• Commentary from Bill Gross.

Janus' (JNS) Bill Gross' first commentary just came out.

Thanks for reading my Diary and enjoy your evening.

And God Bless Uncle Vinnie.

• On his year-end price target.

Dr. Jeremy Siegel's parting words (on CNBC) on tackling his Dow Jones Industrial year-end price target of 18k.

• At 3:47 p.m. there is $475 million to buy market on close.

• Possible catalyst

 With a better "feel" in Alibaba (BABA), I am adding to my Yahoo! (YHOO) long now.

A catalyst could be an announcement of a tax free exchange of Yahoo Japan and/or Alibaba. 

• Just one.

The one thing I will not likely do in this market is to buy the rip higher, a.k.a. RIP.

• Recommended reading

Zero Hedge takes a page from my "inconceivable" book! 

• A pity.

It is too bad that Ocwen Financial (OCN) is embroiled with the State of New York. With refinancing levels at decade lows, the recent rate drop should result in incremental mortgage activity. Also, a potential curve steepening ahead could improve Ocwen's funding metrics.

• Again, for emphasis.

This level of volatillity precludes many retail investors from trading or investing. There will come a time when it is safe to be in the waters, but not yet.

Only the most facile, quick and aggressive traders need apply in this difficult and challenging market backdrop.

It is almost impossible for me to post my trades, as they are happening so quickly in a market without memory from hour to hour.

Is it the weekend yet?

• I have sold my last SPDR S&P 500 ETF (SPY) share at $187.30.

There has been a 45-handle reversal form the lows. This is my best intraday trade of the year. I'm back to market neutral. 

• Big run.

I made some more sales of my SPDR S&P 500 ETF (SPY) at  $187.05.

• Trading around a core.

I am making some sales of the ProShares Short 20+ Year Treasury ETF (TBF) at $27.33.

• Radian (RDN), a beneficiary of the rate backdrop, is breaking out now.

Radian is following the homebuilders' strength but it has never had the dramatic declines in share price. A mortgage insurance play is preferable to merchant builders, in my view. 

• Midday musings from Sir Arthur Cashin:

The early zigzag had run rate again projecting above one billion shares. Since Europe closed, things have slowed and at 1:00 the projection is 975 to 1.05 billion. WTI up a dollar and the Dow goes plus.

• Making small sales

I'm making small sales on the SPDR S&P 500 ETF (SPY) at $186.55, after a near-40-handle rally in S&P futures since the morning's lows. This is wild but it's an ideal setting for opportunistic traders. I'm still net long SPY but a bit less so.

• Repeating for emphasis.

Read why I have chosen the SPDR S&P 500 ETF (SPY) as my preferred long rental.

• I have added to my long exposure all day.

I am net long, though not crazily so. I expect a tradeable rally now, the day after Sukkot ended. 

• For Appleheads. 

Watch the Apple (AAPL) iPad launch event live.

• Kill the quants before they kill us  

Dark Pools Said to Rebuff Orders Amid U.S. Volume Surge

• Reach out, I'll be there. 

"Now if you feel that you can't go on (can't go on)

Because all of your hope is gone (all your hope is gone)

And your life is filled with much confusion (much confusion)

Until  happiness is just an illusion (happiness is just an illusion)

And your world around is crumbling down, darlin

Reach out come on girl reach on out for me

Reach out reach out for me!"

 - The Four Tops,  Reach Out, I'll Be There

Guys and girls, what is on your minds?

What subjects would you like me to discuss in the next few weeks?

• Recommended viewing 

"I also think that inflation expectations are dropping in the U.S. And that is something that a central bank cannot abide. We have to make sure that inflation and inflation expectations remain near our target. And for that reason I think a reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data dependent. And we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December. So...continue with QE at a very low level as we have it right now. And then assess our options going forward."

- James Bullard, President of the St. Louis Federal Reserve Bank, on Bloomberg TV, talks about why the Fed should consider dealying the end of QE.  

• On Fast Money Halftime

 Stifel's Barry Bannister is coming up on Fast Money Halftime.

 I have written about his last appearance.

 Here is the question I would ask the Judge's guest today:

Why should anyone believe your methodology in forecasting a price target for the S&P Index given the magnitude of the change from 1850 to 2300? That change was not made based on any change in the fundamental outlook for the economy or corporate profits.

