• Whisper numbers.

"One last thing."

-- Lt. Columbo

On Netflix (NFLX), the whisper number for third-quarter domestic adds is 1.5 million (guidance was 0.7 million to 1.5 million). Expectations are for 2.5 million-plus in fourth quarter.

The compnay needs 4 million domestic adds in those quarters for the stock to continue to climb, imho.

While Netflix continuies to be a domestic story, the international subs whisper for third quarter is 1 million. 

• How much to sell?

Only $100 million to sell market on close.

I am still on my research call.

See you all back early tomorrow morning.

Thanks for reading my diary and God bless Uncle Vinnie.

Enjoy your evening.

• The share price drop in tandem with the rise in CDS is meaningful.

The drop in JCPenney (JCP) shares and the concurrent rise in credit default swaps is meaningful today.

• For both long- and short-term holders.

Monitise (MONI.L) is back to the level that traders with a short-term horizon might consider paring back positions. Longer-term investors should probably stay put -- particularly if they can handle the volatility.

• I am still around 25% net short.

There has been no change in my net short exposure today (around 25%).

While I added to my Potash (POT) long, I also raised my SPDR S&P 500 ETF Trust (SPY) short position.

Going back into a research call now.

• Rumor has it.

Speaking ofNetflix (NFLX), high above the Alps, my gnome has heard a rumor that Carl Icahn has jettisoned some of his Netflix shares.

I have no way of knowing whether the rumor is correct.

• Run, don't walk, to read Jim Cramer's piece on the importance of earnings expectations.

Run, don't walk, to read Jim Cramer's "The Importance of Expectations" column, in which he describes the importance of how an earnings bar is set up before profits are released.

Very worthwhile!

• We need to shake up the complacency.

The S&P 500 has mounted a near-100-handle rally in only eight trading days.

As strategists step over themselves to raise their year-end and 2014 price targets, it appears that I need a surprise twist ending sometime this week in order to upend the remarkable complacency that higher stock prices almost always brings on.

Maybe Netflix's (NFLX) earnings report after the close will provide a Carrie Mathison-like surprise twist!

• Coming up on RealMoney Pro this week.

Why I am manifestly bullish on the Twitter IPO.

• Here are his musings at midday.

Midday musings from Sir Arthur Cashin:

Stocks in Monday meander.  Initial glass half full reaction to home sales quickly morphs into muddle through with big/small, young/old themes leaving Dow a bit weak, S&P flat and Nasdaq firmer.

As usual, run rate slows after Europe closes.

The 12:30 run rates projects to 610/690 million shares.

• Illustrated.

Has Tesla (TSLA) hit the brakes?

"Fast Money's" Steve Cortes thinks so.

• I purchased more shares at $32.05.

I have added to Potash (POT) at $32.05 today.

• Stopping my loss at $0.10.

Houskeeping item: I have covered my Bank of America (BAC) short for a $0.10-per-share loss.

• David Pogue is leaving The New York Times to join Yahoo!.

Well-regarded New York Times technology analyst David Pogue is leaving to join Yahoo! (YHOO)

Pogue has 1.45 million followers on Twitter and is going to establish a new tech site for Yahoo!.

• Run, don't walk to read Dan Dickker's column on shale plays.

The red hot shale/energy plays column by "Dandy" Dan Dicker is a must-read.

• Run, don't walk, to read my comments to the New York Post regarding the JPMorgan Chase settlement.

Here are my comments on the JPMorgan Chase (JPM) fine from this weekend's New York Post. 

It is important to recognize that this settles only civil but not potential criminal charges.

In terms of quantifying the $13 billion settlement, it represents about 6% of the company's $210 billion of equity. If JPMorgan earns 9% on equity, this settlement/disgorgement of capital means that about $1.3 billion of annual earnings are permanently taken out of the company (9% multiplied by $13 billion settlement). On 377 million shares, this represents about $0.40 a share annually.

Bottom line: While it seems like a "raw deal" (in that an important portion of the problems were acquired in the acquisition of WaMu and Bear Stearns), the aggregate impact to sustainable earnings is not all that large.

• I am approximately 25% net short.

• Higher rates slowed purchases, which was partially offset by continued investor buying.

Existing-home sales for September that captured contract signings likely June into early August totaled 5.29 million, about in line with the consensus estimate of 5.30 million but down from a revised 5.39 million (from 5.48 million) in August. Both single-family and condos/co-ops saw sales declines month over month, and the months supply rose to 5.0 from 4.9. The median price was up 11.7% year over year but at $199,200 was the lowest price since April, as likely higher mortgage rates demanded lower home prices. Cash buyers remain dominant as they made up 33% of purchases vs. 28% from first-time buyers (vs. historical level of 40%).

