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. HCF says:

    @MRegan:
    > I guess 150K isn’t a problem when there are plentiful job prospects in the field but no cash flow, then what?

    Bingo! Cash flow is the key to every economy… Whenever I talk my co-workers about financial matters and why liquidity is paramount, I use the analogy of cash flow being like blood to the brain. You can take a perfectly healthy man who has perfect genetics, eats well, exercises, doesn’t smoke, a perfect heart, clear blood vessels, normal prostate, etc., etc.: If somehow you cut off the blood flow to his brain for about 30 seconds, he’s dead! All the other stuff no longer matters at that point. This is akin to the highly leveraged American consumer and business, who may have had brilliant plans for the future if not for that short period of no oxygen to the brain that sent him to an early grave! Certainly robustness would have been the key

    HCF

  2. ben22 says:

    Here is a trading idea for today.

    DSX issuing so the stock is down pretty big today. You could buy that here with a tight stop and a sell at 18.50-$19 and probably pick up a nice trade if the market continues this short term run.

    Just an idea.

  3. cvienne says:

    @ onlooker & @all

    re: RE & mortgages

    I’m sure most of you also read the statistics on this blog a few days ago about how roughly 33% of the homes in this country are owned free and clear…

    Now think about this…

    Most of the “free & clear” ownership is by retired folks…many of THEM are possibly struggling to keep up (as some of their pension or 401k income vanished recently)…So they are faced with the possibility of getting a REVERSE MORTGAGE…

    Let’s say a lot of them decide to do that…Well, the “clawback” on the reverse mortgage basically puts the TITLE to the property back in the hands of the banks (which will then offer the property on the market to the heirs at the time of the REVERSE MORTGAGEE’s death)…

    So if the kids find out that they can NOT meet the standards of the banks to acquire the property, that means MORE inventory to be eventually dumped on the market…

    As reverse mortgages become more popular out of necessity, the housing problem will persist for a long time to come…

  4. HCF says:

    @cvienne:
    >So they are faced with the possibility of getting a REVERSE MORTGAGE…

    This is the problem with financial industry… I have no problem with making your clients a lot of money and making a nice living for yourself in the process (see John Paulson). Most people in the industry, however, especially the real estate end, are just leeches aiming for churn. Buy a house, get a mortgage, sell that house, buy a bigger house, get a bigger mortgage, etc., etc., get a reverse mortgage. Oh, and by the way, the pros take a giant fee each step of the way. My dream is the rent, save money, buy a house with a suitcase of cash, live in it for a long time, sell it, retire someplace cheap, die.

    HCF

  5. scm0330 says:

    I don’t doubt Franklin’s reality. Safely insulated in the academy, with a modest income level but lots of good-feeling perks, his life has a better quality than his cash flow alone could buy. To him, this IS green shoots. To many of the rest of us, private sector folk, property owners, business literate types, it’s a different economy not only at the moment, but it’s going different places than he might suppose. For someone so steeped in history I find his ignorance breathtaking. (Although I also suspect he knows better than what he’s saying, and rather enjoys being the gadfly to all the frowning people hanging out at TBP. He also might have a different spin were BOB, Tiny Tim, The Beard and King Rahm not in power.)

  6. cvienne says:

    @HCF

    My dream is becoming even simpler….DIE

    @scm0330…RE: Franklin

    Like they always say…Those who KNOW…DO…Those who don’t know…TEACH

  7. Bruce N Tennessee says:

    The 10 year bond is getting scary today….

    Where is that damned helicopter?

  8. Bruce N Tennessee says:

    No, really, Karen, Manny ,Lefty, I man, cj, call me, …..folks..

    What is up with the bond market….? Has the long term bond broken? Fill me in here, I am not up to speed on this massive rise in rates…

    B in T.

  9. I-Man says:

    I dont know Bruce… only thing I can think of is that maybe the auctions arent going so hot and thats causing a surge in fear…

    Sure is weird to see equities getting whacked and see yields get whacked at the same time… check out an intraday chart of TLT… huge cliff dive around 1pm EST…

    TBT up 5%…

  10. batmando says:

    No, no, no no… not “better than expected”… everything is “unexpectedly” better or worse with 46,600,000 hits

  11. [...] As we expected, GM is out, and Cisco (CSCO) is in: 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? [...]