• A couple of things before I call it a week.

There is $275 million to buy on the market close today as of 3:46 p.m. EST.

I end the day at slightly more than 20% net short.

Enjoy your weekend, and thanks very much for reading my Diary this week.

• Are the numbers valid?

There is a lot of conversation on CNBC about the validity of this morning's employment figures. I just looked at the difference between payrolls and ADP; the current differential is the widest since 2011.

I suppose the truth lies somewhere in between.

• Some mean regression of corporate margins may lie ahead.

As I discussed this morning (referencing a classic episode of The Simpsons), it is now clear to me that a long-awaited contraction in corporate profit margins lies ahead. 

Corporate profit margins are among the most mean-reverting economic series extant, and it was only because of unprecedented easing (and zero interest rates) coupled with continued cost-cutting (which has now ebbed) that margins continued to rise over the last two years.

As a result, corporate profits ("the lifeblood of stocks") will likely be pressured -- and might miss relative to optimistic consensus expectations.

This morning, the month-over-month hourly earnings increased by +0.4% compared with expectations of only a +0.2% rise. While the year-over-year rise in average hourly earnings is still only +2.1%, the month-over-month climb of +0.4% is startling -- not just for the Federal Reserve (and its decision-making process) but with regard to the growth in corporate profits as well.

Mr. Market's rapid advance has suggested that it might be too early to worry about wage inflation and profit margin contraction, but I believe he (and market participants) are making a mistake!

For this reason and others, I have raised my net short exposure to more than 20% today.

• Adding and subtracting.

Over the last two days I added the same amount to my energy longs that I sold with partials in Citigroup (C), Radian (RDN) and Potash (POT) longs. 

• Across the board.

I'm bidding across the board, again, on all closed-end municipal bond funds. The asset class is down on higher short-term rates.

• See the 'Sleepy Hollow' finale?

Most high-octane, high-beta, highly-valued Nasdaq stocks (including several of the Five Horsemen of the Nasdaq) are lower on the day now.

• Devon is now nearly +$2 a share from this morning's low and purchase.

• FGEN going parabolic now.

I still don't have a substantive reason for today's surge.

• A look into the U.S. housing market in 2015 from real estate maven Mark Hanson.

The attached is my year-end review and first-half 2015 forecast of US housing, finance, and credit.

As you will see, the parallels between 2003-08 and 2011-14 are numerous. And I am betting they don't suddenly cease on the turn of the calendar year, rather continue on a path similar to events witnessed in housing market history. 

2015, when prices follow the past year of anemic demand, lower

While 2014 macro housing market demand was anemic for a second year running -- counter to most all forecasts -- prices held up very well in spite of it. This is to be expected, however, as if the past is prologue, volume always precedes price with a fairly substantial lag. 

As such, 2015 will "not" be the third year in a row in which "weak housing demand" grabs the headlines. This is largely owed to the easiest YoY comps since 2011, persistently low rates, and pervasive appraiser laziness/fraud, the latter two which will continue until one day soon, their music suddenly stops. 

Rather, 2015 is the year that "house prices" grab headlines -- lower YoY contrary to all consensus forecasts -- following the past 18-months of anemic demand.  The Street did well looking through weak demand since rates spiked in June 2013, but was uneasy about it, as evidenced by the plunge in certain builder, Realtor, and ancillary housing sector names. I believe, however, the Street will be much more sensitive to house prices falling YoY, in contrast to forecasts of up 4% to 8% in-perpetuity, as house price declines conjure frightening ghosts of the past, which can evoke credit events.  With YoY price comps so tough, in contrast to the easy YoY demand hurdles, if prices only stay flat through June 2015, it will produce a YoY decline of ~5%.  And after such a large, multi-year stimulus event and the pairing back of unorthodox demand this year, it's likely prices will not act like the past two years and accelerate into the spring, rather act more like the period following the Homebuyer-Tax-Credit, largely flat to down from October through June.

Relative to the +5% YoY consensus estimate, a decline of 5% YoY in the first half of 2015 will feel terrible. Rising rates on the heels of strong economic data will accelerate and deepen inherent price pressures.  If the appraisal community tightens their belts on the recent media focus and Government/regulator investigations into bubble-year's type lazy/fraudulent activity, house prices could fall much further and quicker, as the "appraisal fraud delta" evaporates, just like in 2008.

But above everything else, housing will strive to transact.  That's what it does.  This sector thirsts for volume -- has puppet masters in the highest corners of Corporate America and the Gov't -- and always gets what it needs, one way or another. Whether it be through easing credit, a stimulus program, a surge in employment/wages, or rates that suddenly plunge, housing always gets what it needs to spur demand, eventually.  This time around, however, the types of easy loans that could spur demand, such as NINJA's, are illegal;  a large scale housing stimulus program out of DC is probably out of the question;  higher wages take a lot of time to work into the system and onto loan applications;  and rates can't drop from here anything close to what they did in 2011 going into the Twist / QE era.  

