It's not a full blown marriage yet! Let's call this an engagement dance, shall we? Remember that merger announcements are only ANNOUNCEMENTS! Phelps Dodge itself was a party to two uncompleted merger deals this summer. Brides everywhere know that nothing is set in stone until the ceremony at the altar is over. Along the way, there are anti-trust issues and many other problems that can derail the process. Even though 2006 has been the record year for global mergers and acquisitions by asset size, every announced deal has the potential to fall through.

Here are more caveats: the timing of the deal is very suspect. Why would Freeport-McMoRan wish to become the world's leading copper producer when global supply currently outstrips demand? Freeport's stock did not receive much consideration from investors, which is also a concern as most mutually beneficial mergers experience the same interest in both company stocks. Phelps Dodge investors are delighted, but if Phelps decides to break the deal they have to pay over $750,000 in penalties. Imagine that!

The monkeys are everywhere!
I didn't have to look far to see the impact of the merger. Mining industry stocks are not avidly followed in the United States, but the results were evident in the Canadian markets. Many junior mining stocks experienced a surge for no apparent reason except that they suddenly got labeled as potential buy-out targets! Junior miners like HudBay Minerals (TSX:HBM.TO), Aur Resources, Inc. (TSX:AUR.TO), and First Quantum Minerals (TSX:FM.TO) were all up 7.5%, 10% and 5.2% respectively. In the case of Aur Resources, trading activity was almost twice the average daily volume. Even Inmet Mining (TSX:IMN) rose 7.39% on news of the deal alone.

The day painted a picture reminiscent of the tech bubble heyday, where if one particular company makes a newsworthy deal, every related industry stock enjoys the same re-evaluation upwards or downwards. This re-evaluation was ultimately fueled by emotion rather than logic. You may argue that investors are merely looking to be the first to take advantage of such activities for profit, but greedy behavior often yields its own punishment. Last week's PS3 launch was a staunch reminder of what happens in a mob -- where people were shot at, and trampled upon by other human beings in a quest to be first.

Bottom line, you're taking on much more risk than necessary to enjoy marginal gains. How would it help to profit by owning "potential" when there's no substance? I can see the point of existing shareholders strategically liquidating their holdings to take advantage of this irrational market reaction, but who are the monkeys that are buying this stuff? Shares simply can't exchange hands if there are no buyers for the sellers! And the guilty monkeys include market makers, institutional and public mutual fund managers and you! Actions on top of speculations!

The monkeys are doing because they are seeing.
It doesn't help that the merger news was reported in every media channel -- Internet, newspaper, television and radio. Investors hear the price tag of $26 billion and immediately equate the enormity of the figure with opportunity. For all the grief I give Jim Cramer, he seems to agree with me on this event. I would rather hear a story where companies are acquired by others for pennies on the book-value dollar, but those will never make the news. A monkeys cannot copy what it can't see, but a human is supposed to be a sentient being capable of conscious independent thought. Let's act like one!

Vince Chan editorializes about investment / financial media at Investorial.com and is also a contributor for GuruWatch.org and InvestorGeeks.com.