When Does GM Get Kicked Out of the Dow, part II

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 . . .

~~~

What's been said:

Discussions found on the web:
  1. Steve Barry commented on Jun 26

    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.

  2. Nihilism commented on Jun 26

    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 :)!

  3. Vermont Trader commented on Jun 26

    I just bought some GM. I like their emerging markets postioning..

  4. AGG commented on Jun 26

    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.

  5. Steve Barry commented on Jun 26

    Now oil is spiking…is Bernanke the boy with his fingers and toes in the dike? Keep calm Cramer.

  6. AGG commented on Jun 26

    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?

  7. Vermont Trader commented on Jun 26

    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.

  8. Lord commented on Jun 26

    It wouldn’t be Google unless they split 10:1 since they would dominate the index otherwise. Cisco seems like a safe bet.

  9. i’m just sayin’ commented on Jun 26

    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.

  10. tomd commented on Jun 26

    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? 🙂

  11. AGG commented on Jun 26

    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.

  12. rj commented on Jun 26

    I say it goes down a little more and the company goes private.

  13. Vermont Trader commented on Jun 26

    AGG- OK I just bought some GLW.

    It better work or you are buying me breakfast at Sneakers..

  14. rj commented on Jun 26

    Ooh, also, what if Dow Jones decides to replace GM with News Corp? 😀

  15. VennData commented on Jun 26

    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.

  16. Sinomania! commented on Jun 26

    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…

  17. Steve Barry commented on Jun 26

    Another CNBC ploy…Dow drops 304…rallies to down 294…announcer will always say “market off its lows now”

  18. Ironman commented on Jun 26

    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….

  19. Steve Barry commented on Jun 26

    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

  20. AGG commented on Jun 26

    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.

  21. Steve Barry commented on Jun 26

    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.

  22. AGG commented on Jun 26

    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.

  23. lurker commented on Jun 26

    If GM goes out the boneheads at S&P will toptick a fertilizer, coal, or steel name. Learn their lesson from MSFT? Barry, please!

  24. Eric commented on Jun 26

    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.

  25. lurker commented on Jun 26

    sorry boneheads at S&P, I meant the boneheads at Dow Jones…

  26. Eric commented on Jun 26

    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!

  27. bluestatedon commented on Jun 26

    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.

  28. John commented on Jun 26

    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.)

  29. Steve Barry commented on Jun 26

    John,

    Nasdaq is not meaningless…it is the place to go to short overpriced crap.

  30. Joe S commented on Jun 26

    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

  31. John commented on Jun 26

    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.

  32. Michael Donnelly commented on Jun 26

    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.

  33. John commented on Jun 26

    Steve Barry,

    “Meaningless” is not the same as “useless”. 😉

  34. Euro guest commented on Jun 26

    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.

  35. Euro guest commented on Jun 26

    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.

  36. Bob A commented on Jun 26

    Why do I not feel bad about the company that put Hummers on my local streets getting hosed?

  37. Bob A commented on Jun 26

    Why do I not feel bad about the company that put Hummers on my local streets getting hosed?

  38. a guy called john commented on Jun 26

    what’s that saying? “as gm goes down the toilet, so goes america”?

  39. Mike commented on Jun 26

    Goldman Sachs is my pick.

  40. esb commented on Jun 27

    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.

  41. engineer al commented on Jun 27

    “… what was good for the country was good for General Motors and vice versa.”

    Charles E. Wilson, 1953.

  42. GM: Out of the Dow | The Big Picture commented on May 7

    […] 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. […]

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