That leaves lower house prices, as the easiest and most efficient way of spurring demand.  Perhaps, even a wave of foreclosures and short sales from the millions of mortgage mods -- well over 10 million in total -- that are just beginning an ever-increasing, long-term "reset wave", during which rates and monthly payments rise each year.  Or, maybe from the legacy HELOC "recast wave" on deck impacting millions of loans, on which monthly payments can rise 400% over a single month.  Reflect back to 2007 for a moment and to all of the fancy mortgage reset charts, which went around inboxes like wildfire. Most of those waves never crashed ashore, due to can-kicking. Now, they are back, albeit fewer.  And unlike the HELOC "recast" payment shock, which can be huge, mortgage modification rate increases are generally only 1% per year for five years. Still, this is a big hit to the homeowners balance sheets that can require 10% annual income increases to counter. In short, all of those millions of households spared from foreclose over the past five-years through bank and Gov't sponsored exotic loans (mods) priced at 2% interest only, must now pay the piper over the next five-years.

If that was a bubble, then why isn't this?

Houses are simply too "expensive" for the average end-user.  In fact, on a national basis average house prices reported by NAR are down 3% from their bubble peak. Yet, an end-user utilizing the popular financing of this era, the 30-year fixed, will pay 24% more per month and must earn 38% more per year to qualify than in 2006, using the popular loan programs of that era.  Moreover, builder prices are up 1% from their bubble peak, yet end-users must pay 28% more per month and earn 44% per year in order to qualify for the loan.

House prices are also out of control.  From January 2012 -- "not" coincidentally right after the Twist / QE era kicked-off -- through June 2014, national house prices rose by a bubbliscous 34%.   From Jan 2003 to June 2005, affectionately known as the "housing bubble", prices only rose 33% (page 20). 

In fact, there is no period in modern history when house prices rose more, faster, than in the Twist / QE era, which makes sense because the Twist / QE stimulus dwarfed all other stimulus, including the exotic loan stimulus.  And if it's not different this time around and housing experiences a stimulus hangover in some sort of proportion to the amount of stimulus put in, then house prices hang in a precarious position that could easily bring about a substantial give-back of the 2012 to 2014 gains over the next 18 months. 

The 2014 YoY house price charts within this report look identical to 2007 following the great credit bubble and 2010 following the Homebuyer-Tax-Credit with gains cut sharply over the past 6-months. In fact, in some popular new-era spec-vestor regions -- when stripping out distressed and including only end-user transactions -- prices are already red YoY.  Who said foreclosures and short sales were a house price negative? They were wrong.

What people are suffering from is a lack of a medium-term memory, as what's happening today happened in 2007/08;  "Peak Housing".

Back in 2007, the speculators (every ma and pa in America) driven by exotic credit stimulus and operating without a "mortgage loan house price governor" -- who drove prices over years of tremendous incremental and pulled-forward latitudinous demand -- went away over a short period of time leaving the heavy lifting to weak, end-user fundamentals. 

Today the unorthodox, new-era buy to rent/flip speculators driven by exotic Fed stimulus and operating without a "mortgage loan house price governor" -- who drove prices through years of tremendous incremental and pulled-forward narrow demand -- are going away quickly leaving the heavy lifting to weak, end-user fundamentals.

It was the stimulus-driven, unorthodox "things" that drove the "V" bottom in demand and prices, yet again.  Not coincidentally, from exactly the time in 2011 that Twist was first announced and yields plunged.  Further, a rush of incremental and pulled forward end-user demand caused by the nuclear monetary policy that followed, forced end-users to chase spec-vestors. Prices surged, as the "mortgage loan house price governor" was removed, just like from 2003 to 2007.  Before we knew it, spec-vestors and end-users were tripping all over each other, piled 30 deep, over-paying for houses for which appraisers could always find a rehabbed comparable that would make the deal "work". 

Although 2003-07 and 2011-14 were basically the same in nature, a big difference is that this stimulus-cycle had much greater stimulus input over a shorter period of time than from 2003 to 2007. And if stimulus "hangovers" are in some percentage proportional to the amount of stimulus that preceded them, then this one could be a doozy.

• More from Sir Arthur Cashin.

S&P trying to punch through the 2075/2078 resistance.  Run rate at noon projects to an NYSE final volume of 710/790 million shares.

• Nice reversals in DVN and XOM off of this morning's lows.

• But on the plus side, I knocked over the Sun Sphere.

While the jobs number was the World's Fair, factory orders were weaker than consensus expectations, dropping by 0.7% (estimates were for a flat print).

