Consolidation in Coming Fresh Capital Scarcity ~ The Risk Averse Alert

Thursday, April 28, 2011

Consolidation in Coming Fresh Capital Scarcity

Two things apparently are being accomplished in conjunction with completion of the final leg of the market's counter-trend rally off March '09 bottom. Both combine to project a negative turn upcoming...


First, in the aggregate capital continues being raised in equity markets, slowly but surely, rather than spread across a broadening swath of listed-issues. This the NYSE 52-week high-low differential has been consistently revealing over the past six months in particular.

Yet as this weak underlying condition persists amidst a rising market, circumstance allowing for acquisition of relatively cheaper put option protection also is being effected...


Considering a decades-and-running drive toward radical consolidation of physical capacity providing goods and services of every type — this facilitated by the creation of a monstrous mountain of mis-priced risk — here at a point where continuation of this scheme is no longer possible (due to collapse of the shadow banking system and its infinite multiplier), the former, marginally disruptive manifestation of this drive toward consolidation now is on course to occurring with increasingly chaotic consequence. Yet the role equities likely will play in this should be no different than in 2008, namely as battering rams forcing capacity consolidation at panic-driven prices.

Judging by recent months' relative increase in put option demand at a time when it is as clear as day stocks are not being accumulated, what is being effected rather appears an effort to strengthen the floor under the market, that upcoming weakness might afford opportunity to gain the desired objective — capacity consolidation — in a climate conducive to amassing capital necessary to getting the job done. Of course, any floor's strengthening will require bolstering on the way down. As has been previously suggested (it has been a while, though) a put-call ratio of 2-1 or more likely will coincide with future efforts at putting a solid floor under the market.

If there is a forest not to be lost for the trees, it is movement toward creation of multi-national conglomerates capable of holding even sovereign governments hostage. The extent to which this arrangement's capacity as such has been demonstrated since 2008, particularly in the financial sector, is unprecedented. This trend is no anomaly. Rather, it is intended. Its wildcat effect on aggregate financial fortunes — via bouts of extraordinary boom and bust — appears of less material concern than is the ultimate objective of consolidating resources and physical capacity over these, increasing virtual slavery of an absolute majority of trusting bystanders sold for decades on the wonders of the free market.

Any honest assessment of the post-Bretton Woods period logically would reach this conclusion, particularly following the past few years. Rampant fraud exposed at every layer of the trans-Atlantic financial system likewise provides ample evidence suggesting the low man on the capital structure totem pole — equity — might as well be toilet paper.

What are becoming obvious conclusions, then, about the present, dire moment in the life of Adam Smith's leveraged Ponzi scheme suggest that, Glass-Steagall reform of the U.S. and global banking system could be poured forth sooner than President Spongebob seems built to absorb. Think about it. Restructuring — whether half-baked or well-done — is a likely phase 2 financial crisis upcoming candidate. Might this be what those raising capital and increasing protection likewise are seeing?

Fast Money
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