can tip over and do essentially the same thing on the way down, with those who bought long bailing out for fear of a new low being set. Combined with a sinking realization that the green shoots were truly an overreaction to the second derivative.

    Interesting time.

  87. HCF says:

    @ MRegan:

    The story about the supermarket cashier is truly sad. Unfortunately, there is an inherent complacency associated with the belief in the American dream: that your job is stable, that your income will keep up with inflation, that the company that has been around the last 60 years will be around the next 60 years, that your home value is forever stable to increasing, and that your 401k will not implode. I am hoping, as sick as this sounds, that the lessons out of this financial crisis give us all a mild sense of paranoia. Not talking to yourself, hallucinating paranoia. Just enough to appreciate the good things we do have…

    We as Americans have gotten too fat and happy over the years, too often settling for mediocrity in our achievements and on debt for our material desires. We need more (figuratively) hungry, motivated people to re-energize this economy… Somehow, sadly, I think most people prefer the status quo.

    HCF

  88. HCF says:

    To add to my point:

    How many successful Americans were brought up in much less stable situations than we have now? Think Andy Grove (co-founder, Intel) or George Soros. Both are Hungarian Jews who grew up under Nazi occupation and escaped Budapest during the Hungarian revolution… I’m sure that those experiences in early life have kept them on their toes for the next 5 decades! Complacent they are not…

    HCF

  89. Onlooker from Troy says:

    @HCF

    Bingo. Once again, spot on. Unfortunately the only way to fix this thing is to break it hard. Nobody will pay attention otherwise. The wonderful work ethic and frugality of those who lived through the Great Depression (the so called Greatest Generation) was only forged in very hard times. Of course we got to a point where those values were scoffed at and derided. That was a sure sign of our coming demise.

    Maybe if we hit bottom again we can build something great again. I don’t have any faith that we’ll do it by cushioning the blow every time around and stretching out the pain.

  90. SavetheWhales says:

    @Onlooker from Troy Says:

    Then it hits the resistance levels (even for the year, approaching the 200 day MA) coincident with the sell the news event. Then the cycle can tip over and do essentially the same thing on the way down, with those who bought long bailing out for fear of a new low being set. Combined with a sinking realization that the green shoots were truly an overreaction to the second derivative.>

    Tipping over and running a similar loop would be possible in a friction-less system. In the messy equities markets, I think a more likely event is the grinding down of both the ultra-longs and ultra-shorts within the current loop. The “friction” of the ultra-shorts is evident in the trend-down of the sum of a index ultra-short + ultra-long. If these vehicles were friction free and perfectly accurate in their amplification, then I could see alternating loops or oscillations.

    Of course, all this is predicated on the inherent deep uncertainty about equity valuations. Without clear anchors, all that is left is speculation.

  91. cvienne says:

    If we need to FIX HOUSING to stem this economic downturn consider the following math:

    Let’s say today, the median home price is $200,000…

    And let’s say you ACTUALLY QUALIFY for a 5% mortgage…

    Forget about DEBT SERVICE, think about investment value…

    Total principal & interest payments on a $200,000 mortgage at a 30 year fixed rate would be around $546,000…

    Now factor in the ADDED costs of having to pay homeowners insurance & property taxes (let’s call those roughly $400 a month for 30 years (assuming $3,600 annual property taxes and, say, $1,200 insurance)…Amounts you WOULDN’T have to pay if you were a renter…

    You’ll also be subject to periodic upkeep (leaky faucets, roof, yard maintenance, etc.)…But forget about that…Simply do the tax and insurance calculations $400/mo X 12 months X 30 years = $144,000…

    So add $144,000 to your P&I tab of $546,000 = $690,000

    You’d have to be ‘guaranteed’ a 4.5% rate of return on your investment JUST TO BREAK EVEN as an investment…Forget about the aforementioned maintenance costs, forget about loan origination fees, forget about homeowners association dues, trash collection, etc. etc…(not to mention what inflation takes out of that, OR the fact that property taxes are on the rise because of state & local government budget shortfalls)…

    The “tax writeoff” status for mortgages is in the process of being repealed, so you don’t even get a benefit there…

    OK so fine…Assume you DO stay BREAK EVEN all those years and pay off the house…And assume you were lucky enough to have 4.2% price appreciation YOY over all those years…Now you want to SELL the house TO BREAK EVEN (but you need to sell it at $700,000)…

    But now interest rates have gone back up because the US Government is paying off all its debt and the best financing available is in the 8% range…

