“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.]
NormM… Yep.
As the saying goes…
If you want to live like a Republican, vote for Democrats.
The Republicans ruled Congress until 2006 and the Dems current majority is extremely thin. So, it’s pretty ignorant to try to blame them for the current financial mess.
BushCo. used 9/11 to ram all kinds of crazy laws through Congress and yes, lots of Dems short-sightedly went along with it, to the country’s detriment.
But really, I blame Congress as a whole.
Clinton did push through a lot of deregulation, but the Bushies pushed through a whole lot more. Which is really much the cause for all of this mess.
@ G Spank et al:
You need to go study your history. The market goes in cycles, typically 10 year cycles. Since the 1920s, we have had an equal number of Republican and Democrat presidents, and none have had much of an impact on the economy.
The market grows, people get excited, a bubble occurs in some sector, and the bubble bursts, sending us down into a bear market. Bear markets typically only last 18-24 months, after which we enter another bull market.
Actions by presidents and Congresses have little effect on bear/bull markets. Consumer spending, company growth and management, etc. have FAR more effects than some bill passed by a government.
So everyone can stop being myopic and looking at the last 8 years. Look farther back at the trends and you’ll see that we’re about halfway, hopefully a little more, through this bear market.
And it doesn’t matter who gets elected president, nothing they can do will change the economy greatly.
Let me first say that I’m no financial expert, but wouldn’t these companies be in better financial shape if they stopped dishing out million-dollar bonuses to their CEOs? Or at least cut back to something more reasonable?
Well said Raving Machead.
“They could lay around and do nothing, but it bores them, so they start a business to keep busy and keep people fed.”
That is without a doubt one of the most insulting and most bizarre statements I’ve ever read. Or it’s the most subtle irony but I doubt that from reading your other frothy diatribes.
You must live in a Louis XVI world. “Oh piffle. I’m bored. Toss the peasants some cake. It’s amusing to watch them scramble.”
Why replace a financial with a tech company? Besides, Dow Jones’ track record of replacing down and out companies in the Dow Industrials 30 with stocks on the verge of a bubble over the last 15 years hasn’t served itself very well anymore than the addition of NASDAQ listed companies has.
Zach – Don’t blame the Republicans for this mess. Who has real control over things, Congress and Senate. Both are controlled by the Democrats.
The mortgage rules were greatly loosened by Andrew Cuomo, the Clinton’s Secretary of Housing and Urban Development. After that, neither Greenspan’s Fed nor the Treasury Dept. were able to tighten things up due to obstruction from the Democrats in Congress.
Good ‘ol CNN!
We don’t need more regulation.
If you don’t bail out “investors” who buy loans made to people that can’t pay them back, the investors will stop buying these crappy loans.
Similarly, if we don’t bail out “homeowners” who buy more house than they can afford (or who can’t understand how their mortgages work), they will rent (as they should) until they can afford to buy a home on reasonable terms.
@ Mike R, Macaday, and Republican apologists et al,
Historically, the economy has done worse under Republican leadership in this country than it has with Democrats, at least going as far back as WWII. For every $1 the National Debt has increased with Democratic leadership, it has increased $2.99 with a Republican in office.
Republicans generally cut taxes to the upper class, and do not control spending. This forces us into increased borrowing which causes our National Debt to Skyrocket. Clinton’s last year in office, he borrowed $18 billion, Bush II’s first year in office, he borrowed a staggering $133 billion.
You simply cannot decrease your income, increase your spending and hope for anything but a tanking economy.
For some eye-opening facts check out this:
http://www.cedarcomm.com/~stevelm1/usdebt.htm
So your home was burglarized one time. So you cashed out your kids’ college fund, your savings, and take out a 2nd mortgage to you can build a fortress around your house. Then the contractor ran off with half of your money before the work is done, and you lost your job to an Indian or Chinese counter-part because you’ve spent all night patrolling the neighborhood looking for burglars and your job performance suffered. Now you can’t afford your house or car and your kids have no money for college. That is Iraq in a nutshell.
Don’t kid yourselves – the Congress and White House are put there to put tax money into private companies pockets when the times are good. They have no clue no how to actually ‘fix’ or improve the economy, DEM or GOP.
Strange!!!! I have a glossy screen Macbook Pro and I can see all the crap people write about the glossy screens. I had to matte too, but it was replaced due to a pixel issue and was replaced with the glossy, so I have seen both.
Wasn’t this about the DOW, AIG, Lehmann, GM and Apple? how did we get onto the glossy vs. matte discussion?
What exactly is the point of the Dow, other than to fool people into thinking everything is fine, when it just drops one stock that’s going down and adds another [generally, the current ‘hot’ stock] that’s on it’s way up?
@G Spank
Check your history. Its not Republican leadership that caused this problem. Go back to the Clinton admin when he re-regulated banking by forcing them to lend to people with low credit scores that couldn’t afford these loans. It might have been great and popular to do this, get more people into homes and garner their vote, but it led to bad lending practices that we ALL are gonna pay for now.
The national debt just went up to bail out Fannie Mae & Freddie Mac. That you can blame on Bush and the DEMOCRAT controlled Congress.
And you can blame it on election-year politics. Both sides get sucked into pandering and giveaways. It is quite sad.
McCain and his chief economic advisory Phil Gramham are strong supporters of the deregulation that is at the base of the credit crisis.
“Apple is in too few categories of products but GM is not?”
Exactly. And I wasn’t talking categories, I was talking actual products.
GM has more individual brands than Apple has distinct models of computer and iPod.
GM competes well globally and is still one of the world’s largest automakers. It is the ninth largest company in the world in terms of revenue.
Apple by comparison is a niche player in the computer market only doing well in one niche in one country.
As such GM is a good indicator of the health of the overall auto industry, but Apple is no similar indicator of the health of the tech industry.
Even given all that, while widely reported the Dow isn’t a particularly good index. I would recommend if you’re interested in the health of US markets, focus on the S&P;500 instead.
Don’t you all know Bush is responsible for earthquakes, hurricanes, sunspots and comet impacts! Seems any thing that goes wrong in the universe is Bush’s fault, liberial losers!
Raving Machead
As a foreigner I’m not going to spend time on your internal affairs, but on one thing you’re dead wrong, the oil!
I have worked in the oil and gas industry for more than 30 years. The reason for the price increase is that we can’t produce more. Simple as that! The Saudis don’t have any magic fields they can put on stream, nobody has.
Did you know that more than 50% of the worlds oil is produced from a few hundred oil fields? Did you know that 20% of all production comes from 15 fields with an average age of 35 years? You have to realize that oil is an limited resource and live with it. We are searching very hard to find more and we have a lot more sophisticated tools to find it than we had just 10 years ago. What we find is mainly small fields, often in the vicinity of older fields. In Norway they manage to get almost 50% out of the reservoirs which is a world record compared to 20-30% in the rest of the world.
Finally there’s one big drawback in my job. I’m stuck in the Winworld and every time I’m in front of the PC I look forward to get home to my Mac…