Should Greenspan and Bernanke have seen the bubble in housing and other assets and acted, or should we accept their defense that you can't know whether there is a bubble until after the fact? We will look at research that suggests they should have known, and, at the least, policy makers should no longer be allowed to say, "How could I have known?"

Of course, the employment numbers came out this morning, and the results are mixed; but that is better than they have been for the past two years. We dig into the numbers to see what they are really saying. And finally, we examine why the markets are so volatile. Is it just Greece, or is there more? There's a lot of very interesting, and important, material to cover.

But first, and quickly, as I wrote in Outside the Box a few weeks ago, I am starting to very selectively buy biotech stocks, and mostly, though not exclusively, companies associated with the regenerative genetic revolution that is coming our way. I am convinced that this is going to be a decade of the most amazing medical breakthroughs, which will literally change (and in many cases extend) our lives, as therapies to treat all sorts of diseases become available.

This is the last time I am going to mention it, but here is the link to that OTB, which analyzes why we may see a bubble in biotech stocks before the end of the decade. The OTB was written by my friend Pat Cox, who covers these stocks and other technological marvels in his newsletter, Breakthrough Technology Alert. I have been following Pat for some time now, have talked extensively with him, and think he is one of those guys who have a handle on what by all accounts is going to be an amazing decade of breakthroughs.

The unemployment numbers came in today, and if you look under the hood of the data, it is worse than the headline loss of 4,000 jobs. Should the Fed cut the interest rates in two weeks? Will it make a difference? Are we headed into recession (as predicted here in my January 2007 forecast issue)? When do we see a bottom in the housing market? Are we there yet? We look at all this and more. It should make for an interesting letter, if I can get my jet-lagged body to cooperate.

But first (and quickly) let me mention that I will be at the venerable New Orleans Investment Conference October 21-25. This is the grand-daddie of all investment conferences and features some of the top investment analyst and minds in the country. Among the many speakers are James Grant, Ann Coulter, Lawrence Lindsey, and good friends Marc Faber, Dennis Gartman, Doug Casey. Click on the link and then click on faculty to see what is one of the highest quality gatherings of top-notch speakers at any conference anywhere. You should check it out, especially if you have an interest in gold and natural resources, as some of the top investment analysts in that area are always there. If you are there make sure and look me up.

And quickly, speaking of gold, it is soaring. It closed at over $700 today, in partial reaction to the awful employment numbers, which was not good for the dollar. But there is another interesting story going on in the background, pointed out to me earlier this week by that South African gold maven Prieur du Plessis. He points out there is a massive build-up of call options in the October and December Comex gold contracts, similar to a period in November 2005 prior to the gold price surging by more than 50%. Smart money? Maybe. But the recent 6% move or so may not be all there is in the "barbarous relic."

This week we look at length at an outstanding new book just hitting the bookstores by good friend Paul McCulley (of Pimco fame), called Your Financial Edge . The main themes will give me an opportunity to weave in a few thoughts about some recent data, and a lengthy telephone interview with Paul, done just before writing this week's letter, will bring us up to date on his current thinking. I think readers will take away a few good ideas, so let's jump right in.

Paul McCulley is someone we should listen to. He not only runs a rather large portfolio at PIMCO, his calls on the Fed are critical. In just one day, a correct prediction by McCulley that the Fed will unexpectedly raise or lower its Fed funds rate by a quarter of a percentage point can mean a $3-5 billion jump in the value of the $670 billion worth of mutual funds and private client funds managed by PIMCO. He writes a monthly column that I consider a must read, and his writing has been a feature in Outside the Box more than that of any other analyst. He is simply one of the best financial minds in the country. When he talks, you should listen.

Your Financial Edge was co-written with Jonathon Fuerbringer, a reporter for 24 years with the New York Times , who brings a very clear, crisp, and fast-paced style to the book; but long-time fans and readers of Paul recognize the source for the driving themes of the book. The book is subtitled "How to Take the Curves in Shifting Financial Markets and Keep Your Portfolio on Track" and is a marvel in how it simplifies the problems facing investors in the coming years, giving us a framework for both understanding and dealing with them. This book should be read by both investors just starting out and seasoned pros, and both will come away with a lot of new ideas and understanding of how the market works. I really can't recommend this book highly enough, and if you read it you will see why I think it deserves at least a full letter on its own.

I am taking some time off from writing over the holidays, but good friend Barry Ritholtz offered to write this week's letter. It is a very thought-provoking piece on the importance of what he calls the "real estate industrial complex" to the economy. Loaded with charts and statistics, it is the type of work I have come to expect from Barry over the years. Barry is Chief Market Strategist for Ritholtz Research and Analytics in New York.

