The reason should not surprise you. In your last update, we warned you that gold and oil could pull back a little in the short-term, and so they did. Gold lost nearly 8% to close at around $920, while oil fell some 6% -- closing nonetheless above $100 a barrel.

We admit the pullback was a little more dramatic than we hoped. But corrections in commodity bull markets can often be sharper than a serpent’s tooth. Indeed, the current correction might not have ended yet. Gold could potentially fall into the mid-$800 range. But we must reiterate that you should view any meaningful drop in gold as a tremendous buying opportunity. The factors that have pushed gold higher since the turn of the century did not evaporate last week. Nor have the factors driving oil prices, or the prices of commodities in general.

Also not surprising to us, the stars last week were the financial stocks. This tells us the massive amount of liquidity the Fed has been pumping into the financial system is starting to have a positive effect.Read more...

As we said in the previous update, this state of affairs cannot be taken lightly. The job of the Chairman is to provide confidence in times of trouble, just as a good physician will give his patients reason for optimism – even when he has no idea what the nature of their illness is. Very often, a simple visit to a good doctor can relieve one’s symptoms – even if no actual treatment is given other than calm reassurance.

By the same token, a doctor who fails to inspire confidence can make an illness worse, in a reverse form of the placebo effect.Read more...

We are very pleased to note that the Fed has been lowering interest rates rather aggressively lately, and using extraordinary measures to add liquidity to the financial system. Clearly, Mr. Bernanke is anxious not to become Chairman who oversaw the start of “Great Depression: the Sequel.”

For all the apparent derision we have heaped on Mr. Bernanke in the past, we believe he has the ability to keep the economy going. Yet, we also acknowledge that the path ahead of him has several challenges…

NEW PRESSURES ON THE EVER-RESILIENT CONSUMERRead more...