By Russ Certo, head of rates at Gleacher

A Walk In The Park

The life of man upon earth is a warfare… Job 7:1



Let them call me rebel and welcome, I feel no concern from it; but I should suffer the misery of devils, were I to make a whore of my soul Thomas Paine



Be not deceived. Revolutions do not go backward. Abe Lincoln, May 19, 1856



We will either find a way or make one…Hannibal



Where the people fear the government you have tyranny. Where the government fears the people you have liberty.

John Basil Barnhill (1914).



I am not the friend of a very energetic Government. It is always oppressive. Thomas Jefferson



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Excerpts from “Rules for Radicals” Saul Alinsky 1971

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The first radical known to man who rebelled against the establishment and did it so effectively that he at least won his own kingdom-Lucifer Saul Alinsky (A.K.A SA)



The organizer is constantly creating the new out of the old. He knows that all new ideas arise from conflict… SA



This is the job of today’s radical-to fan the embers of hopelessness into a flame to fight… SA



A Marxist begins with his prime truth that all evils are caused by the exploitation of the proletariat by the capitalists… SA



Change means movement. Movement means friction. SA



In the Declaration of Independence, the Bill of Particulars attesting to the reasons colonists felt that England had been guilty of, but listed none of the benefits… SA



Compromise is a word that carries shades of weakness, vacillation, betrayal of ideals, and surrender of moral principles. SA



Change comes from power and power comes from organization. SA



The first step or organization is community dis-organization; fan the latent hostilities of many of the people; search out controversy; stir up dissatisfaction. SA



The target should be the banks that serve the steel, auto, and other industries… SA



Fat cat bankers…. SA



We must begin with where we are if we are to build power for change, and the power and the people are in the big middle-class majority… SA

Any organizer knows, as a particular tactic grows out of the rules and principles of revolution… SA





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Alinsky’s techniques and teachings influenced generations of community and labor organizations, including the church-based group hiring a young (Barack) Obama to work on Chicago’s South Side in the 1980s…

Chicago Sun-Times on the cover of “Rules for Radicals”

http://www.amazon.com/Rules-Radicals-Saul-Alinsky/dp/0679721134#reader_…;



Millionaires and billionaires….BHO





If you’re on the cover of a best seller, you have a responsibility. Last Thursday I walked from Town Hall in N.Y.C to Wall St. wearing my navy blue pin-stripped suit, asking for directions to the NYSE from PROTESTERS and ORGANIZERS. You should have seen the look on their faces. Kill em with kindness and a smile.

Everyone was there. SEIU, ACORN, Longshoremen and other organizers, faceless, unemployed, faceless employed, moms, dads, and lost souls. I felt like a lost soul during a slow motion walk near frozen in time. There were almost more press corps than protestors but they achieved one of their goals, virtually shutting down a major grid of commerce in one of the most travelled corners of the nation, Wall Street. Ironically, I was on my way to a conduit in support of affordable housing goals aided by a bunch of bankers in the iconic figment of capitalism, the NYSE.

It was a surreal walk accentuated by Contrast and Conflict, my own and others For me there was a conflict of the realization of a mis-understood marriage and divorce of catalyst Congressional public policy initiatives and government sponsored support, in which I was in route meeting, and with private partner capitalist mandates of mortgage finance, me.

I’ve been asked often in my own community recently, “What is Occupy Wall St.?” I sense the answer is different for different people. A dis-organized expression for many. But a highly organized expression for others from the likes of quotes from organizers above. Caroline Baum asked demonstrators AND HERSELF the question recently. Just as I side-stepped the blitz with a silhouette of a Bull in the distance. http://www.businessweek.com/news/2011-10-06/anti-wall-street-protests-i…; An organizer?!$!$%

I ask what is a banker? Who are these evil people? Is it loan officer? FX trader, teller, IG trader, taxable fixed income salesperson, middle office operations employee?

I strongly suspect the 99% is not aware of the intimate linkages of public policy-private partnership between big government and big business in the past and in the present. Is history about to be written or rewritten? Is there a correct or accurate written history? I wonder if Boston Tea Party is described accurately? Factually accurate if there is such a thing in revolution? Who is Occupy Wall St.? Who are banks? What are liar loans? How many people’s mortgages are worth less than the value of their home (8 million). Who are your friends? Which side of the isle of Congress espouses your views? Where is the genesis and chronology of blame? Who is John Gualt?

Have 99% of the Haves or Have Nots analyzed loan data? Severities, LTVs? Some would suggest that the largest percentage (near 35%) of certain vintage loans, the worst performing otherwise known as “liar loans”, weren’t even originated by banks but by one mortgage finance company named Countrywide. How awkward. I didn’t have enough time to dissert that to man unpacking sleeping bags from the van. Was there speculation? What is a vintage?

