• Financials tend to lead the market.

A final market observation.

Financials continue to be conspicuously weak.

As it is written in the Investment Bible ... as financials go, so goes the market. 

• Thanks for reading today.

Thanks so much for reading my Diary today.

Enjoy  your evening!

• Light revenue, in-line EPS.

AIG (AIG) is getting hit on light revenue. EPS was in line.

• How much to sell?

My mavens on the floor see about $1.2 billion to sell on the close.

Energy has $330 million to sell, while financials and consumer staples each have $180 million to sell.

There is $75 million to sell in ExxonMobil (XOM) and $50 million to sell in both General Electric (GE) and Chevron (CVX).

• Could be due to a report that Israeli planes have struck a Syrian military base.

This report could be a possible reason for the small selloff:

Israeli Planes Struck Military Base in Syria, CNN Reports

By Kristin Jensen

Oct. 31 (Bloomberg) -- Planes struck base near city of Latakia, CNN reports, citing unidentified Obama administration official.

• Attack not confirmed by Israeli govt
• Target was missiles, related equipment that might have been transferred to Hezbollah, CNN says, citing official who declined to be identified because of sensitive nature of information

• I will be back on the phone doing research until the close.

My cost basis is now around $111-$112.

I shorted more Berkshire Hathaway (BRK.B) today, bringing my cost basis to around $111-$112.

• I should never have covered my short position.

Hedge fund hotel stock Bank of America (BAC) is trading like it wants to break $14 a share to the downside.

I would continue to avoid, and I should never have covered the short position.

• Adjusted for the spinouts of Altisource Residential and Altisource Asset Management, shares trading over $200.

New all-time high for Altisource Portfolio Solutions (ASPS).

Adjusted for the spinouts of Altisource Residential (RESI) and Altisource Asset Management (AAMC), shares trading over $200.

• I have been shorting it all week.

IBM (IBM), touted as a stock that shouldn't be shorted (regardless of its poor fundamentals) in the media earlier this week, continues to sell off from the gap following the buyback announcement.

I have been shorting all week.

• Midday musings from Sir Arthur Cashin.

"Chicago PMI spike spooked the ten year for Halloween. Stocks reacted but now rethink  Floor revisionists start to think Fed statement did not reopen December taper but indicated Fed think. Current yields are "just right" for where economy is.

Run rate a bit higher - - 12:30 rate projects to a final of 680/760."

• I paid $49.22 for more Citigroup (C).

• Asset classes other than stocks are beginning to reflect a sooner-than-expected tapering by the Fed.

Stocks are rallying off of their lows and continue to be in their own universe!

But other classes are beginning to reflect a sooner-than-expected tapering by the Fed.

• We have little follow-through to yesterday's and this morning's early selling.

The market continues to be forgiving with little follow-through to yesterday's and this morning's early selling.

Stay tuned.

• Run, don't walk, to read the gospel according to David Einhorn.

The gospel according to Greenlight's David Einhorn (hat Tip Zero Hedge) is a must-read.

• My price is $49.25.

I am bidding for Citigroup (C) at $49.25 now.

• Stated simply, the October Chicago Fed manufacturing index number is not believable.

The October Chicago Fed manufacturing index was 65.9 vs. expectations of 55 and 55.7 in September. Virtually all components were very strong. The October number is simply not believable and is not confirmed by any other regional or aggregate manufacturing index. For example, the national manufacturing index released by Markit last week suggestrs a decline in the ISM to be released tomorrow. The market should dismiss the October number as anamolous and unrepresentative of manufacturing activity. The October reading is the second best since 1987 -- is this believable? No!

More broadly, manufacturing activity in the U.S. is growing at roughly trend, and there is no excess inventory relative to sales.

• The action in both portend broader market weakness ahead.

Ford (F), which is performing poorly after a great EPS report, and the weakening financials portend broader market weakness ahead.

• Here is his take.

