End of an Era

At least for GE

GE Stock Kicked Out Of Dow Jones; Walgreens Added

General Electric (GE) is poised to get booted from the Dow Jones industrial average. GE stock is the last original Dow Jones member. Walgreens Boots Alliance (WBA) will replace GE on the Dow Jones index starting June 26. 

The industrial conglomerate has struggled for years with sluggish or declining earnings and sales, slashing its dividend in half in late 2017. A number of restructurings and divestitures have failed to revive GE's fortunes.

 GE Kicked Out Of The Dow

GE simply doesn’t make up much of the Dow. The stock closed today at $12.99. That means it makes up about 100 points in the Dow, which is currently at 24,700. The average Dow stock makes up over 800 points in the index. 

GE has been a Dow member for over 110 years. On November 7, 1907, General Electric replaced Tennessee Coal, Iron and Railroad Company in the Dow. GE was an original Dow stock in 1896 but it was dropped in 1898, added back in 1899, then dropped again 1901 and added back in 1907. 

I find it interesting that many dystopian movies feature powerful corporations (Pan-Am in 2001 or Atari in Blade Runner). In reality, these organizations come and go faster than you think. 

The current Dow divisor is 0.14523396877348. That means every $1 in a Dow stock is about seven Dow points. The divisor will now be adjusted for WBA. Here’s the GE chart going back 56 years:

DYI:  As with many companies of this size once debt began to loose its mojo [law of diminishing returns] in pushing world wide GDP growth GE hit the wall like so many other companies at the year 2000 secular market top.  From that point on without Federal government debt there would have been continuous economic contraction [since year 2000] not just here in the States but world wide.

What Dow 20,000 looks like in inflation-

adjusted terms

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DYI:  The chart above is just a little out of date was last updated on 2/11/17 nevertheless this illustrates how stocks have not gone anywhere of substance since 1982 - 2000 bull market.  If this chart was updated the Dow would have made a new high but nothing of substance comparing to the time it took to achieve.  U.S. stocks have entered into a double secular top without tracing back to its secular bottom first.

Average annual inflation over these 100 years is 3.1 percent. Adjusting for this, and measuring in constant end-of-1916 dollars, 20,069 on the DJIA becomes 964. Compared to a level of 95 as of Dec. 31, 1916, the DJIA in real terms has increased about 10 times. Still very impressive, but quite different from the nominal picture. The average annual real price increase of the DJIA is 2.3 percent for the 100 years up to yesterday.Growth rates of 2 percent, let alone 3 percent, extended over a century do remarkable things.

DYI:  Here is where the major asset categories line up in regards to valuation and sentiment.

Market Sentiment

Smart Money buys aggressively!
Capitulation
Despondency
Max-Pessimism *Market Bottoms* Short Term Bonds
Depression MMF
Hope Gold
Relief *Market returns to Mean* 

Smart Money buys the Dips!
Optimism
Media Attention
Enthusiasm

Smart Money - Sells the Rallies!
Thrill
Greed
Delusional
Max-Optimism *Market Tops* U.S. Stocks
Denial of Problem Long Term Bonds
Anxiety
Fear
Desperation

Smart Money Buys Aggressively!
Capitulation

DYI:  However some of my followers of this blog will only invest in the sentiment/valuation undervalue category and simply ignore or sell into the overvalued areas of the market.  I find no fault with this approach.  Will it outperform the market?  I don't know?  Maybe yes; maybe no; but would most definitely need to be compared over long time periods of 20 plus years.

Other investors have taken a hybrid approach using the model portfolio but only begin purchasing when our 3 main asset categories drop below their respective means thus only purchasing in the classical sense of a bargain.  At that point they use our formulas to determine the percentage.  At points overvalued they use our formulas for liquidation.

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 6/1/18

Active Allocation Bands (excluding cash) 0% to 50%

66% - Cash -Short Term Bond Index - VBIRX

29% -Gold- Precious Metals & Mining - VGPMX

 5% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

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DYI

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