    A qualifying individual would be looking at $5,000/mo just for the principal & interest…If they had to qualify with, say, 1/3rd income ratio…They’d have to be making over $180,000 a month (which is a rane that is dangerously close to where the current Administration starts calling you RICH and rapes you at a higher tax rate…

    My point is that UNDER THE COVERS, buying a home even at an AVERAGE MEDIAN price in this economy is a terrible investment (especially if you have to finance it)…

    So the policy of the Administration to “keep people in their homes”, and artificially set a floor at these prices is FOOLISH economics 9unless you think that the median wage earner 30 years from now is going to take home $180,000 a year…(Minimum Wage to make $180,000 would be $86.53 an hour)…

    What companies do you think will flourish under that burden?

    The only REAL way forward is to deflate all asset prices and bring them in line with real wages…

    Sound like a g

  92. MRegan says:

    Mannwich-

    There is a young man on our team whose boyfriend (yeah, I know) is finishing law school (last year begins Sep09). In debt up to his eyeballs. 150k plus stupid management of his credit cards. I guess 150K isn’t a problem when there are plentiful job prospects in the field but no cash flow, then what? As far as student loans go, scam [a word some argue comes originally from a Gaelic phrase meaning it is false).

    I don’t know why people worry about the wall being built on the Rio Grande. All the important barriers are already up.

    I left grad school with zero loans. I only owed debts of gratitude to a few people and after a simple and overdue name change (I was christened Otto P. Muckerfuss- yup you guessed it-I have Mommy and Daddy issues) I was able to duck those commitments. ; )

    All that poverty and involuntary austerity is really paying off now. So much so that the gruel is even beginning to taste good.

  93. MRegan says:

    HCF-

    I wish I had talked to you earlier; I think I may have overshot your advice:

    “I am hoping, as sick as this sounds, that the lessons out of this financial crisis give us all a mild sense of paranoia. Not talking to yourself, hallucinating paranoia. Just enough to appreciate the good things we do have…”

    [Note to self- there may be a traitor among us]

  94. Mannwich says:

    @MRegan: I guess he could go work at Starbuck’s……..um, wait, maybe not. They’re not doing so hot either.

  95. MRegan says:

    I like HCF’s hunger notion. He’s right. Too many cheap calories, not enough nutrition.

    Regarding cvienne’s housing riff (thanks). Asset deflation, how does that happen in a context in which those who ‘own’ the assets own (in a real sense) the ones who can make that printing press hum?

    Rebalancing would be a very good thing but the rentiers have enough juice to stop that in its tracks (I think they already did).

  96. cvienne says:

    @MRegan

    It’s a conundrum as much to me as it is to anyone else how it will eventually resolve…I’m just providing the math…

    Bottom line…If we expect things in the future to follow the same parameters as the past (in terms of the relation of wages to assets), then ASSET prices have to come down because WAGES surely aren’t going up…

    But since there seems to be ZERO political will to accept that reality…Interventionism will undoubtedly create some scenario that nobody can predict at the moment which will eventually drive us to the same point…

  97. call me ahab says:

    cvienne-

    interesting points- much misconception about the “advantages” of homeownership- the USG should get rid of the interest deduction for homes- should be neutral as to people’s housing choices- and appreciation- well we see what happens when that gets out of hand

  98. MRegan says:

    @cvienne-

    Residential RE will likely crater regardless of high level attempts to prop prices. Do price controls work over the long term? Banks are keeping properties out of the marketplace in order to shore up the declining value of in view properties. That can not work in an economic progression in which wages continue to contract, employment degrades and productivity goes clandestine. (not to mention demographics)

    As an investor, it seems to me that that segment of the economy is simply toxic and should be avoided at all costs. Math- we need more of it.

  99. Onlooker from Troy says:

    ahab

    You beat me to it. Not that I think it’ll happen (too many vested interests with political power), but we really should have the govt get out of the business of subsidizing home ownership through the tax code, etc. It’s obviously hurting our economy right now due to the bubble bursting, but it also hurts in this modern, more dynamic economy because it prevents labor from moving to where it’s needed because people get locked into their houses.

    We’re seeing that big time right now as people lose their jobs but can’t get out of their house, even if they didn’t buy at the peak of the bubble. Their only choice is to walk away and start over with the new job. Another factor that will exacerbate the foreclosure wave and cause house prices to overshoot to the downside.

    Plenty of other reasons that home ownership isn’t for everyone.

    Of course we could go on and on; FNMA, FRE, artificial interest rates, low downpayment programs, etc.