Those failures followed a decade of easy borrowing whose collapse left wounds to U.S. household net worth of some $13 trillion. Those will take years to heal but the GM failure seems analogous to the first step in a “Twelve Step” recovery program in which an addict admits an unmanageable life.

One immediate short-term impact will come from the substitution of Cisco Systems (CSCO-$19 on 6/2) and Travelers (TRV-$42) for GM and the almost equally hapless Citigroup (C-$4) in the much-watched Dow Jones Industrial Average. Unlike the weighted S&P 500 average, the Dow is an arithmetic average, thus the more probable higher numerical gains in the newcomers will assist the Dow in upward moves.

The Dow has a long history, begun by Charles Dow in 1896 with a list of 12 stocks of which only General Electric (GE-$14) remains as a member of the original cast. The Wall Street Journal makes these calls, having blackballed through the years such lost souls as National Lead and the U.S Leather Company.
As I write, the Dow still needs only about 40 more points to join the S&P 500 in positive ground for 2009. That should come soon along with the predictable jabbering on the financial channels. Momentum is important and I would not be surprised to see this wave continue through 10,000 by yearend.

With Gross National Product contracting to a negative 6% only a few months ago, it seems questionable that GNP can recover to positive figures by yearend. That would leave stocks ahead of the economic recovery but a pause rather than another panic seems the more probable outcome.

One highly probable outcome is an increase in energy prices. The energy stocks recommended in last week’s column are all up as oil prices moved above $65 a barrel.  Although the global economic recovery will continue to be irregular, it is rebuilding demand for energy, particularly from the developing world. Oil prices are still pegged in dollars and U.S. deficits will inevitably soften the dollar, further boosting oil prices.

The supply of more easily recoverable oil and gas is finite and exploration companies will prosper, particularly once the big producers hasten to revive their outputs. Noble (NE-$37), the offshore driller recommended last week at $31 is still reasonably valued with a forward P/E ratio of only 6. XTO (XTO-$44), Occidental (OXY-$59), Statoil (STO-$22) and Permian Basin (PBT-$12, among others, continue their growth.

Oil seems headed for $75 a barrel, a move that would take pump prices back to three dollars. This will not help struggling retailers. Stock of Wal-Mart (WMT-$51) is old merchandise with only minor growth ahead this year. Target (TGT-$42) looks just a bit better and Costco (COST-$50) is always pinched on its gas sales when oil prices go up.

Amazon.com (AMZN-$84) has a 5-year 29% sales growth rate, more than the combined rates of all three of those much larger traditional retail chains. It’s an expensive stock with a P/E ratio nearly 50 on estimated 2009 earnings of $1.63. But it’s unique. In an age where everyone seems to seek individuality at all costs, its very active customer reviews draw millions of participants.

Having gone well beyond books, Amazon offers the world’s largest selection of electronic and general merchandise. It is innovative and strives to be the most customer-centered company in the world. These concepts were foreign to the old General Motors and we must hope that new GM may profit from its example. After all, as taxpayers, we own 60% of GM. That rescue cost $50 billion and the other stocks listed here are better bets. Still, it helped save an economy.
I plan to skip this column next week while I’m on the East Coast.