It should be pointed out that the underlying components were even weaker than the headline, as the ex-transports was -1.4% and the ex-defense number was -1.2%.

This is the third-consecutive negative number for non-defense factory orders.

The inventory to shipments ratio picked up a bit. New orders for consumer products, usually a good leading indicator of domestic economic growth, was also down (-1.7%) for the third-consecutive month.

Inventories for consumer goods also fell for the fourth-consecutive month, a negative surprise.

Bottom line, the weak factory orders are indicative of a slow-growth U.S. economy, as are most data points beyond the labor market.

• Midday musings from Sir Arthur Cashin.

As noted yesterday, the Hindenburg Omen that everyone was talking about was then invalidated by movement in the McLellan Oscillator.  That said, Thursday's action resulted in a new "Omen".  Resistance still contains S&P.

• Solid investment roadmap by Jim "El Capitan" Cramer on the energy sector.

I am willing, with an intermediate-term outlook, to be more anticipatory. But only in baby steps.

• My guesstimate between 2-2.5%.

Despite the jobs euphoria, Goldman Sachs has taken down its 4Q 2014 Real GDP tracking number by two tenths to only +2.4%.

The rationale was the much-larger-than-expected October trade deficit.

As I mentioned this week, my fourth-quarter guesstimate has been between +2.0% to +2.5%.

• More from Sir Arthur Cashin.

S&P resistance at 2075/2078 appears to be both magnetic and hypnotic.  (We have reached and paused circa 2077 about five times so far today.)  They need to punch through if they want fireworks (18,000) and avoid a short-term multiple top.

• Despite the fireworks in financial stocks today, the yield curve -- as I suggested earlier -- is flattening.

• Anyone know why?

Recent buyFibroGen (FGEN) is ahead by more than 10% this morning.

I don't see an obvious reason for the rip. Does anyone see news?

That said, I am sticking with this name.

• SPY short is now medium.

My SPY position has now gone from small to medium today, with the average short at $208.05 on this morning's ramp.

• I have slightly bumped my net short exposure to more than 20%.

• Adding to my energy longs.

I added to my energy longs: DVN ($58.65), CVX ($111.70) and XOM ($93.80).

I am taking Baby Steps as I have no expectation (or allusion) of a short-term rise in the sector's share prices. 

I am buying for intermediate term.

And I wouldn't be surprised if I have prestigious company on the buy side of the group (read: The Oracle).

• Added to Apple (AAPL) and QQW, covered JPMorgan Chase (JPM).

I have added to my Apple short (small still) and to my QQQ short (large).

Covered my JPM hedge.

• Pay attention.

Despite the ebullience in financials, both iShares iBoxx High Yield Corporate Debt ETF (HYG) and SPDR Barclays High Yields Corporate Bond ETF (JNK) are trading lower today.

Something to pay attention to.

• Mid-morning musings from Sir Arthur Cashin.

Institutions seem to be buying financials hand over fist. Presume the assumption is that higher yields/rates will give them more room to make money and offer more products.

• From The Street of Dreams.

JPMorgan has upgraded Potash (POT) to Overweight and has raised its 12-month price target to $40 from $34.

•  But a large weighting is unjustified.

I have begun to slowly take advantage of what I perceive to be tax selling pressure in Bon-Ton Stores (BONT).

Baby steps for now, as there are 25 more days in the year.

Here is my latest update on the company and I plan to update my thoughts again over the weekend and will deliver early next week.

That said, after my experience with speculative Monitise I recognize that too many are attracted to low-priced stocks.

BONT is just another sold-down speculative stock. So, to me, a large weighting is unjustified.

• I have several takes from today's jobs data.

1. The yield on the short-term Treasury bills will spike now. My guess is that the yield on the 10-year U.S. note doesn't rip higher, as many expect. The yield curve might, therefore flatten a bit. (More pressure on bank industry's net interest margins?)
2. The Fed will raise rates sooner than consensus expectations.
3. Corporate profits, corporate margins (and the U.S. stock market) have benefited from tame wage inflation over the last five years. That benefit is now likely over as what was good for Wall Street may now be good for Main Street.

Bull Markets emerge from bad news (think the Generational Low in March, 2009) and corrections. Bear Markets are borne out of good news.

In other words, good news might have already been discounted in the equity markets ... and that good news may soon be construed as bad news.

Despite the conventional view that this morning's jobs report is market beneficial, I say the Don't Pass Line is where my chips lie.

• Oh, the humanity.

So you all know, a Hindenburg Omen (sell signal) was triggered yesterday.

• My tactical response to the hot employment data is to expand my energy longs.

• Where it began.