It seems that it was solely made on price momentum, which has dissipated in recent weeks.

As Warren Buffett writes: "the value of short term market forecasters is to make fortune tellers look good."

• Trimming further.

I am selling another half  of my half left of SPDR S&P 500 ETF (SPY) long rental at $186.20.

I'm left with a quarter position long!

Staying in motion.

Locomotion!

• I am selling one third of my SPYDERS at $185.70 now.

Keeping some.

You all might notice that when the market gets whacked I am buying SPYDERS as my vehicle of choice as a long rental.

Let me explain why.

The hedge fund community is  almost universally strucured in the following manner.

• They are long their favorite individual stocks (many of which (e.g. HTZ) have gotten schmeissed.
• They are short, as a hedge, S&P futures.

The reason hedge funds are so big S&P futures is because it is the only place they can get scale. In other words, to protect a billion-dollar portfolio, S&P futures are the ticket. Indiivdual stocks, with dealers out of the picture of holding inventory, are out of the question.

So, in a rally I expect teh S&P (and the accompanying futures) to give me the biggest bang for the buck because the hedge funds are short this vehicle and could be forced to cover in a decisive rally (whenever that occurs).

• And understanding fear.

In markets, during times like this, the availability of liquidity becomes more important than the price of a commodity. When this happens, risk is much greater than reward for rational investors. 

Panic is staring to set in and this is a necessary reagent to a turn back up.

For now, the warts are being exposed in the daylight of these volatile moves.

Many do not understand fear, in part because the market has straight-lined upwards for years.

• That is me bidding and buying more Monitise (MONIF) today.

• I am adding to my SPY long rental at $183.45.

• Peter Boockvar parses the economic data.

Industrial production in September rose 1% m/o/m, well more than expectations of up .4%. The manufacturing component was higher by .5% led by a jump of .8% in computer/electronics after a 1% rise in August (Iphone 6 and 6+?). Auto production fell by 1.4% and combined with the 7% drop in August has given back the 9.4% jump in July which was driven by a lack of auto plant shutdowns. Utility output also helped to boost the headline figure while mining (shale is in this category) was up by 1.8% m/o/m and 9.1% y/o/y. Capacity utilization rose to 79.3% from 78.7%, the highest since June '08 and is moving ever closer to its 30 year average of 79.6%. Bottom line, energy, aerospace and the iphone were standouts as manufacturing overall got back what it lost in August. Manufacturing production overall was up 3.7% y/o/y which is basically in line with the 3 year average of 3.3%. Energy continues to be the main bright spot in the data and we'll of course be closely watching for how long if oil prices remain at current levels or go lower. The data is never market moving so the headline beat won't matter today.

In contrast to the sharp fall in NY manufacturing m/o/m, the Philly index was down just 1.8 pts m/o/m to 20.7 which was slightly above the estimate of 19.8. It's the 4th month in a row above 20 for the first time since 2004. New orders rose 1.8 pts to 17.3 but that still remains below the 6 month average of 18.2. Backlogs more than doubled to 11.6 and is more than twice the 6 month average of 5.1. Inventories jumped to 14.8 from 6.1, the most since December. After spiking to 21.2 in September from 9.1 in August, the employment component fell back down to 12.1, in line with the 6 month average while the workweek went negative for the first time since February. In the face of much lower commodity prices, prices paid rose to a touch to a 3 month high and prices received gained 12 pts to the most since April '11. The overall 6 month business activity outlook fell 1.5 pts to 54.5, a 4 month low but in line with the 6 month average. Bottom line, at least in the Philly region manufacturing was steady state in October. I await the export component in the ISM in a few weeks to see what impact the overseas goings on will have.

After rising 4 pts in September, the October NAHB home builder index fell by 5 pts to 54 with 50 being the breakeven. Both the present and future expectations components were down and Prospective Buyers Traffic was down by 6 pts after rising 5 pts in September. Bottom line, builders got ahead of themselves in September in their optimism and the drop in October to 54 puts the figure back in line with the one year average of 52. As this measure is a diffusion index only measuring the direction of change and not the degree, a figure of 50 is a relative number. We saw a 54 number in March '06 when builders were selling more than 1mm homes a year vs half that now. In terms of activity, mortgage applications to buy a home are still bouncing along a 4 year bottom as renting is the decision of choice for where to live for those first time households.

• Bon-Ton (BONT) is up for the third day in a row.