Bottom line, we know higher rates slowed purchases, which was partially offset by continued investor buying. Looking forward, with still double-digit home price gains, investor buying should start to slow and last week's MBA data said mortgage applications fell to the lowest since January.

As I posted recently, my housing contacts suggest that traffic/orders in September and October were disappointing relative to expectations.

• Small.

I am stepping up my buys on Potash (POT) in a small way.

There is no immediate catalyst I see, except for the laggard price action.

• I am doing little.

The markets continue to rally into new-high ground, led by the Nasdaq in the early going, with Apple (AAPL) a standout (up $12).

I am doing little.

• Let's take a look at the overnight and early-morning price action in the major asset classes.

The rundown:

• S&P futures  are up 1;
• Nasdaq futures are up 9;
• Nikkei is up 0.9%;
• China Shanghai is up 1.65%  (encouraging remarks in which the State Council urged Beijing to press forward withe economic reforms while noting how growth was stable and trending for the better helped spark the rally);
• European markets are mixed;
• euro is down;
• crude is down $0.90;
• gold is up $2; and
• the 10-year U.S. note yields 2.60% (up 1 basis point day over day).

Worth mentioning:

• A three-day win skein continued on Friday, with conspicuous strength in the Nasdaq on the heels of Google's (GOOG) large share price gain.
• I did little trading, though I shorted more Bank of America (BAC), on Friday. (The FHFA is seeking $6 billion from BofA related to mortgages underwritten by the bank and sold to Fannie and Freddie.) 
• I haven't done anything thus far in premarket trading.
• I remain bearish on equities. My fair market value calculation yields a market overvalued by about 5%.
• I am agnostic on bonds, expecting the 10-year U.S. note yield to range (narrowly) between 2.50% and 2.85% over the balance of the year. We remain around 2.60% now.
• Tomorrow morning is the September jobs report. The Street is modeling total nonfarm payrolls to be up 180,000 (vs. up 152,000 in August) with an unemployment rate of 7.3% (in line with August).
• It peak time for earnings reports over the next few days.
• JPMorgan lowers its housing forecast this morning.
• Is a mini bargain possible in Washington, D.C.?McConnell calls for no more shutdowns of the government.
• Yale shifts the allocation of its endowment.
• The World According to Peter Boockvar --
  
  We finally get back to some normalcy this week in both the economy, after last week's temporary political deal, and the analysis of it as previously held economic data starts to be unveiled again. Existing home sales for September is released today ahead of payrolls tomorrow. In terms of growth, based on the earnings seen so far, Q3 revenue growth for the S&P 500 is expected to be just 2.2% y/o/y with slight net income margin expansion (thanks to buybacks and lower tax rates) bringing eps growth to 2.5%. EBITDA margins though have contracted from 21.7% in Q2 to 19.3% in Q3 for those that have reported. They were 21.8% in Q1. Based on this peaking of profit margins with revenue growth at low single digits, the 2014 expected eps growth for the S&P 500 of 10.8% is not realistic.
  
  The only data of note overseas was a miss relative to expectations for both Japanese exports and imports in September. Exports were up 11.5% y/o/y vs the estimate of up 15.6%. Imports were up 16.5% y/o/y but that was less than the forecast of up 19.9%. The Nikkei though rallied .9% following the US strength. Optimism ahead of next month's Communist Party meeting that reforms will continue in China sent the Shanghai index up 1.6% overnight.

In the news:

• The Wall Street Journal -- "How Washington Handcuffs Tax Reformers"; "Sending a Bad Message to Big Banks"; "The Decline of the East."
• The Washington Post -- "The Fiscal Bargain America Needs."

Some possible economic and earnings catalysts that could impact the market:

• U.S. existing-home sales for September (10:00 a.m. EDT).
• China September property prices (out Monday night).
• ECB's Coeure, Nowotny speak.
• German's Bundesbank published monthly report.
• Obama to speak on ACA Monday (around 11:30 a.m. EDT).
• Earnings before the open -- CHKP, GCI, HAL, HAS, LII, MAN, MCD, SAP, VFC.
• Earnings after the close -- BXS, DFS, FWRD, HXL, ILMN, NFLX, SONC, TXN, USTR, VMW, ZION.

• My current fair market value is approximately 1645, which is about 5% below Friday's close of 1740.

