“A blowup at AIG could have an even bigger impact on the stock market than Lehman, WaMu and even Fannie Mae and Freddie Mac have already had,” Paul R. La Monica, editor at large, writes for CNNMoney. “That’s because AIG is a component of the venerable Dow Jones industrial average.”
“A further plunge in the value of AIG would threaten to drag the Dow deeper into bear market territory since there is still a long way to go down. AIG, with a current market value of $32.6 billion, is worth nearly five times more than Lehman and WaMu combined,” La Monica writes. “In addition, AIG is a company that more average consumers deal with than Lehman, since the firm has a massive life insurance business and retirement planning unit.”
“With this in mind, it might be time for the editors of The Wall Street Journal, who manage the Dow Jones indexes, to start thinking about replacing AIG in the Dow,” La Monica writes. “Now, the editors at the Journal typically do not make rash decisions about removing and adding companies to the industrial average. In addition, it’s rare for them to just remove one company at a time.”
“But as I’ve argued in several previous columns, I also think that it may be time for General Motors (GM, Fortune 500) to get booted from the Dow,” La Monica writes. “Analysts expect GM to lose $10.2 billion this year and another $5.1 billion in 2009, and now has a market value of only $7.4 billion, making it by far the smallest Dow component based on this measure.”
La Monica writes, “So if AIG and GM are both removed from the Dow, who could replace them? …In the world of technology, an industry that the U.S. has continued to hold its own, either Apple or Cisco could be an intriguing addition.”
La Monica writes, “Apple dominates the consumer electronics market with its iPod and iPhone and is expected to generate $40.4 billion in sales in its next fiscal year – higher than the estimated revenue for Dow components Coca-Cola, Walt Disney and Alcoa.”
Full article here.
[Thanks to MacDailyNews Reader “MacDoc” for the heads up.]