It's just pennies, but it is better than a sharp stick ...

• Bond short and equity long.

I have repurchased my ProShares Short 20+ Treasury (TBF) at $26.94 and I took a long rental (again) in SPY at $183.22.

• Between 1175 and 1925.

In response to questions from subscribers, if I had to hazard a guess I would expect the S&P to range between 1775 and 1925 over the next three months.

• The Carl Icahn lesson.

"Also-Ran Surprise No. 5: Carl Icahn's fund loses 15% to 20%." -- Kass Diary, 15 Surprises for 2014.

By my calculation (below) Carl Icahn's portfolio (of individual stock holdings) has lost more than $6 billion from the recent market highs.

The message (and lesson) of today's opening missive is not to single out the vulnerability of Carl Icahn's investment portfolio. Nor is it about schadenfreude.

Like Warren Buffett, I worship at the altar of Carl Icahn's investment prowess. He is brilliant. focused and aggressive. He possesses the ability to reduce an investment thesis to a couple of logically constructed bullet points.

My intention this morning is not to be critical of Icahn but rather  to deliver the lesson and message  that if one of the world's most successful investors might be having a tough time of it ¿  all investors should pay heed to a market that could (and has) lost it's innocence.

At the beginning of this year, I delivered a cautious view of the stock market.

In my 15 Surprises for 2014 I suggested that the headwinds for equities would produce a negative year for the major Indices and could be so strong as to take some of the greatest hedgehoggers (including Carl Icahn) through the meat grinder.

This appears to be the case as, based on Guru Focus. Carl Icahn's major holdings, with the exception of Apple (AAPL), are sinking like the submarine in the 1958 movie starring Clark Gable and Burt Lancaster "Run Silent Run Deep."

Here is a list of some of Icahn's largest holdings (including his 90%-owned holding company Icahn Enterprises (with the six-month price charts in parentheses followed by the approximate share price decline from the recent peak).

1. Icahn Enterprise (IEP) 105.8 million shares -$20
2. Hologic (HOLX) 34.2 million shares -$3
3. Apple (AAPL) 52.0 million shares -$5
4. Talisman Energy (TLM) 76.0 million shares -$5
5. Chesapeake Energy (CHK) 66.5 million shares -$12
6. EBay (EBAY) 30.8 million shares -$7
7. Nuance Communications (NUAN) 60.8 million shares -$6
8. Herbalife (HLF) 17.0 million shares -$25
9. Transocean (RIG) 21.9 million share -$16
10. Hertz (HTZ) 38.8 million shares -$12
11. Netflix (NFLX) 1.7 million shares -$150

As most of you know by now, after the close Netflix reported a rare and surprising miss to expectations on domestic and international subscriber additions. Further, the company substantially guided profit forecasts lower.

Netflix's shares, in response, plummetted by nearly 25% or $110 a share in after-market trading last night.

Carl Icahn's son Brett and his partner David Schecter (who make up Sargon) were featured last week on "Fast Money Halftime" and discussed their support and conviction in their Netflix investment.

"We started buying Netflix at $68 we faced criticism as it doubled and doubled again... (Netflix is) one of greatest consumer bargains of all time. It has great growth domestically and internationally and great operating leverage ... Netflix is a 30% of our portfolio at Sargon." -- Sargon's Brett Icahn, David Schecter.

Let me start by saying that Brett Icahn's purchase of Netflix at around $68 was brilliant and I admire the aggressive move he made. He is much like his dad as it relates to conviction and boldness.

But there are several important messages following Netflix's decline last evening.

• As Jim "El Capitan" Cramer advocates, STAY DIVERSIFIED. It is inappropriate for the individual investor to be as concentrated as Sargon. It is typically a recipe for investment/financial disaster.
• Self-confidence and hubris rarely pays (even if you are an icon (Icahn), particularly in a period of uncertainty, lack of predictability, market volatility and slowing global economic growth.)
• Never allow an investment to be a disproportinate portion of your portfolio. Take profits and sell appreciated stocks down to reasonable weightings (as they rise). As legendary trader Joe Gruss once told me,"When reaching Station Success, get off!"

The Icahn Lesson

During the recent market schemissing, everybody seems to still be looking up when they should be looking down.

If one of the world's greatest investors, Carl Icahn, is struggling with an estimated loss of more than $6 billion (I am not taking into account his short hedges as I know not what they may be nor do I know the size of the hedges) it might be time for us to be more concerned with return of capital than return on capital.