"We believe that short-term forecasts of stock or bond prices are useless. The forecasts may tell you a great deal about the forecaster; they tell you nothing about the future."

-- Warren Buffett's letter to Berkshire Hathaway (BRK.A/BRK.B) shareholders, 1980

Forecasting prospective market levels out 12 months is an imprecise art form that requires probabilistic decision making, using imperfect information about an inherently unknowable future.

Forecasting market levels out beyond 12 months is, to me, more a function of one's philosophy than an investment prediction.

But try we must (especially over the next 12 months) even despite The Oracle's protestations.

It has been nearly nine months since I last published my estimate of the S&P 500's fair market value, but I am going to give it a go again this morning (with the insistence from subscriber Renato, who sent me a nice note recently).

Remembering the phrase that if you have to forecast, forecast often, I will attempt to update my fair market value every month or as circumstances change.

Early this year, I expressed the view that a domestic economy incapable of reaching escape velocity would produce a challenging earnings landscape. This, to me, represented the principal enemy to the U.S. stock market for 2013 and formed the basis for my four core scenarios (economic, earnings and market valuation) that yielded my fair market value calculation.

Anemic top- and bottom- line growth in corporate sales and profits were by no means the only factors that contributed to my valuation concerns this year as was the growing evidence that aggressive monetary policy is losing its effectiveness and that our leaders are failing to address our deep-seated fiscal issues. Instead (and out of necessity), our authorities placed ever more pressure on our monetary policymakers to bear the responsibility of bringing our domestic economy out of its doldrums. After nearly five years, the results barely met a passing grade and uncovered the depth of our structural headwinds that have been ignored for so many years (e.g., disequilibrium in the jobs market, screwflation of the middle class, financial repression penalizing the savings class, etc.), and once again, the Fed has overestimated U.S. economic growth and the positive impact of trickle-down economics (through the lifting of asset prices).

Forecasting is the art of saying what will happen and then explaining why it didn't. While my fundamental observations (and headwinds) still seem materially correct, my assumptions for a contraction in P/E multiples were wrong-footed as were my market conclusions and S&P price targets.

This year, the S&P 500 dramatically eclipsed my calculations of fair market value, owing to both an expansion in P/E multiples and a better corporate profit performance. (One third of the S&P's better rise was due to higher profits and two thirds was due to an expansion in multiples.)

A year ago, my baseline expectation for 2013 S&P profits was between $100 and $102 a share.

Today, as we near year-end, the consensus estimate for 2013 S&P earnings is $109 a share. I am now at a below-consensus forecast of between $107 and $109 a share.

For 2014, the consensus estimates that the S&P 500 will achieve profits of about $116 to $118 a share. My base case estimate is for $112 to $114 a share, a gain of under 5% (year over year), which is, again, below consensus.

Slowing sales, a contraction in margins, the reduced influence/benefit from aggressive monetary policy and political uncertainties are some of the reasons why my baseline earnings expectation are for below-consensus 2014 S&P 500 profits.

Today's new fair market value calculation of 1645 incorporates the following:

• the melded probability distribution of my four scenarios (below);
• reflecting the continued and surprisingly low-interest-rate environment, I have increased the P/E ratios applied to each of the four outcomes from my previous fair market value calculation; and
• profit forecasts for 2013-2014 have been revised upward to reflect what has been reported and earned thus far in 2013.

Since I began this exercise several years ago, I have tried to be consistent with methodology, reasonable in my profit forecasts, and I have applied sensible valuations. Again, I want to emphasize that my methodology, though appearing precise, recognizes the difficulty of attaining investment precision given the numerous moving parts (economic, interest rates, sentiment/psychology, political outcomes and other exogenous factors) in its calculation. It is intended more as a thoughtful guideline (of reasonable expectations/outcomes) than an exercise that should be taken literally. (I strongly recommend that subscribers input their own probabilities and outcomes in order to produce their own market expectations.)

Scenario Analysis

"A good forecaster is not smarter than everyone else; he merely has his ignorance better organized."

-- Anonymous

Below are the criteria and methodology I use to evaluate the S&P 500 and upon which I conclude that fair market value is approximately 1645 (it is overvalued by about 5% compared to Friday's close of 1740).

