When people say the animal spirits are unleashed you have to respect those spirits or else you get run over by a speeding locomotive.
Yesterday was supposed to be a just OK day for the rails as CSX reported a good, not great number that talked, as always, about cost cuts and furloughs and, yes, domestic coal being down.
Considering that the stock had run from $28 to $38 in six months, including a six-point Trump bump, it wasn't too shabby that the stock was only down a dollar and change, aided by the fact that 80 percent of their volumes were neutral or positive year and a call they made about the industrial economy stabilizing and a "healthier volume environment."
But then all hell broke loose after the close when Canadian Pacific Railway (CP) CEO Hunter Harrison abruptly quit his job and let it be known that he is in advanced talks with a former Pershing Square partner Paul Hilal to perhaps pursue a bid for CSX. Hilal ran the portion of the Pershing Square fund that had a gigantic stake in CP not that long ago. Harrison had been installed by Pershing to run CP about five years ago.
At the same time, CP named Keith Creel its new CEO -- someone the company regarded in its release as being the CEO in waiting -- and he immediately made comments about how consolidation in the industry is inevitable.
The oddest twist? In the CP release, the company wrote: "Mr. Harrison had approached the Board to discuss his retirement from CP and potential related modifications to his employment arrangements that would allow him to pursue opportunities involving other class one railroads, " and because of that request he was asked to leave immediately.
In other words, CP could have said that it wanted to consolidate with other rails-it tried back in November of 2015 to buy Norfolk Southern for about $2 billion less than it is now currently selling for, but at the time represented a substantial premium and it failed. Or, it seems, it could just let him go to work on the merger.
Next thing you know, on the strength of these announcements, CSX's stock breaks out of the $30s and trades to almost $42, a monumental four-point move that would have required months of good cargo numbers to get to.
The stock of Union Pacific, which reports this morning, jumps three.
And craziest of all, Norfolk Southern, which, remember, rejected the CP bid from November of 2015, bolts five points!
What's this have to do with animal spirits? Frankly, with details so sketchy, with press releases and whispers flying around, I would have sold all three of these stocks. They are way too expensive on the numbers and they have no inclination -- or have expressed none in the past -- to merge.
But it didn't matter.
The buyers went nuts anyway.
Yes, it is that kind of market. A bull market. And while this was pure froth last night, all I could think of is that there's someone short these rails and at that very moment those undisciplined shorts were trying to recover their stock. I know hope can spring eternal, but sometimes there is too much hope, like the hope of a speeding takeover release running over your position.
To me, they are sells. But the fact that they could move like this on these pieces of news? That's the real story.