Dow Going Bankrupt?

I occasionally scan the Dow Jones – which of course is not a big job as there are only 30 stocks but as I scanned today it crossed my mind that it could be a much faster task in a while because what I saw was not pretty and there could be fewer to scan in the coming months.

I am talking here of looking at history by way of the chart and there is nothing illuminating in that but some thoughts crossed my mind but before I share these with you let me identify six stocks that caught my eye as being in danger of falling over:

None of these names will come as a major surprise to you as they have been on the scare headlines for many months – and with good reason.

Let's look at just two of them. Firstly AIG:

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From over US$100 to 43 cents?

And secondly Citigroup:

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A less spectacular fall from grace – almost US$60 to about a dollar.

Again I do not wish to be alarmist but 20% of the DOW look like they need to technically fall off the perch. If they were a minor stock in say the S&P or the Australian All Ordinaries – that is exactly what would happen.

I say ‘need to’ as that is what should happen. But the ramifications for the USA economy – and the world economy - of even one going bust - are ginormous – yes a modern but maybe fringe English word. I could take you through the 'wheres' and 'whys' but maybe if you accept for the moment that is the case.

But I was also contemplating what would happen if any did fall over? This would require an overhaul of the Dow Jones 30 – something which is not done lightly. But I also pondered: are they not already dishonoured? There are real reasons why they have slipped into disgrace. So do they deserve to be in this leading 30 of USA and global stocks?

I am starting to form some views about the way ahead for equities but these thoughts are not ready for hatching yet but I can still see more turbulence ahead and this will entail surprises – such as restructuring of the DOW?

But there will be some good news at some point and I am going to do my darndest to unearth it - maybe even in the coming weeks.

PS: I wrote this article independent of JJ’s - before I read JJs – interesting how we both felt the need to at least look at what is happening with the DOW and contemplate the future – and what you have finished up is two very different and independent views – just more food for thought!!

Enjoy the ride

Tom Scollon
Chief Analyst