Can the market sustain the loss of three different props in a period of 36 hours: the high watermark of inversion, a government-mandated stoppage of consolidation in an industry, and the end of hostile takeovers? Can it avoid getting crushed?
Think about it. This stock market's been punctuated by a couple of trends that truly had the bears on the run: takeovers and financial engineering of all kinds.
But in the last 36 hours, we have seen Walgreens (WAG) just say no to a foreign tax regime that would have really helped its shareholders even as it is a real acquirer of a foreign company. We have seen Twenty-First Century Fox (FOXA) walk away from a deal that might have been won if it had raised its bid at least once. We have seen Sprint (S) abandon its bid for T-Mobile (TMUS) ostensibly because the Justice Department's antitrust division, after blessing so many consolidating deals, seems to have, once again, blocked one in telco.
These are all occurring within the backdrop of Sandy Cutler, the CEO of Eaton (ETN), saying that inversion madness has gotten out of hand -- which is saying something, because his Cleveland company has a Dublin address. And David Pyatt from Allergan (AGN) starting to put some real points on the board with Valeant (VRX), his hostile pursuer, by tearing down Valeant and questioning its ethics and the legality of its moves.
Now, if we didn't have Russia in there not abiding by any international law, just a state gone rogue, I think we would be hit pretty badly anyway. Last I looked though, there's nothing good happening there. So today's an interesting test day for markets' strength.
In the old days the losses in the arbitrage community from not one but two busted deals would be enough to cascade down. In this case, both these deals were filled not only with arb money, but with hot money.
And while Time-Warner (TWX) wasn't willing to negotiate, it wasn't playing the anti-trust card. It simply wanted to tell Murdoch that Jeff Bewkes could do a better job getting this stock to $100 and beyond -- where Murdoch couldn't pay without basically giving his company up to Time Warner. The total reversal without further effort was pretty stunning, and we know caught many off guard.
Sprint, on the other hand, had been going down for weeks as the speculation grew that T-Mobile just wasn't going to be had. T-Mobile is in the cross-hairs of others, so it isn't like that one's going to plummet. It just seems more pertinent to the bull that a Justice Department that has blessed massive consolidation in the rental car and airline businesses would stick by its mantra of caring about the public when it comes to telephone bills.
The shocking -- and I think it is shocking -- news that Walgreens isn't going to bow to the wishes of its shareholders, including some big activist funds, may already be in the market. The stock took a hit yesterday as word got out that it would not use the Alliance Boots deal to invest. But if a couple of those activists, namely Jana, do hit the eject button, then this one's not done going down.
Did the President's comments that he doesn't care if it is legal, it's wrong, play a role? What I think matters is that the one company with real creed to invert because it has made a real, bricks-and-mortar acquisition, not a mail drop one, is saying no to the tax benefits, meaning that something's changed and the rest who pursue this technique must pause.
All in all, some real negative developments, all going against a backdrop of an oversold market that has been avoiding positive earnings news like Disney's (DIS) numbers or great restructurings like Gannett's (GCI), for a full week now.