The Lindsey Group's Peter Boockvar on the Chciago PMI:

In the last regional October manufacturing survey before tomorrow's national ISM, the Chicago region PMI index spiked to 65.9 from 55.7, the best since April '11 and which was well above expectations of 55.0. New Orders jumped by 15.4 pts to 74.3 and order backlogs were up by 14.3 pts to 61.0. Employment was up by 4.5 pts and prices paid were little changed. The chief economist at MNI Indicators that releases this data said "the government might have shut down but Chicago area companies powered ahead in October as orders and production surged." Bottom line, take this number with a very large grain of salt as it squares with no other data seen. The last time we saw a spike in this figure in similar magnitude was in May when the Chicago PMI went from 49 to 58.7. The ISM, capturing the entire country released the following day, fell to 49.0 from 50.7 for that same month. The markit.com national manufacturing figure out last week points to a modest decline in tomorrow's ISM m/o/m.

In my view, what is good for the economy is bad for the market as it implies tapering sooner than later.

• A share repurchase program of $500 million was instituted. 

Ocwen Financial (OCN) reported third-quarter 2013 earnings of $0.44 per share, $0.69 worse than the Capital IQ consensus estimate of $1.13 a share; revenue rose 128.3% year over year, to $531.2 million vs. the $592.64 million consensus.

Share repurchase program of $500 million instituted. 

Commentary:

[N]otwithstanding our record revenues, revenues were suppressed due to delays, that have now been resolved, in boarding the OneWest transaction. As expected, margins were below historical levels due to the timing involved in transitioning ResCap and OneWest. We have been quite cautious in our servicing transfers making certain that we have sufficient resources to support the transition of these portfolios. In the case of OneWest, we were fully-staffed well in advance of boarding the loans. We feel very comfortable that once we have completed the ResCap transition to the Ocwen technology platform, we will return to our historical margins. Prepayment rates fell substantially in the quarter, which bodes well for future revenues. The Company's current pipeline of potential new business opportunities remains at about $400 billion in unpaid principal balance (UPB). We anticipate that at least $100 million in UPB will be awarded by sellers before the end of the year.

From my perch, the shares are fairly valued.

• Just taking some off, but I am maintaining this core position.

I am taking off some of my cheap ProShares UltraShort 20+ Year Treasury (TBT) that I purchased yesterday for a nice gain.

I am staying in motion and keeping my core investment in this bond short.

• The big Chicago PMI print helps our TBT long.

• Bonds and QQQ -- that is.

I am adding to my ProShares UltraShort 20+ Year Treasury (TBT) long at $72.50 and to my PowerShares QQQ (QQQ) short at $82.90.

• Stay tuned.

Over the next two trading days, I am going to publish two columns that I view as important:

1. "The Risks in Europe"; and
2. "Where the Stock Market Bubble Lies."

Stay tuned.

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

The rundown:

• S&P futures are down 3;
• Nasdaq futures are down 13;
• Japan is down 1.2% (best PMI in a few years);
• China Shanghai  is down 0.85% (strength in telecoms and oil/gas was offset by weakness in tech, health care, utilities, and consumer goods);
• European markets are ddown (busy morning of earnings);
• euro is down;
• crude is flat;
• gold is down $14; and
• the 10-year U.S. note yields 2.51% (down 1 basis point day over day).

Worth mentioning:

• Yesterday was all about the reversal following the FOMC.
• I added to my ProShares UltraShort 20+ Year Treasury (TBT) long and to my IBM (IBM) short yesterday -- both worked out well.
• Markets are lower around the globe. Asia is a low light. Fed digestion as bias to tapering is clearer in the months ahead. Doing nothing.
• Arguably, the global stock markets continue to be materially sourced in central bank policy rather than economic fundamentals. All traders and investors should be cognizant that the a market that has disconnected from economic fundamentals is vulnerable to a change in sentiment and/or an exogenous shock.
• Bond yields (10-year) have hit the bottom of my projected range (2.5% to 2.85%). As mentioned previously, I took a long TBT position about a week ago, and I added to the long all this week.
• Initial Jobless Claims at 340,000 were about in line with expectations of 338,000 and down from 350,000 last week. The Labor Department said this is a clean number, as California finally worked out its technology issues and the government of course is back open. Bottom line -- claims at the 340,000 level is about the average seen from the beginning of the year to the end of September. This is a large comedown from the 350,000-400,000 seen in 2011 and 2012, but we know the change only reflects a reduction in the pace of firings, as job growth in 2013 has not improved at all compared to 2012.
• The World According to Peter Boockvar (who has been very bearish) --
  