This may lean partisan but is Main Street aware of the genesis of specific Congressional initiatives to court mortgage finance companies? Barney’s (Frank) action plan specifically targeting Countrywide to increase affordable loans? Speaker of the House, Nancy Pelosi, Senate Banking Committee Chairman Chris Dodd, Senate Budget Committee Chairman Kent Conrad, Former CEO of Fannie Mae, Jim Johnson, Secretary of HUD, Alphonso Jackson and dozens of others in Congress received off-market non-economic favorable mortgage financing from Countrywide as friends of Angelo. I am a banker on the way to try to partner and help make more affordable loans by increasing liquidity to support housing formation!#$$^#^^@. http://en.wikipedia.org/wiki/Angelo_Mozilo. Gretchen Morgenson has consistently written about these things.

Mortgage companies, Congress, HUD, Fannie. Is there an information, education, socio-economic, emotional, disconnect? Will history be documented accurately? The history of civilizations. One percent Barron’s, a periodical of money, suggest the protestors should occupy the place that’s the real SOURCE of the problem-Capital Hill. Will anyone see it that way? Should they? Does it make sense? Likely not, that is why I reflect on the Popular Delusions of Mankind and the Madness of Crowds. http://online.barrons.com/article/editorial_commentary.html.

Especially, since 2008. The Madness of Crowds by Mackay. http://www.amazon.com/Extraordinary-Popular-Delusions-Madness-Crowds/dp…;

This hasn’t been lost on Gretchen Mortgenson of the NYT. One would think that the NYT times would have certain partisan leanings. Gretchen has been steadfast in documenting the facts and genesis of the mortgage crises which I’m sure you can attest with a few search engine searches Can you discuss bank’s role in crises without partner Congress? Is that lost on the lost? This weekend Gretchen again makes the LINKAGE highlighting the 98th annual convention of the Mortgage Bankers Association. Gretchen must have been able to get a hold of the list of registrants as she lists quantity of attendees by firm. “Fannie and Freddie, still the socialites” from the NYT. http://www.nytimes.com/2011/10/16/business/fannie-mae-and-freddie-mac-s…;

Randall Forsyth in Barron’s talks about a mis-match of skills (or lack thereof) of the unemployed and those sought by employers. Isn’t this really the debate that occupies Wall St.? Is also occupies the Fed as Forsyth highlights, as did I last week in rudimentary note, that the notion that “the central bank alone cannot determine unemployment and inflation through its monetary manipulations”, according for Forsyth. One should be extremely careful in understanding the consequences of policy, particularly in light of the order (or dis-order) of the day linked to failed policies.

In case you missed my note or the Up and Down Wall St Column, the upshot is that the Fed opined in its most recent minutes released last week that it “could include specific objectives for unemployment and inflation. Nor can it do much about other structural impediments such as regulatory issues. I didn’t write this, a renowned financial author and professional did. In other words the Fed could set some targets for the jobless rate, currently stuck at 9.1%, and indicate that it can keep interest rates low until it sees that rate come down meaningfully. HOWEVER< said differently as I have queried often, why are central banks bailing out poor fiscal decisions by governments and consumers alike? It was subtle verbiage in this week’s minutes which has gimmick policy implications, which ultimately affects a slew of market valuations and capital structure optimization. I didn’t hear anyone summarizing about this last week. We will watch as these communications of desired transparency for the Fed continue. http://online.barrons.com/article/SB50001424052748703492704576622992970…;

In the same piece, Forsyth notes the Fed’s pledge of holding interest rates near zero until 2013 could backfire, implying that it could be more than a year and a half until the economy gets moving. So why hire now? In other words, the Fed’s dire proclamations are having the unintended consequence of having a perception become a reality, negatively impacting the viral feedback loop of confidence on consumption. Quantum physics Heisenberg Uncertainly Principle, the act of measuring an outcome changes the outcome. The Fed’s actions may ensure outcome.

Lacy Hunt of Hoisington echoes the same, that unintended consequences have superseded the Fed’s professional aims. QE2 CAUSED the current slowdown as rising equity values only helped the 1% Haves but higher energy and commodity prices, food and fuel, decimated the real incomes of the 99% Have Not average family. I paraphrase a bit here but extremely interesting points regarding unintended consequence, law of opposites. I see similarities to major themes in markets.

Consider QE2, the end of QE2, and twist. Technical micro trees from the forest themes associated policy easings in the form of ASSET PURCHASES to extrapolated asset price performance but were trumped by macro step back forest of a central bank Chairman is either protecting your cash flows or diluting/devaluing them. Easings or targeted asset purchase ironically dilute the storehouse and end of program run off realities preserve performance as a relative tightening preservation of fixed cash flows. In essence, other that grandiose and inaugural QE1, the entry and exits of other policy ruminations effected the exact opposite response Lacy and Randal pointed out. Since the actual start of twist, the curve has steepened and nominal and mortgage rates are higher, at least for now. Interest rate outcomes respond well to vigilance and less so to helicopter liquidity droppings.

Barton Biggs, as readers know, authored one of my favorites “Wealth, War, and Wisdom.” I will borrow a major tenet from the book and apply it to major global markets in the last several weeks or even last week and to the comments from Barron’s above. I am not an advocate of efficient market theory but Biggs purports the nuance that historically, WWII in this case, the collective wisdom of markets often accurately discount inconceivable outcomes by the masses. He studied asset performance, not during the Great Depression, but during more onerous WW2 when the practical reality was one of living in a subterranean subway for survival from Axis. Shockingly, he backdated and found that collective psyche of markets, asset performance, and wealth preservation often discounted the future probability of outcome in major battles of the war.

