Good things can happen, too. That pretty much sums up what this rally's about, and it's worth pulling apart each bit of good news, because most of the news is behind the scenes and can't be spotted by just looking at the common stocks.
First and foremost, we have to recognize that there were a couple of stressed out stocks in this country that have been the most visible black holes out there: Freeport-McMoRan (FCX) and Chesapeake (CHK).
Chesapeake has $500 million in debt that comes due next month. The chatter had been that the company had hired advisers to potentially file for reorganization and perhaps default on that bond. Instead, the company committed to paying it out of cash on hand and its credit line. It also committed to paying the $1 billion in debt due for next year, perhaps out of asset sales. It does have some high-quality assets, so anything's possible.
Second, Freeport-McMoRan sold a relatively small part of its high-quality Morenci copper mine to Sumitomo Metal Mining, for $1 billion in cash. The 13% stake buys Freeport to unload other assets to reduce its gigantic $19 billion-plus debt load.
Third, the high yield market's been plagued by the decline in Sprint (S) bonds. But yesterday Softbank, Sprint's owner, announced a gigantic buyback of $4.4 billion, or 14.2% of the company. If Softbank has the money to buy back stock, then certainly it has money to throw at Sprint to help save the deepening decline in that company's fortunes and ability to stay competitive with Verizon (VZ), AT&T (T) and T-Mobile (TMUS). I know the common stock jumped on the news, but it's really all about the credit side of the ledger.
Fourth, the oil and gas pipeline business has been sucking capital out of this market left and right. That's why when you read that Warren Buffett, whose company, Berkshire Hathaway (BRK.A; BRK.B), knows pipelines, bought 26.53 million shares of Kinder Morgan (KMI) in the open market, you have to be heartened. Kinder, which slashed its dividend by 75%, is now the first company that has cut its dividend that has seen its share price increase above the cut.
Fifth, speaking of boosts in shares caused by hedge fund buying, the news that Dave Tepper's Appaloosa fund picked up 5.1 million shares of Action Alerts PLUS charity portfolio holding Energy Transfer Partners (ETP) last quarter after its critical breakdown because of its affiliate's dangerous buy of Williams Cos was encouraging.
The latter deal's one of the blackest of holes out there, because many feel Energy Transfer Equity can't afford to close the transaction and will therefore hurt ETP, its drop-down master limited partnership which has a 15% yield. Tepper, whom I worked with in the 1980s at Goldman Sachs, knows a thing or two about distressed securities. I think he's the best at them.
Sixth, we had been worried that the takeover game is over. But Apollo Group, sensing some real value, yesterday launched a $7 billion bid for beleaguered ADT (ADT), which had been declining for months now on sagging sales for its home security products. It had become a perma-short. Obviously, that's no longer the case.
This deal comes on the heels of Apollo's management-led buyout of the bedraggled Apollo Education Group, which had been another perma-short, for $1.1 billion. The deal for the owner of University of Phoenix Online is being contested by other holders, so maybe there is a higher bid coming.
Seventh, everyone's been worried about Glencore (GLNCY), the giant copper producer and commodity trader with $30 billion in debt. But a consortium of 37 bankers isn't all that worried. Why else extend a gigantic $8.45 billion credit line to the company? Maybe the banks think that copper has bottomed, or maybe they are just throwing good money after bad, but it sure helps buy time. Oh, meanwhile Icahn keeps buying more stock, picking up four million shares at year's end.
Eighth, speaking of Icahn, many shorts had been pressing down on Cheniere Energy (LNG). But not Icahn, who bought more than 4.0 million shares of the company that is soon to be exporting gigantic amounts of liquefied natural gas at prices that seem very excessive, given today's weak market. There are contracts that Cheniere will do its best to enforce to get paid, but right now the price is certainly not right for any of the takers.
Nine, the iron ore market's been rivaling the oil market for the worst commodity pricing decline in the world, down from $200 per ton to $40 per ton in five years' time as Vale (VALE), BHP (BHP) and Rio Tinto (RIO) go nuts in producing the stuff while China, the natural buyer, seems to be taking less and less of it by the month.
These three seemed to be engaged in some sort of bizarre suicide pact. But maybe they aren't so stupid as Anglo American (NGLOY), which having recently spent $14 billion on a Brazilian iron ore project, is leaving the market. That will cause an immediate boost to the price of this ore, which had threatened the solvency of Vale and brought all of the metals companies down.
Ten, I cannot tell you how many people I talked to over the last week who thought that when China opened for trading there would be a huge decline. But the Chinese government has opened the convertible market as a way to raise money and cash starved companies are tapping the market aggressively. It seems a short-term solution to an overwhelming issue. However, it was a sign of a pulse.
Eleven, there are so many lowly stocks that seem to have no hope out there, including Groupon (GRPN), the flotsam and jetsam internet company that it's been too early to buy for ages. Suddenly, we get a one-two punch of an earnings surprise and a 5.6% stake taken by Alibaba (BABA). What's Alibaba's design? Who cares. The stock's now up more than 32% for the year. Another perma-short spoiled. Who knows, maybe Zynga's (ZNGA) next!
Twelve, we have been watching Apple's (AAPL) stock fall for months. It turns out one of Apple's largest shareholders, Carl Icahn, had sold seven million shares of the "No-Brainer" story, still leaving him with 45 million shares, but certainly sending a chill to the brokers that handled the orders. Another owner though, Apple itself, seems to have an insatiable appetite and just issued $12 billion in bonds to buy back stock. The last two times Apple came to the market, the stock sailed. Maybe this time it's no different, especially as we get closer and closer to the iPhone 7 launch, something that Lowell McAdam, the CEO of Verizon, told me recently would be a gigantic deal.
Finally, lucky 13: Amid all the hubbub of potential bank failures in Europe, can you imagine Credit Agricole announcing that it is selling stakes in some of its subsidiaries that will enable it to pay an all-cash dividend? Coming right after the news about Deutsche Bank (DB) willing to buy back its bonds in the open market, let's just say that's mighty assuring, especially when the ECB central bank seems to know all and is ready to bailout any institution needing the capital.
Now, to be sure, all of these changes, every single one of them, is just a time buyer. There are no real trends here, except that good things can and do happen to stressed out situations. When they happen this close together, though, the impact is mighty because the shorts, who have had a field day in 2016, suddenly feel that maybe they have overstayed their welcome.
That's what happens when you get too greedy. Remember, bulls make money, bears make money, but pigs get slaughtered.