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 had two more Federal Reserve members repeat what has become the theme for their chorus, but not one the market seems to be paying much attention to. It should be. The market believes the Fed will soon start to cut rates, perhaps as early as first quarter of next year. It is not altogether clear that this will be the case.

I must admit to being somewhat baffled as to the apparent disregard by the stock market for what I view as a tough environment in the medium term with either a slowdown or a mild recession being suggested by numerous factors. While there are a lot of positive features to the economy, to me the risk to the economy still seems to be to the downside. I take small comfort in the fact that this perspective is shared by Fed Vice Chairman Donald Kohn, a very solid economist and financial market observer.

On Tuesday night at New York University, Kohn stated that he is more concerned about inflation than slowing economic growth because a recession is unlikely. "In the current circumstances, the upside risks to inflation are of greater concern...I am surprised at how little market participants seem to share my sense that the uncertainties around these paths and their implications for the stance of policy are fairly sizable at this point."

This week we look at an interesting index of greed and fear, look at the yield curve and the new 30 year Treasury bond, the latest unemployment numbers and a lot more. What do they tell us? Is there a theme or at least a rhyme? Or is it all random noise sent by the market gods to lull us back into the mistakes of the past?

The markets are a race between greed and fear. Right now Greed is looking like Seabiscuit beating War Admiral by four lengths at the stretch. (As an aside, you can read the greatest descriptions of that race - and one of the truly great sports columns of all time - by the incomparable Grantland Rice at http://www.secondrunning.com/seabiscuit_war%20admiral.htm. That man could stir the soul with his words, and this was Rice at his best.)

Good friend James Montier over at Dresdner Kleinwort Wasserstein in London has been tracking his own measure of fear and greed for the last few years. It is a fairly simple measurement but it does show some very interesting patterns. He admittedly has not looked at the index for awhile (it is rather like watching paint dry on a week to week basis), so he dusted off his old data files and updated his index. What a difference a year makes. The index has only reached this level of greed in September of 1987 and May of 1996.

Nearly all eyes are on the terrible devastation caused by Katrina, and rightly so. I can do little to add to the amount of news you already doubtlessly have, but in today's letter we will look at some of the economic implications from this tragedy, as well as how they fit into the larger picture of what is already unfolding, and specifically Federal Reserve policy. We will look at a lot of individual items up close, and then see if we can then step back and see if we can make some sense of them.

One of my favorite moments in Dallas Cowboy football was when Hall of Fame quarterback Roger (the Dodger) Staubach would come up to the line, see the problems in front of him, and call an audible. (For foreign readers, that means he changed the play at the last second, shouting out a code for a new play.) Let's see if I can make a case where Fed quarterback Greenspan needs to come to the next Fed meeting and call an audible.

Will rising rates cause the hedge fund world to blow up and bring down the economies of the world? What about the huge recent rise in the money supply? Are the large employment numbers for real? Is inflation coming back? Will the economy continue to grow? All good questions upon which we will muse.

(Yes, I know I was supposed to write about the housing bubble, but my associates keep bringing in important new research which must be read. Unfortunately, they are all quite long and written by PhD economists, which is to say, dense and complex. I will get to it, I promise.)

This week we take a look at what value really means, and I offer a few thoughts on the recent employment numbers. They may not be what you think.

I am taking a little R&R this weekend, and have asked my friend Lynn Carpenter who is the editor of the Fleet Street Letter and The Optionist to give us her thoughts on value investing. It is a wise and witty essay, and I commend it to you.

Today we look at recent Fed statements, which give us more than a few clues as to what is really happening in the economy, plus a few thoughts on the markets.

The song in my mind the past few days has been "Free at Last." My book in progress is finished - all 24 chapters! It's in the hands of my staff and the capable editors at Wiley. They tell me it will be 400 plus pages, bordering on 500. I left about 300 pages on the editing floor. More on that below.

Today's letter may be one of the more controversial, or at least debatable, letters I have written in some time. I take a very out of consensus position on interest rates. As promised last week, we deal with the question, "What ever happened to the Muddle Through Economy with the GDP is growing at 7.2%?" Is it time to abandon the concept? I think this week I will leave you a few things to think about, so let's get started.

First, let us recall Keynes' bon mot when asked about why he changed a previously stated position, he replied "Sir, the facts have changed, and when the facts change, I change. What do you do sir?"

What can we make of the huge variations in economic predictions by quite reasonable analysts? I briefly touch on the topic from my perch in Halifax where I am cool, if not calm or collected. We then go on to Part Two of Art Cashin's excellent essay on how the world of economics really works.

For the last few days, I have been catching up with the reports which accumulated in my email inbox while I was in Cape Breton with my bride. I have been struck by the veritable chasm between analysts for whom I have a great deal of respect. I am not talking about market cheerleaders or professional bears, but those who simply try to sort out the ying and yang of the economy, with no axe to grind. There are those who see the economy recovering sharply and those who are clearly worried about future prospects. In a conversation with Dennis Gartman, no slouch himself at the forecasting game, I told him I could not remember a time when competent analysts disagreed so much.

I get a lot of reader questions and comments along the following lines:

"John, how can you believe we are in a Muddle Through Economy when (pick a statistic) is so strong? Look at this indicator. Don't you think we are finally in a strong recovery and a new bull market?"

Then, I get even more like this: "John, how can you believe we are in a Muddle Through Market when (pick a statistic) is so disastrous? Look at this number. Don't you think we are headed for a stock market crash?"