You don’t need to look at news footage of Wall Street protestors to know that banks are among the most hated of sectors. In the U.S. the S&P Financials is the worst performing sector of the year, down 21%. The Stoxx European banks are down a heftier 30% in local currencies. Many major financial entities are down closer to 40%. http://online.barrons.com/article/SB50001424052748703492704576623031909…;

Dare I say that the irony of unintended consequences and collective wisdom of markets not just Fed policies or wartime scenarios MAY see Occupy Wall Street as the cover of Time Magazine and collective discounting. Of elections. Maybe, price actions reflect extreme sentiment. However, maybe the great dissatisfaction of this day may in fact be statistically impacting election outcomes. Has popular sentiment become so impacting that the James Carville observation, “it’s the economy, stupid” has extrapolated a reverse course statistical policy outcome?

Oil and gas gained 10% on the week. Norway was the largest European gainer this week up 7% as its proxy to energy export. There was a 7% move in financials, 12% S&P gains since early last week, up on the year, longest streak in 6 months, 5.5% Euro gains off the low of early this month after September posted biggest USD one month gain since 2008 crises, 10% appreciation of risk and commodity and growth oriented Brazilian real, Ausi dollar……collective wisdom of markets. Or maybe, some players anticipated the Barron’s Cover Story, “Time to Buy!” financial institutions. http://online.barrons.com/article/barrons_cover.html#articleTabs_panel_…;

Is it as simple as pent up extreme sentiment, European political resolve, stronger retails sales or value investing?

What about bonds and what do they make of all this? After the benchmark Treasury yield plummeted in September to 1.627%, its lowest levels since the 1940s, the 10 year yielded 2.22% late Friday, up sharply from 2.08% at the start of the week. The 30 year at 3.205 vs. 3.025, a dramatic pullback in the face of operation twist. Unintended consequences, law of opposites, macro Chairman easing create inflation aspirations trumping micro technical asset purchase twist schemes. Forsyth, Lacy, Barton, Occupy. http://online.barrons.com/article/SB50001424052748703492704576623041348…;

Maybe, three fold European plan taking place: new bailout for Greece, effort to shore up banks, and reassuring insurance backstop mechanism firepower. (I have strong opinions on this newfound concept of insurance so let’s talk off record.) Maybe, bond and equity markets alike are responding to central banks achieving their goals, of creating inflation. “Euro Zone’s Inflation Jumps FAR Above Target.” The annual rate of inflation rose in September to 3% from 2.5% in August. http://online.wsj.com/article/SB100014240529702040023045766304436679574…;

Collective wisdom of Schumer Bill. On October 6, 46 Democrats and 16 Republicans joined to pass the Schumer bill, which would require the Treasury and the Commerce Department to impose retaliatory tariffs on nations that have overvalued currencies. China.

Supposing, Congress IS right and that if China stopped manipulating its currency which many an economist deem 15% to 38% undervalued, would a 38% increase of all prices of goods imported from China be good for American consumers? Bond market take notice. Rules for Radicals incite your largest creditor in fragile economic climate? Smoot-Hawley knocked 15% of the value of U.S. imports almost immediately. Canada partner/neighbor responded and quickly erected trade barriers of their own. U.S. exports fell 50% in less than 3 years. Weak economic tidings but importation of inflation? http://online.barrons.com/article/SB50001424052748703887004576629310240…;

Floyd Norris NYT timeliness. Imports to most countries plunged when the credit crises began in 2008, and then recovered. But in recent months, slowing economies have led to renewed declines in most countries in the Euro zone. Appropriate time for retaliatory Schumer tariffs, no? http://www.nytimes.com/2011/10/15/business/europes-consumers-are-pointi…;

What will the consequence of the litany of above listed policies be on inflation? Other than being scared to dickens by policies which DISCOURAGE confidence in housing formation, “Looking to Rent? Good luck.” This NYT Real Estate Section title notes that times may be tough but rents in Manhattan are breaking records. They now average $3,331 a month, and vacancy rates have fallen. Rents make up more than 30% of owners equivalent rent (OER), the largest portion of the CPI. Unintended consequences. http://www.nytimes.com/2011/10/16/realestate/rents-in-manhattan-rebound…;

The above section feature is validated by the WSJ article articulating that many metropolitan markets have price/rent ratios in the single digits, suggesting bargains abound. Take notice that this rent creep will be hitting the CPI. This is ironic in the fact that more people are renting as home ownership housing stock has come down significantly by historical standards. Buy high, sell low? NOW Barney and Congress are promoting renting. http://online.wsj.com/article/SB100014240529702047746045766294433130357…;

Popular delusions of mankind and the madness or crowds. Ironies of laws of unintended consequences, policy prescriptions, community “organizations” or disorganizations, world of opposites, marriages and divorce of politicians and bankers, partisan parties, twists, collective wisdom discount mechanisms, rent or buy, buy or sell, 1% or 99%.



Russ