  As stocks finally discovered gravity yesterday after 3 straight weeks of sharp gains, everyone is back to gaming when the Fed will cut its asset purchases after believing that the lack of newly incremental dovishness in the statement implies a higher possibility of a change in either December or January. The bounce in the US$ also confirms this belief. Irrespective though of the markets statement interpretation, the Fed is of course data dependent (still very subjective) thus implying every meeting has a chance of a change. Considering the lousy economic figures of late and assuming it continues for the next few months, the Fed will likely not see the kind of improvement that would result in a taper. This begs the question of what will the ultimate size of the Fed's balance sheet be that they will tolerate because if the US economy didn't respond to a $1T increase in 2013, why should the Fed keep thinking that it will eventually. It's time they redo their models. With stocks, an ever increasing P/E ratio, in the face of below trend GDP growth, low single digit low quality earnings growth boosted by tax rates, buybacks and record high profit margins (a bubblicious 70% above the long term mean), on the continued excuse of the forever Bernanke put is just stealing future returns for the present. Enjoy for now but there is a major mean reversion on the horizon as there is a flip side to what the Fed is doing. I'm still trying to figure out when and will let you know when I do.
  
  The euro is falling to a two week low vs the US$ after both German and French consumer spending were weak in September, EU unemployment was at a record high of 12.2% in September and headline CPI in October rose just .7% y/o/y, well below the estimate of 1.1% and due to a sharp drop in energy prices. There is still a long and winding road ahead in the European recovery.
  
  Japan's manufacturing PMI rose to the best since May '10 as new orders hit a 4 yr high but unemployment was flat as was prices charged at the same time input costs rose for the 10th straight month. It looks like part of the improvement in the overall index was due to the upcoming consumption tax hike as markit.com said "of the 22% of panelists who saw an increase in new business, a number attributed the latest increase to a spike in demand prior to the rise in the sales tax next year.
• The World According to Tony Dwyer (who has been very bullish) --
  
  [W]we suggest a near-term 4-7% correction. The overbought condition coupled with very low bearish sentiment has created an environment ripe for a sharp, brief and non-fundamental correction. The median drop since the 10/04/11 valuation low has been 6.71% over 21 trading days. Even with the prospect of a correction, we continue to urge investors to not fight the Fed or the tape, and with the uptrend in place, the economy in the fundamental sweet spot and the SPX trading at 15x our conservative 2014 estimate of $115, our conviction level for SPX 1,955 remains high. Our favored sectors looking out into 2014 remain the Financials, Industrials, Health Care and Information Technology.

In the news:

• The Hill -- "President Asked Hillary to Stay."
• The New York Times -- "The Curse of the Second."
• Pimco -- "Scrooge McDucks" (Bill Gross's monthly commentary).
• The Wall Street Journal -- "You Can Keep Your Health Plan*"; "The President's Broken Health-Care Promises" (Karl Rove); "Ruchir Sharma: China's Illusory Growth Numbers."

