• "One last thing."  -- Lt. Columbo

Here is a good summry of this week's macroeconomic events from Peter Boockvar at The Lindsey Group:

Positives

1. One side finally decides to negotiate and the other lessens its demands. Tbill yields out to 6 weeks of maturities off their intraweek highs but still remain well off their lows as money markets flee.
2. If you do like QE, Janet Yellen is your next Chairwoman.
3. With the average 30 yr mortgage rate falling to 4.42% from 4.49%, refi apps rise 2.5%, up for 4th straight week to a two month high.
4. Japanese machinery orders in August rise 5.4% m/o/m, more than twice expectations. September consumer confidence in Japan rises to 4 month high.
5. Greece expects to exit 6 years of contraction in 2014 with expected growth of .6% and they report a primary surplus year to date. Athens market up 4% on week.
6. German investor confidence in the EU as measured by Sentix falls to 6.1 from 6.5 but is positive for the 2nd straight month for the 1st time since the summer of 2011.
7. German IP in August up 1.4% vs the estimate of up 1% and July revised up to a less negative read. Export orders up 1% in August, in line.
8. Canada reports Sept job gains of 11.9k, above the forecast of +10k.
9. Indonesia, South Korea and the UK all leave interest rates unchanged as expected. Brazil though hikes by 50bps in their incessant battle with inflation.

Negatives

1. The likely deal in DC is just a settled negotiation on negotiating again over the next 6 weeks. Tbill yields maturing November 21st into yr end spike by 4-6 times as money market funds again protect themselves from DC kicking the can into a wall.
2. If you don't like QE (me), too bad, Janet Yellen is your next Chairwoman.
3. UoM confidence in October falls to 9 month low led by decline in the Economic Outlook. Positively though, one yr inflation expectations gives back September's unexpected jump as gasoline prices fall to lowest since January.
4. Initial Jobless Claims ex more issues with CA and the collateral damage from the shutdown total around 325k vs 308k last week. Still low overall but squaring this with modest hiring points to employers that are just on hold.
5. Student loan balances outstanding continue to spike sending non revolving credit outstanding to another record high. Consumers still laying off the credit card though as revolving credit outstanding in August falls to lowest since January.
6. NFIB small business optimism index in September falls to 93.9 from 94.1, a 3 month low and with mixed components such as those Expecting a Better Economy falling 8 pts to a 5 month low but those Expecting Higher Sales rising 3 pts to a 4 month high.
7. Early in the earnings reports but not pretty so far. Of 31 S&P 500 companies reporting, only 51.6% have beat estimates, well below the historical rate of around 67% and revenue beats total just 35% vs 42% that are missing.
8. Notwithstanding the continued drop in mortgage rates off multi yr highs, purchase apps fall .7% m/o/m after dropping 5.6% last week.
9. We're still missing important economic data due to shutdown such as retail sales, trade, inventories and inflation.
10. UK, French and Italian IP in August all miss expectations.
11. German factory orders in August unexpectedly fall.
12. China's HSBC PMI services index falls .4 to 52.4 but follows last week's gain in the state sector weighted PMI services figure.
13. Australia adds a net 9.1k jobs in September but was below the estimate of up 15k.

• It's nap time for me.

I am under the weather and barely holding on, so I am going to call it a day and take a nap and medication.

Thanks for reading my diary and enjoy your evening.

• The S&P is at the top of my expected range.

The S&P 500 index stands at 1700, which is the upper end of my expected rally range.

• Here are his musings at midday.

Midday musings from Sir Arthur Cashin:

TV screens devoid of our elected officials give bulls hope that negotiations continue behind closed doors.

Markets thinner today and so buyers have more impact.  Bonds and dollar turn calmer in front of long weekend.  (Bonds closed Monday.)

12:30 run rate projects to an NYSE final volume of 600 to 680 million.

• Block by block.

I am picking at Citigroup (C) on the long side now.

• Illustrated.

In a nutshell this is, my biggest market concern is profit margin mean-reversion.

Below is a chart that illustrates why.

• I bought more shares at $52.25.

I added to my JPMorgan Chase (JPM) long at $52.25.

• Run, don't walk, to read Jim Cramer's 'Focus More on Capitol Than Capital.' 

I love Jim "El Capitan" Cramer's column this morning on the difference between capital and Capitol.

Great read!

• Banks are back down.

As good as the banks looked on Wednesday (which presaged Thursday's market rip), that is how bad they look today.

Makes me say, Hmmmm....

• I am now up to 20% net short.

I added to my SPDR S&P 500 ETF Trust (SPY) and iShares Russell 2000 Index Fund (IWM) shorts and to my Direxion Daily Small Cap Bear 3x Shares (TZA) long.

I am now up to 20% net short.

• The company's perceived issues have likely been discounted.

I am a buyer of more JPMorgan Chase (JPM) at $52.25.

After listening to the conference call, I suspect the shares have fallen from the gap higher in premarket trading because:

• share buyback might be more modest than expected;
• some more businesses will be jettisoned (raising earnings power issues);
• litigation upside still undefined; and
• leverage will be further reduced.

All these factors are not new and have likely been discounted in the current share price.

• I am up to 15% net short now.