I will be doing my annual forecast issue for next week's letter, and this piece by Barry is a good set-up. But before turning you over to Barry's capable hands, let me wish you and yours a very Happy and Prosperous New Year. I want to thank you for letting me come into your life with my weekly musings, and sincere note of appreciation for all the comments and kind words.

This week I am in New Orleans at the annual New Orleans Investment Conference and quite frankly with so many good friends that I have given myself permission to not write a letter this week. But you will be getting an even better writer than me for this week's letter.

I arranged for good friend Gary Shilling to condense his 40 page letter on the housing market for you. While this letter will print long (for those of you who print the letter out), it is mostly charts, which Gary excels in. Gary argues that housing prices are not in for just a small decline but a material drop. I have argued that it is housing that will be one of the main causes of the next recession sometime next year. So without adding too much more copy, let's jump right into Gary's analysis. If you like this type of work, you can subscribe at http://www.agaryshilling.com/insight.html.

We have been told for months that the next interest rate move by the Federal Reserve is dependent upon what the data tells us prior to each meeting. If the data tells us that inflation is too high and/or the economy too strong, the Fed will continue in its pause mode or maybe even hike rates. If inflation comes down and the economy begins to soften, the next interest rate moves will be down.

But that begs the questions, "How reliable is the data?" and "How does one interpret the data?" This week we start with a look at a remarkably candid speech by Richard Fisher, the president of the Dallas Federal Reserve. We then look at what the data tells us about inflation, the relationship between housing construction and GDP, and the disconnect between the bond and stock market.

The more I learn of Richard Fisher, the more I like. He is refreshingly clear, as well as candid, in his presentations. He will tell you he is not a trained economist, but rather a Harvard MBA with a focus on decision making under conditions of uncertainty. In a speech this week to the New York Association for Business Economics, he talked about the need for more and better data to help in the decision-making process.

I had occasion to be in my car this morning, listening to CNBC, when the host of the show (Bob Pisani, a very nice gentleman on the few occasions I have had the opportunity to meet him) was arguing with a modestly bearish guest. Yes, there are a lot of reasons for concern noted by bears, but the market is clearly disagreeing with their pessimistic views. Stock indices are hitting cycle highs and seem poised to go higher. He and many other optimists seem to be of the opinion that since the market is going up, it is telling us that the economy is ready to find a Goldilocks "Ahhh, this porridge is just right!" soft spot on which to land.

However, as I remember it, the end of the Goldilocks fairy tale is not so sanguine. The final lines are "Just then, Goldilocks woke up and saw the three bears. She screamed, 'Help!' And she jumped up and ran out of the room. Goldilocks ran down the stairs, opened the door, and ran away into the forest. And she never returned to the home of the three bears."

But Bob makes a good point, which should give us pause. How does one argue with Mr. Market? Shouldn't the collective wisdom of hundreds of millions of investors give us reason for concern when they clearly disagree with our own modest insights? Fighting the trend is never a good way to stay alive in today's markets.

What is the relationship between housing prices and stock market forecasting? What will happen if the housing market begins to falter? Exactly what did Greenspan say about housing at Jackson Hole? We explore these topics and a whole lot more and hopefully we can tie them all together by the end of this letter as we meditate on the potential risk of the recent housing boom.

Let's start with forecasting. Every few weeks I get a wonderful letter from good friend James Montier, who is the global equity strategist of Dresdner Kleinwort Wasserstein. James is an expert on behavioral psychology and investing. This week's letter is lamenting the rather poor track record of forecasting by economists and analysts.

Looking at a recent magazine covers one is left with the impression that the whole world is concerned about US real estate prices. This is borne out by the fact that if you go to Google and type in sex you get 78,000,000 hits. If you type in real estate you get 110,000,000 hits, which makes housing about 40% more interesting than sex. Is there a greater sign of a bubble? But if you type in housing bubble you get "only" 1,120,000, so there is not much worrying going on. While the above facts do not constitute a scientifically valid study, they make a fun launching point for this week's letter. Are we in fact in a housing bubble? How long will prices continue to go up? Will they start to fall, or even crash, and when? We explore all this and more.

With many sub-market indexes hitting new highs, and given the recent performance of the market, how can I maintain we are still in a long-term secular bear market? Shouldn't we get back in, as so many advise? That is a reasonable question, and the subject of today's letter.

We will start with a few quotes, and then move on to my commentary. A. M. Clifford writes:

"We are witnessing today a most extraordinary financial phenomenon, in the form of a Stock Market which has advanced with a rapidity and to an extent unparalleled in modern financial history.