I will end by repeating a frequently-written point.

Err on the side of conservatism and maintain above-average reserves during this volatile and uncertain investment backdrop.

• The Gospel According to Sir Mark J. Grant.

We were all with Mr. Toad on his ride yesterday and going to Orlando or Anaheim was unnecessary.  It seemed as if the markets had found their way to Fantasy Land and those not strapped in or buckled up were in trouble. Bonds or equities and it was hard and fast on the rollercoaster. We went up, we went down, and both the drops and escalations were dramatic. Thrilling may not be the appropriate word.

The question postulated in the hours after the markets' close was, "What happened?" I believe I can answer that question and my answer is framed by excessive margin and debt. Margin for the equity markets was just off the all-time high; ever. In the bond markets huge bets had been made speculating on a rise in U.S. yields, a very bad bet, and short covering I am sure was massive yesterday. In my opinion excessive leverage had been accumulated over time and this is what caused the dramatic spikes that we saw yesterday.

I am sure there was also a group of institutions who were trying hard, really hard, to move equities of their lows and bonds off their highs because of the margin calls they feared they might receive at day's end. While I am sure margin calls did go out last night, the size of them was diminished by the pullbacks in both markets. I point out though that these pullbacks may be temporary as institutions run low on available capital if the rout continues in the stock markets and the surge continues in bond prices.

My Calls

I have made two calls about interest rates since last December. The first was the ten year going to 2.50% and the second was the ten year going to 2.00% after we attained that level. Now having breached 2.00% and then pulled back I will make my third call on CNBC this morning. According to Bloomberg the U.S. ten year is at 2.09% as I write this piece at 3:42 EST.

The old long bond has been a performer of note this year. Had you bought it and held on to it you would have made, including the coupon, 20.75% Bloomberg data shows. That is a stunning number for the stodgy old long bond by any measure you wish to use. Any comparison with the major equity market indices is a bow down to long Treasuries.

I have explained my rationale often enough for why interest rates were going lower. "Out of the Box" goes to about five thousand financial institutions in some forty-eight countries each day and is published in London and Paris as well. Anyone that has read my commentary has certainly seen my reasoning.

I am not going to stand on the pulpit and wave any flag this morning. That is not what I am about. The much more interesting topic, in my mind, given the carnage that has taken place in the bond markets, is why the lead banks have all been so wrong. There is no sense pointing any finger when you can use all of them and point in each and every direction that you like. All thirteen of the lead banks, as well as almost every money manager, called for higher yields at the beginning of the year and then kept repeating the call.

Wrong. So very wrong!

Absent any conspiracy theory to wring money out of people's pockets, which is sometimes bandied about, there must have been some kind of rationale for these mistaken predictions. I believe there were a number of serious errors in judgment in fact. First was the total misunderstanding of not just the Fed but the world's central banks. With the exception of the focus on the "Taper," they were mostly minimized from any discussion about interest rates. Whether it is Japan, China, the ECB or the Fed these institutions have become the dominant players in the sovereign debt markets. Forget Miss Daisy, they are driving yields lower as one means to help the countries they represent. They all tried different but similar routes and they succeeded in lowering yields.

When considering Europe the focus is always on the ECB but people tend to forget, with the possible exception of the Bundesbank, that each European nation has its own central bank. Consequently there has been massive pressure to lower yields in Europe which is why we find the German 10 year at 0.75% this morning and their five year at 0.10%. The American 10 year is 275% higher than the German one. Then the American 5 year, where most lending takes place, yields 1,250% more than the German 5 year.

Knock, Knock. Hello, Hello!

We live in a global world with everyone's markets tied to everyone else's and the second mistake of the lead banks was to consider American yields on a stand-alone basis. The world just does not work that way any longer and to consider the United States as a separate entity has been the second huge mistake.

Then there is the outlook for the American economy which had done ok, no more than that, but whose picture is darkening rapidly. The unemployment number is a gimmick machine tooled in Washington by a pencil pusher that decides just how many people have left the work force. The recent strength in the Dollar is not a positive for American earnings. The drop in the price of Oil, while good for consumers, is not so good for the American inflation number. With Eurostat reporting the inflation number at 0.3% this morning versus 0.4% last month, there is trouble brewing on the Continent. We may be separated by an ocean but our markets are separated by nano-seconds.