I have reshorted PowerShares QQQ (QQQ) at $78.75, and I am again placing it on my Best Ideas list.

I am now up to 15% net short.

• TBT and Imperva, respectively.

I executed a good sale on ProShares UltraShort 20+ Year Treasury (TBT, reversal day lower yesterday) and good buy on Imperva (IMPV).

With economic growth slowing, I am staying away from my bond short for now, and I am sticking with speculative technology play Imperva, which is now up $2 a share from Wednesday.

• This is how I would play it.

I am happy how I played this week (covering and buying long on Tuesday's schmeissing), but lets' move forward.

As a reference point on how I am playing Mr. Market, see yesterday's "The Near-Term Game Plan":

I want it to be abundantly clear that while I believe that we could see a near-term rally in the markets (coincident with a last-minute budget compromise), I am sticking with the notion that the U.S. stock market hit a high in August 2013.

Remember, after the expected rally, investors (and traders) face the uncertainty of corporate profits and sales, a profit margin for leading U.S. companies that is more than 70% above the five-decade average and still-elevated P/E multiples (particularly vis-à-vis the beginning of the year). We face a structural disequilibrium in the labor market, our middle class has gotten screwed by policy, geopolitical risks (forgotten over the last two weeks) are mounting, and getting back to my August top column, several other significant market and economic headwinds are clearly visible.

For most, a few-percent rally is not really worth the effort, unless you are swift of trading hand.

These sort of short-term moves are not for everyone.

For the average investor, I continue to endorse the notion of above-average cash reserves and smaller-than-average positions.

-- Doug Kass, "Just to Clarify" (Oct. 9, 2013)

I am expecting the market to rally irregularly over the next few days, with the SPDR S&P 500 ETF Trust (SPY) trading back into the $168-$170 area (close to the early-August high).

I plan to be a scale seller of my longs into this -- in fact, I halved my SPY long rental at $167.30 earlier this morning, and I just sold the balance of the position (because we can't predict the future with precision!).

I expect the market to peak a day or so before an inevitable budget and debt-ceiling compromise and then to sell off on the announcement as it becomes obvious that the agreement will likely be brief and incomplete, with many more fiscal deadlines between now and year-end.

As we move full swing into the earnings season, I anticipate that the market will have a downward bias (principally a function of an ambiguous profit picture and economic outlook), though it will be a fertile time for stock-picking opportunities (both long and short).

My guess is that November and December will bring on a range for the S&P 500 of between 1630 and 1700.

• I sense I should be larger than 10% net short.

I stand at slightly less than 10% net short.

I sense I should be larger.

I covered my intentions for the next few weeks yesterday, and I plan to abide.

I added to my SPDR S&P 500 ETF Trust (SPY) short at $169.19 in premarket trading today to expand that position.

• According to Peter Boockvar.

Father, father

We don't need to escalate

You see, war is not the answer

For only love can conquer hate

You know we've got to find a way

To bring some lovin' here today

Picket lines and picket sign

Don't punish me with brutality

Talk to me

So you can see

Oh, what's going on

What's going

What's going on

What's going on?"

 -- Marvin Gaye, "What's Going On?" http://www.youtube.com/watch?v=ph0aELhsQoc

I am back from the doctor, and since I have an ear problem, which doesn't let me hear very well, my posts today will be brief and to the point. 

What's going on in Washington, D.C., according to Peter Boockvar at The Lindsey Group:

The results of the agreement to finally negotiate about the groundwork for another negotiation over the next 6 weeks will come down to whether Republicans roll over and give Obama most that he wanted, a clean CR in addition to a clean debt ceiling increase (Pres didn't get longer term debt ceiling raise). It is likely that Republicans won't reopen the government however without some conditions and that is what we have to watch for in coming days. Assuming there is an agreement of some sort, we'll then have 6 weeks of further noise as Democrats won't want to cut spending and the Republicans say they are done raising taxes. In the mean time, earnings will dominate the market conversation in the coming weeks.

One other thing about DC, the market selloff in the summer of 2011 around the last debt ceiling discussion, which after the deal was announced S&P downgraded the US credit rating, is being used by some politicians as the sole reason for a needed deal asap but they quickly forget that QE2 ended on June 30th and I point to that as being the main catalyst of concern at the time as evidenced by US Treasuries (the target of the downgrade) that ripped higher in the months following the downgrade.

• The money center bank reported a $0.25 beat on normalized EPS.

JPMorgan Chase (JPM) reported a big beat of about $0.25 per share on normalized earnings (ex-litigation).

The stock should continue to prosper.

• Deutsche Bank expects a March 2014 tapering. Sound familiar?

This morning Deutsche Bank writes that it expects a March 2014 tapering.

In "Complacency Rules the Market," that was my expectation as well.

• The president did not reject the Republican proposal, as was earlier reported, and negotiations are ongoing.

Futures took a momentary drop (of about 10 handles) around 6:00 p.m. EDT last night on a news source that stated that the president had rejected the Republican proposal.

Upon clarification, the proposal was not rejected, and negotiations are ongoing.

Futures then stabilized.

I woke up with a nasty virus, so my "Morning Market Look" will be skipped this morning, as I will be stepping out briefly to the doctor.