Scenario No. 1 -- Economic Reacceleration Above Consensus (5% probability): The pace of U.S. economic recovery reaccelerates to above-consensus forecasts (3%-plus 2014 real GDP growth) based on pent-up demand in nondurable spending (cars and autos), rising consumer and business confidence and a sustained period of low interest rates. Corporate profit margins are preserved. The Fed begins tapering in January 2014. European economic growth rises to above 1% in real terms, and China's growth rate exceeds 8%. The disruptive influence of our politicians in Washington, D.C., is diminished and fails to adversely influence business/consumer behavior. The yield on the 10-year U.S. note exceeds 3.5%. S&P 500 profits for 2014 approach $120 a share. P/E multiples average 16.5x, producing a 14% 12-month upside. S&P target 1980.

Scenario No. 2 ¿ Near-Recession (15% probability): The U.S. enters a near-recession (zero to +1.5% real GDP). The Fed extends quantitative easing throughout the year, but it becomes clear that monetary policy has lost its effectiveness. The eurozone turns back into negative real GDP growth, and the debt crisis renews. China's real GDP falls below +7%. The Democratic and Republican Parties grow more contentious, partisan and unequivocal in position. The sovereign debt crisis in Europe heats up again, contributing to a deepening European recession and a hard landing in China and India. The yield on the 10-year U.S. note dips below 2% again. S&P 500 earnings estimates for 2014 are materially reduced (relative to consensus expectations) to a range between $95 and $100 per share. Stocks, valued at 14x under this outcome, have 22% downside risk over the next 12 months. S&P target 1365.

Scenario No. 3 -- Below-Consensus Economic Growth (50% probability): The U.S. experiences a disappointing +1.5% real GDP growth rate, Europe experiences little recovery (zero to +1.0% real GDP), and China's economic growth modestly disappoints relative to expectations. The Fed announces a plan to extend its QE program and doesn't taper in 2014. The yield on the 10-year U.S. note is held between a range of 2.25% and 2.75%. The S&P 500 consensus profit forecast for 2014 is too high ($110 to $112 per share is expected), as corporations' pricing power is limited and profit margins are pressured more than expected. Stocks, valued at 14.75x under this outcome, have 6% downside risk over the next 12 months. S&P target 1635.

Scenario No. 4 -- Muddle Through (30% probability): The U.S. muddles through, with 2.0% to 2.5% real GDP growth; the European economies post a modest recovery (+1% real GDP); and China's economy grows in line relative to consensus forecasts. The Fed's tapering begins in March 2014. The yield on the 10-year U.S. note is between 2.75% and 3.25%. S&P 500 profits for 2014 are in the range of $112 to $114 a share as some modest margin slippage occurs. Stocks, valued at 15.5x under this outcome, are now fairly priced. S&P target 1750.

How Do I Use My Fair Market Value Exercise in Actual Practice?

"He who lives by the crystal ball soon learns to eat ground glass."

-- Edgar R. Fiedler in "The Three Rs' of Economic Forecasting -- Irrational, Irrelevant and Irreverent" (June 1977)

The investment mosaic is a complicated one; it makes the riddle of the Sphinx seem simple by comparison.

Whether one is gazing at charts or incorporating fundamentally based discount models, all too often technical and fundamental analysts proclaim precision of market forecast. Frankly, I view those pronouncements as laughable.

There is no special sauce, fractal or system to beat the market and to forecast its future with consistent accuracy -- if there was, Steve Cohen, George Soros or Paul Tudor Jones would have purchased the recipe.

I use this morning's exercise as a guide to portfolio management. Again, it is certainly not meant to be an exercise in precision, but I have found this calculation, over time, to be a generally good discipline that keeps me honest.

The Market Is Moderately Overvalued

The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities -- that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future -- will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There's a problem, though: They are dancing in a room in which the clocks have no hands.

-- Warren Buffett's letter to Berkshire Hathaway shareholders, 2000

I continue to see the stock market as being moderately overvalued -- the higher we go from here, the line between speculation and investment seems likely to be increasingly blurred.

In the past, I have suggested that in a 5% overvalued market, a conservative investor should not be more than 50% long -- and I still stand behind that.

So, if I believe (as I currently do) that the market is slightly more than 5% overvalued, why have any investments in equities?

The answer is obvious.

At any given time (regardless of where the market is selling), individual stocks are overvalued and undervalued. This is particularly true today since there is so much uncertainty in fiscal (and monetary) policy, in political/economic outcomes and with regard to business and consumer reaction to policy.

Don't take my word for the fair market value calculation. Again, I strongly encourage you to input your own earnings/economic/multiple expectations and create your own fair market value calculation. 

This allows investors and traders to pick sides on the issues and make their bets a bit more intelligently, particularly on the broader market.

I hope you find this exercise to be helpful as a guideline.