Perspectives

The DOW

The Dow Jones Industrial Averages is the oldest market index and widely followed. It only holds 30 companies that represent a cross section of the US economy. The DOW has removed the last standing member of the original 1896 companies – GE.

GE was founded by Thomas Edison and JP Morgan.  GE will be broken up over the next few years, another victim of financial engineering.

GE makes real things in the US like diesel-electric locomotives, jet engines, and power-plant turbines.  It will be replaced with Walgreens which in my opinion better represents the US economy today. So it is a perfect fit.

A perfect fit

Walgreens sells imported drugs, Chinese-made plastic stuff and packaged junk food. A perfect fit.

Walgreens is loaded with 1.8 billion in cash.  It is also loaded with 15 billion in debt.  A perfect fit.

After subtracting fantasy assets (goodwill and intangible) Walgreens has negative equity (assets minus liabilities).  A perfect fit.

So it makes sense Walgreens board of directors just approved 10 billion in buybacks that will have to be borrowed and should drive their credit rating from BBB to junk in no time.  A perfect fit.

Walgreens will be decimated by Amazon as they move into everything. A perfect fit. (BTW, Amazon is not in the DOW).

What does this mean to your investments

If you haven’t already, see TSP Charts: A Prelude to understand more about my opinion of how GE represents the future of the US stock market. You really need to understand this if you are invested today.

As for the DOW, what were they thinking.

 


TSP & Vanguard Smart Investors

Categories: Perspectives