Some possible economic and earnings catalysts -- 

• Eurozone unemployment and CPI (6:00 a.m. EDT).
• U.S. Challenger job cuts for October (7:30 a.m. EDT).
• U.S. initial jobless claims (8:30 a.m. EDT, 338,000 estmate, continuing claims 2.87 million estimate; see above).
• U.S. Chicago Purchasing Manager for October (9:45 a.m. EDT, 55 estimate).
• China NBS and HSBC/Markit PMI for October (Thursday night).
• Bank of Japan rate decision (out early Thursday morning).
• Bank of Japan semiannual outlook report, which includes board members' forecast on growth and inflation until fiscal 2015.
• Earnings before the open -- ABC, ALU, Anheuser-Busch, AVP, AZN, BEAM, BNP, CAH, CI, CLX, CNX, COP, DISCA, EL, FIG, HAR, IRM, ITG, IVZ, MA, MGM, MPC, MSCI, MYL, NILE, NYT, PRGO, RDS, TEVA, TDC, TWC, WWE, XOM.
• Earnings after the close -- ADNC, AIG, AIV, FLR, FRT, GDOT, HME, NEM, OEH, ONNN, RSG, SBUX, SWN, TLAB, TRMB.

• The FOMC delivered a surprising and scary message, and its description of the domestic economy is wrong-footed.

Below are some statements from the Federal Open Market Committee's most recent rate-decision release:

• "Labor market conditions have shown some further improvement."
• "Activity continued to expand at moderate pace."
• "Data suggest household spending and business investment advanced while housing slowed somewhat in recent months."
• "[The FOMC] still expects growth to pick up from its recent pace and the unemployment rate to gradually decline toward levels Committee judges to be consistent with its dual mandate."

The FOMC introduced uncertainty into the markets in its surprisingly upbeat economic assessment/outlook, which didn't, as it did in September, mention tight financial conditions. Moreover, the failure to mention (with emphasis) the failure of fiscal policy suggested to market participants that the probability of a December 2013 tapering has not been abandoned.

The markets took the FOMC comments as hawkish.

In response:

• U.S. dollar-Japanese yen traded above 98.60 post-Fed;
• The 10-year yield was 2.47% prior to FOMC and moved up to 2.52% (reversed from down to up).
• S&P futures are down 50 basis points on the day;and
• S&P energy is down 1%.

My view is that the Fed's description of the domestic economy is wrong-footed. (Note: In the past, I have often pointed to the Fed's poor forecasting ability.) For example, the jobs market has deteriorated and has not improved, and business capital spending is weak.

Additionally, I would observe that the quality of the FOMC statements has eroded and that Fed policy has grown less predictable. (Yesterday's ambiguous statement is perhaps a function of a more divided Fed than many have observed.)

Finally, below are The Wall Street Journal's Jon Hilsenrath's relevant post-FOMC comments:

-- LITTLE CHANGE IN THE ASSESSMENT OF THE ECONOMY: The housing sector has "slowed somewhat," the Fed said. That's a downgrade from September when officials said it had been strengthening. The labor market had shown "some further improvement," the Fed said, an ever-so-slight downgrade from the "further improvement" the Fed noted in September. On net, very little change in how officials see the economy performing.

-- FINANCIAL CONDITIONS IMPROVING: The Fed dropped its reference to financial conditions having tightened in recent months, as it noted in September. That's a nod of approval to rising stock prices and the recent drop in long-term interest rates. The Fed also removed a reference to its concern about higher mortgage rates, which have dropped since the last meeting.

-- STILL AN EYE ON TAPERING: The Fed retained language it used in September which suggested officials had an eye on pulling back from their bond buying program if the economy improved. It noted "underlying strength" in the broader economy and said it chose to "await more evidence" on the economy's performance before adjusting the bond-buying program.

Taken together, the Fed isn't taking a December adjustment to the bond-buying program off the table. But that comes with the strong caveat that it depends on whether the economy is living up to its expectations. As part of that assessment, Fed officials will be updating their economic forecasts in December and will need to make a judgment about whether their projection of accelerating economic growth in 2014 is likely to be met.

The bottom line is that while a January or March 2014 tapering remains most likely, an element of uncertainty (and a possible December tapering) has been introduced.

If, as many of us believe, bond buying has had an outsized impact on the pricing of assets (stocks and bonds), then the market outlook over the balance of the year has grown more hazy and scary.

Happy Halloween from the Fed.