There is a change in the 30 components of Dow Jones Industrial index as Bank of America, Hewitt Packard and Alcoa come off and Goldman, Nike and Visa are the new blue chips crowned in all their new glory. It is a change that represents our time and how we live. Alcoa the mighty producer of aluminum was always the first to report and represented the coming of age of the American Industrial power, earlier in the last century. From Carnegie’s huge new furnaces that first introduced the world to mass produced steel at an economical rate, that gave rise to the modern vertical city; to the likes of Alcoa that showed that human ingenuity can convert earth’s abundant resources for the use and upliftment of the masses, America was in ascendance and by the end of the second world war; was an industrial power house producing more that 50% of the world’s output of steel, oil, aluminum and other goods. We say goodbye to an era of industrial production and the age of the greatest generation that built it, which changed the way we live forever.
Goldman and Bank of America were on the two sides of the last crisis. BoFA had made a huge bet by acquiring Countrywide Financial at the peak of the mortgage boom, looking at its huge profits and growing revenues. Goldman however correctly analyzed that this was a house of cards; that would soon come tumbling down and bet heavily against the boom to continue foreve,r and may have even been the bad wolf who helped blow it down. There are always two sides to a trade and BoFA with its long history suddenly found itself at the wrong end of the calculation and lost. Greed and wealth know no limits and the big financial institutions continue to grow, and without the constraints of equality and a sense of fairness; will continue to increase the gap between the top 1% and the bottom 80%. The poor home owner got no respite, and billions went to feather penthouses of the billionaires; who did not really need it. The working families will continue to strive to carry the burden of over inflated houses from the bubble for their life; and the Goldman’s will make their storied bets on their ability to do so, in interest rate swaps and derivatives and instruments so complex, that a sane man would be hard put to understand the jargon. Suffice it to say the Goldman will continue to make huge bets for and against its customer base for the benefit of itself and its millionaire’s club. Welcome the latest member to this exclusive club as it has brought panache and refinement to this august institution. I am sad to say that in this case us poor piggys have lost the American dream, and the big bad wolf has been crowned a prince of the castle.
The replacement of Alcoa by Nike is a true changing of the guard. While Alcoa invested heavily in America and heavy industry and remains an industrial power house till this day; in the case of Nike it is the new globalization, and innovation that made it a leader. They have harnessed all the modern forces of production worldwide, and become a leader in their field. Their advertisements with the simple swoosh; have been iconic and with the birth of a super star in basketball Nike Air and Michael Jordan, rose to new heights. I remember seeing the huge modern factories in China; where the shoes were rolled out to the millions. The best brains designed the footwear in America and then developed the best assembly line processes invented by Henry Ford and refined it, into the modern consumer goods built by cheap labor, flooding the coastal cities of emergent China. Super power America brought the latest technology and methods of production; to an old and communist China, and our world changed for the better. Inner city kids killed each other for the expensive designs and the hype from the modern advertising machines. After all America does spend more on advertising than on education and many other human services. For inner city kids struggling without role models; and with the breakdown in their education system and society at large, the high top air from Nike was the ultimate status symbol and Jordan was a star, who they could all strive to be.
The saddest perhaps is the turning away of the company that started in the iconic garage and which later grew, into the new world known today as Silicon Valley. This was the ultimate representation of the pioneering spirit and the innovation that America has represented to the world. Here two young kids got together and started an entrepreneurship that truly revolutionized the world at large like nothing before them. The information age was transformed forever by their tinkering around; and the modern age that we take for granted, would not have been possible today without their efforts. With the demise of the personal computer they are off the prestigious list; but what a ride it was and how many modern marvels have come about, because of this one single company. We owe them a great debt for while the giant corporations plodded on in their set ways; it was HP that opened up the West into a new gold rush and drew the best and the brightest, from around the globe to become pioneers in new fields. Here the wildest ideas were tried out and venture capitalist’s funded bizarre schemes and who cared if you failed, as you could always move on to the next great idea. It goes to show that opportunity and hope are still the wild horses that the cowboys of old rode, and we should never give up on change. Even today while the world may has many divisions; it is still an open range for ideas and innovation to spread like wildfire, toppling age old regimes and loosening fanatical societies, with the tiny message from the air of common men, sharing new age ideals. Change is coming and the Dow and all else are only reflecting, what our spirit has brought about, in the continued pursuit of happiness.
The rise of Visa is a new chapter in modern commerce of catering to individual customers across a large geography; probably started with a railway clerk discovering that the new railroads were ideal for distributing goods, across the vast growing lands. Sears Roebuck catalogs became the prized possession of many people; across the Wild West, as their only connection to goods being produced in the huge factories, rising in the new cities. No longer did you have to wait for a wagon trail to come by and barter and trade for goods and tools, and could select an item from a vast catalog and then just wait for it to be delivered like magic through the railroads. The only credit that existed before that was the local merchant extending it to you; as he knew where you lived, and what you did. It was a cash economy and you worked hard and saved and paid for goods or service, up front.
With the return of the greatest generation from the second world war; there were suddenly fifty million people building homes, townships, suburbs and consumption shot up as the war machines turned to become purveyors of Fridges, air conditioners, TVs, and of course the love of the open road in the automobile. Where just 50 years ago the credit card was issued only to the rich; it soon became ubiquitous, and within a few decades trillions of dollars are being spent using plastic card with a strip of information. The baby boomers exploded into an era of unprecedented wealth building and development, which has never before been witnessed on this earth. The credit simplification has allowed the growth of modern commerce, and Visa has been at the forefront of this new revolution. Today it is such an acceptable way of paying for goods and services that the growing eCommerce new world; would not have been possible, without it. Now faceless consumers buy from faceless suppliers; and a few bits exchanged over the internet, allow any consumer to live like a king. The growth of Visa and credit fuel the largest economic engines ever built; and globalization itself would not be possible, without it. I am; so I consume, and hence my credit goes up. This little plastic has truly become my visa to the whole world; to enjoy with all my senses, anything that is available, for my consumption and pay for it later. Dante’s inferno beckons us and we romp happily in Sodom and Gomorrah, as if there is no tomorrow!
The dow index is actually quite absurd and illogical. It is just an arithmetic average of all the share prices. A share price with high price has an unduly high weight age regardless of the size of the company.if a company was to give a bonus or a stock split the dow would fall.
The indian stock market indices, which were earlier based on market cap, are now based on free float market cap. Thus a larger company has a higher weightage compared to a smaller one.
The reshuffling of the constituents of dow reflect the shift of importance of different industrial segments. If i recollect correctly, only one or two companies have managed to retain their place since inception.
You are absolutely correct that the Dow is an index of very selective blue chip stocks, and does not truly reflect the US markets. It leaves out high priced stocks like Apple, Google and Berkshire for that reason and was probably one of the reasons that the lowly priced Alcoa at $ 8 was dropped. The S & P 500 is a much better barometer of the larger market and the NASDAQ of its components. GE is one of the few who have stood the test of time and stayed in the Dow from inception, and the others continue to change annually. Lastly it is no longer an industrial average as the components have changed to reflect the changing economies,as other sectors have grown.
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