Italy and Spain are in a deflationary posture and both countries have crossed into recession territory according to the Financial Times. France is on the border-line and I expect them to cross it. Germany is hanging on, but just barely and Berlin is now backed into a corner concerning what new actions the ECB should take.

It is a cluster!

When we look east, to Asia, we find the Japanese 10 year at 0.48% and the Hong Kong 10 year at 1.59%. The 5 year, of these nations, is 0.14% and 1.14%. America's 10 year is 180% higher than the Chinese one and 427% higher than the Japanese 10 year. Capital flows to the highest bidder over time and American yields have been beckoning the crowd all year. I have often called it a "grind-down" but yesterday the motor got revved up.

China is markedly slowing, the Japanese experiment is failing and yields will not be heading higher anytime soon in my opinion. Since there is no off-world investing I have stated and keep stating that American yields are going lower. We are done not yet but the exclusion of the rest of the world, in anyone's economic modeling, has obviously led to some disastrous conclusions and cost some institutions and people a pot full of money in the process.

There was no gold in the pot at the end of that rainbow because the rainbow didn't appear.

Somewhere over the rainbow skies are blue but, I am afraid, for now, it is to be thunder, lightning and rain. Get out your umbrellas.

• Cartoon of the Day.

• The Gospel According to Peter Boockvar.

This morning the lynx-eyed Peter Boockvar discusses the rising sovereign debt yields in Europe.

In The Skeletons in the European Banking Community I have previously discussed the systemic risk of EU peripheral yields rising in a meaningful way.

The very-leveraged European banking system is stuffed up with this junk and a price decline in sovereign debt yields pose a threat.

The credibility in the eyes of investors of Greece's ability to walk on its own (outside of the IMF help) without EU assistance is basically zero as seen by the reaction in the markets again. The Greek 10 yr note yield is spiking another 108bps today after jumping by 125 bps over the three previous days. The yield of 8.94% as of this writing compares with 6.16% just three weeks ago. The Athens stock market, after collapsing by 11% in the last two days, is lower by 1.60%. Back in April, Greece sold 3b euros of 5 yr paper, their first issuance since 2010, at a yield of 4.95%. The demand at the time was for 20b euros. The generic 5 yr yield today is now 7.32%. Prime Minister Samaras said at the time, "Greece today took one more decisive step toward exiting the crisis. International markets are now expressing in the most undoubted way possible their confidence in the Greek economy." In retrospect, the only confidence investors had at the time was in central bankers that created the massive demand yield that covered up any appreciation of the risks involved in lending money to Greece. The curtain on Oz is now being pulled back.

The selloff again in Greek debt is also again spilling over to big selling in Italy, Spain and Portugal with yields up by 20bps, 16 bps and 42 bps respectively with stock markets across the region sharply lower again.

In China, aggregate loan growth in September rose to a 3 month high at 1.050T yuan vs 957.4b in August but that was 100m yuan less than expected and still down 25% y/o/y. M2 money supply growth was 12.9% vs 12.8% in August and compares with the estimate of 13%. China continues to struggle with the trade off of a slowing economy but still excessive credit growth that they want to slow but only methodically. Call it a controlled moderation. Foreign direct investment was a positive surprise, rising 1.9% y/o/y vs the estimate of down 14% but interestingly China's FX reserves fell m/o/m for the first time since June '13 to a 6 month low at $3.89T. Whether the drop was due to outflows, FX losses or something else, I don't know. The market response to the data saw the Shanghai index lower by .7% and the Chinese H shares down by 1%.

In the US, the damage in markets done specifically over the past week brought out an increase in both Bulls and Bears according to the AAII as there was a drop in the neutral category. Bulls rose to 42.7 vs 39.9 (buy on the dip!) and Bears were up by 2.7 pts to 33.7. Real bottoms are historically made when Bears far exceed Bulls but this measure of sentiment is very volatile week to week as opposed to the II figure. Claims, IP, Philly manufacturing and the NAHB home builder index gets reported today.

• I'm sorry, Dave. I can't do that.

My computer just deleted the file that contained my completed opening missive.

Ugh.

Please be patient as it will take some time to reconstruct the column.

• Starting the day market neutral.

There will be no Market Setup due to market conditions and the fact that I am actively trading in premarket.

I start the day market neutral and quite liquid.