Major Dow changes speak volumes to Cramer
Three of the 30 companies that make up the Dow Jones Industrial Average just got the boot; to be replaced by a trio of others. Cramer says the comings and goings are telling.
Founded by Charles Dow in 1896, the 'Dow index' is made up of so-called blue chip companies with the average intended to provide a broad measure of activity in the US stock market.
Over the decades companies have been replaced with somewhat frequency however the last time the Dow committee switched three stocks at the same time was April of 2004.
Looking at the specific changes just made, the committee that oversees the index dropped Bank of America, Alcoa and Hewlett-Packard. The committee replaced those stocks with Nike, Visa and Goldman Sachs.
"I think these changes tell a huge tale about where corporate America is today," Cramer said.
"By dumping Alcoa they are eliminating a worldwide manufacturer of one of the most important raw materials in the world: aluminum," Cramer noted. "In its place? Sneakers! To me, that shows you the importance of the switch from heavy industrials to light apparel."
Looking at Hewlett Packard, Cramer thinks developments speak more to the fate of the personal computer than technology in general.
"I think that because one of the replacements, Visa, isn't a financial, it's a technology company that's helping to move payments from paper to plastic all over the world. Once again, you have a subtle judgment about America."
Looking at Bank of America, Cramer thinks the decision to replace this stock is almost ironic.
"Bank of America is often thought of as the company that stumbled worst over mortgages during the housing crisis," Cramer explained. "Goldman's legacy during that time was shorting precisely the kind of paper that Bank of America was pumping out. Also, Bank of America is a huge consumer bank. Goldman shuns that business. And Bank of America has had a huge inventory of foreclosed homes on its books. Goldman Sachs doesn't even do mortgages and hates credit risk. One's certainly the old America, the other is the new."
All told, Cramer believes Dow Jones reshuffling makes a big statement.
"We're no longer a nation known for making personal computers or bending metal. We don't want to be a nation notorious for horrendous mortgage lending. What could be a more powerful declaration of the new America than the inclusion of two financial engineers and a company that makes sneakers!"
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It should be noted that the changes outlined above will go into effect the morning of trading Sept. 23.
And in a published report, David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices cautioned investors not to view the changes as a judgment on whether these companies are worthy of investment. "There's no intention to pick winners by any means," he said.
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