"All bad precedents begin with justifiable measures." -- Julius Caesar

The rundown:

• U.S. futures are modestly higher. (S&P 500 futures are +3  and Nasdaq futures are +7 handles). 
• Europe is doing well, with gains of +1%, as a surprisingly strong German factory orders report buoyed equities.
• The U.S. dollar is +0.15% and  the euro is -0.23%.
• The yield on the 10-year U.S. note is three basis points higher to 2.26%. Sovereign debt yields are -6 bps or so in Europe's peripheral countries.
• Japan is + 0.19% higher. 
• China is +1.32%, continuing the recent up skein, though there was little news to account for the climb. The government reiterated its objective to maintain a "prudent" monetary policy and President Xi said growth remained "reasonable," but both those phrases have been part of the Chinese lexicon all year.  Energy and financials were violently higher, while staples, utilities and telecoms lagged.
• Gold is down $8 and crude is down $0.60. Natural gas is +1.23% to $3.69. Copper is +0.74%.

Global stocks are much higher, led by China. The ECB press conference was confirmation of the inevitability of a LSAP, though the timing is debatable.

The U.S. feature will be the 8:30 a.m. ET jobs report. October U.S. trade numbers will also be released while October factory orders come out 30 minutes later. Fed Heads Mester and Fischer are on tap. Away from ITW's analyst day there is little in the way of corporate catalysts today.

• Uber-valuation.

Yesterday Uber announced another financing round ($1.2 billion), which values the company at  about $40 billion. 

This is another example of malinvestmentthat will likely end poorly.

• The Gospel According to Peter Boockvar.

Mario Draghi now has 7 weeks to convince his colleagues of doing more if next week's TLTRO uptake is modest and its asset purchases lag expectations. In the meantime, the ECB announced today that another 14b euros of LTRO money was paid back as the first tranche initiated in 2012 matures on January 29th 2015 and the 2nd will end on February 26th, 2015. The payback over the past few years is the main reason why the ECB balance sheet has shrunk by 1T euros. In terms of inflation expectations on the heels of Draghi's comments yesterday, his preferred gauge, the 5 yr 5 yr forward is little changed at about 1.80%. Why he is relying on the market's expectations of what inflation will be in 5 yrs for the following 5 yrs is beyond me as most forecasts we know are typically wrong even one yr out. European markets are getting back most of what they lost yesterday as the consensus is growing that Draghi will get what he wants even without German support and the lack of a super majority vote. There was a story in Die Welt (German news) late yesterday that half of the governing council is against sovereign QE. Also helping markets was a better than expected German factory order number for October where most of the 2.5% m/o/m increase came from domestic orders which rose by 5.3%. Exports were up by .6%.

In Asia, the Shanghai index completed the week's gains at 9.5% and has rallied 11 of the past 12 day but last night's action was extremely volatile. Before the 2938 close in the index which was up 38 pts, it had a daily range of 165 pts. Brokerage stocks in particular continued to rip higher as volumes exploded this week. Elsewhere, the Japanese yen is above 120 vs the US$ which is the weakest since July '07. The 10 yr JGB yield closed at .42%, matching a record low. As I've said before, if only the cost of money was the binding constraint on global growth.

US payrolls are expected up by a net 230k with an unemployment rate of 5.8% and average hourly earnings up by .2% m/o/m and 2.1% y/o/y. Ahead of this, the 2 yr yield is touching 56 bps, the most in 2 months and the 2s/10s spread is at 171 bps, just 2 bps off the lowest since May '13. The unemployment rate is just two tenths from being at the upper end of the Fed's yr end 2015 target range. As the rate has been averaging a one tenth decline per month for the past few yrs (give or take), we'll be at their lower end by February. As we expect this to be the case, we also continue to expect a March rate hike, well earlier than expectations.

• I just found the likely catalyst to Monitise's slight share rise.

Virgin Money has announced a seven-year strategic and development alliance with Monitise to provide the bank's customers with mobile solutions. 

• My sources say he's more serious.

Multiple news sources report that Mitt Romney is considering a run for president in 2016. 

I can tell you unequivocally that my sources in Washington, D.C. say that Romney's camp is more seriously moving in this direction now.

I wrote this in early September:

Tell Me Something I Don't Know

SEP 5, 2014 | 7:18 AM EDT

• Former Republican Presidential candidate Mitt Romney is leaning toward running again in 2016.

Occasionally, I publish a column that replicates the theme of "The Chris Matthews Show" segment, "Tell Me Something I Don't Know."

So, Dougie, tell me something I don't know!

Here you go: Former Republican Presidential candidate Mitt Romney is leaning toward running again in 2016.

• Book signing was a great success.

Thanks to all the South Florida-based subscribers that attended my Palm Beach book signing last night.

It was a great success and every book was sold!

• Monitise (MONIF) is trading +5% in London trading on no news.