Thanks to Sherry for this wonderful video on the impending collapse of the USD.  As with any video either promoting gloom and doom or the sky’s the limit, we should review it critically because everyone has an agenda, myself included.

What I can tell you, as a Forex trader, is that we’re in the midst of a major trend away from the USD.  The reason is quite simple, US economic fundamentals are dismal and the Fed continues to pump up the money supply just to stabilize us from the real estate and subprime mess.  I happen to agree with the “Fat Man” example in the video and Austrian Economics will tell you that imbalances will eventually correct themselves, no matter how hard you try to intervene (ala Federal Reserve).

What does this mean?  Well I for one have been slowly buying non USD denominated assets in my Forex Acct.

My Engineering buddies in New Mexico and Kansas have reported and the news is mixed. My buddy in Kansas indicates that he’s really busy with public sector work but slow with private work. His outlook is neutral to up. A few States over, my New Mexico buddy is telling me that he’s slow overall and his outlook is neutral to down.

So updating my Economy and Engineering Work Poll we get:

• NJ Engineer #1 – UP
• NJ Engineer #2 – NEUTRAL
• CA Engineer #1 – NEUTRAL
• KS Engineer #1 – NEUTRAL
• NM Engineer #1 – NEUTRAL
• Me – UP

It seems likely that NJ Engineer #1 and I are experiencing a “blip” in work right now but based on the NEUTRAL readings, its hard to tell if we are teetering on a recession or not.  Who knows but work might just pick up all of sudden for all of us, which is usually the case.  We’re either overly busy or overly slow!

I’m fooling around with carry trading in the AUDUSD pair. I’ve been long since last week and been underwater since then. However, I’m collecting a good amount of interest daily so I’m pretty happy about it. My rationale behind buying this currency pair is this: the pair is influenced by Gold prices and I believe we’ll see Gold push higher, I expect the USD to continue to weaken, and the Australian bank is likely to remain hawkish and willing to raise rates. Of course I could be wrong and go down in flames collecting interest. :)

Will we be able to stay out of the financial dog house? Maybe, but only if 10 year yields can stay below 4.5%! Why 4.5%? If you look at the chart below, the RE market took off right around the time the yields dropped below 4.5% in late 2002. Subsequently, the RE market topped when yields broke over 4.5% and stayed there till now. I believe that recent rate cuts and market instability will have the indirect effect of easing pressure on the Real Estate market. As the flight to safety accelerates and the rate cuts work their way into the market, yields will probably continue to drop.

The reason I say this is that the rumor of another rate cut and a slow economy will make bonds more attractive and put pressure on yields to the downside.  In turn, this will lower borrowing costs for qualified buyers to refinance their mortgages, attract new buyers, burn off the inventory, and adversely raise inflation (this is bad).

Thanks to Helicopter Ben, we’re starting the party up again.

To build on yesterday’s post, I called a few more of my Civil Engineering buddies yesterday, one resides in California and other in NJ.  Both gave me conflicting reports on how active their phone has been ringing. My NJ buddy told me that his phone has been very active but its because owners want to finish up their work before their permits run out. According to him, many of them got their construction permits and waited to see if the Real Estate market would firm up. Well we know that RE market actually softened so now its a scramble to get the work done quickly. This was not good news and his outlook is neutral to negative for work.

My California buddy told me that his phone was ringing like crazy in October but hasn’t rung once in November. This is a mixed reading because he typically slows down in November and December and he couldn’t tell if it was due to the economy or just from the yearly cycle. His outlook is neutral and he’s hoping for more work in 2008.

I think its interesting to summarize these findings into a poll so I’m unveiling my new Economy and Engineering Work Poll. I hope to update it occasionally and as time permits.

• NJ Engineer #1 – UP
• NJ Engineer #2 – NEUTRAL
• CA Engineer #1 – NEUTRAL
• Me – UP

My New Mexico and Kansas buddies haven’t reported in yet and I’ll post that information as soon as I know!

Citigroup Inc (C) touched a 5 year low yesterday and we’ll be seeing C in the low 20′s for sure as one smart commenter predicted on this site. As the news breaks about C’s “not on the balance sheet” Structured Investment Vehicles (SIVs), I can’t help but wonder if Citigroup is now the Enron of the financial world? Emphasis mine.

Citigroup said it has no plans to mimic HSBC’s move. So far, Citi (NYSE:C) has committed $10 billion in liquidity to the seven structured investment vehicles it manages on an ‘arm’s length’ basis, and has kept them off its balance sheet — meaning Citi has not been counting the SIVs’ debt as its own. [via CNN Money]

Citigroup better come clean quick or its over for them.

I’ve been in the Civil Engineering business for over 13 years now and I work on large transportation related projects such as light rail, roads, subways, etc. I recently left my old job because they weren’t winning any work and I had nothing left to do. I thought this was strange because engineering related activity in NY/NJ/CT region recently sprung to life like never before.

This sudden surge of activity piqued my interest because its often said that Civil Engineers are the economic canary in the coal mine. If work dries up for them then 12 to 18 months later Contractors will be laying off people. When construction slows down you typically teeter on a recession! The opposite is true if the Engineer’s phone is ringing off the hook with work, Contractors will typically be hiring 12 to 18 months later.

Although I consider myself very perceptive in these observations, I still won’t come out and say that its definitive proof that the economy will get better. I still think we have a lot of pain to get through, especially in the housing and subprime markets.

Then something happened this weekend that made me ponder this new activity deeper. A friend, and fellow Engineer, made a surprise visit to our house this weekend. My buddy happens to be on the other end of the business, the commercial and residential site development sector. For the past 10 months he’s been miserably slow and struggling to keep his staff of four engineers busy. I expected him to tell me that he’s about to lay off but instead he told me that work was finally picking up.

Hmm.

Could this mean that the phones are ringing for us again? Is this the beginning of the a recovery in the US economy? Perhaps, but realistically its still too early to tell if we Engineers are seeing the beginning of a turnaround in work across the country or if this is a “blip”. Still though, I can’t help but see a small glimmer of hope out there and I’m happy to be busy again.

I live in a semi-rural area of NJ with lots of trees, open space, and great neighbors. My wife has gotten into gardening over the past few years and learned that you can “trade” plants instead of buying them at Lowes and Home Depot. She met this old German couple on the other side of town who transformed their 1 acre property into a virtual Garden of Eden and did so by trading plants with neighbors and friends. They were preparing for the Winter and digging up some of the more temperature sensitive plants when they called my wife and asked if she wanted a few of these plants. Not wanting to pass up anything free, we drove up to their place with a few buckets to collect the tublars.

I really enjoyed their garden and their wonderful plants but what got my attention was the husband’s solar heating array. This man built a 5′ x 4′ box with a plywood back using free scrap materials he found at various construction sites. Then he found flexible black tubing, tubing racks, and two large pieces of mirror all from job sites that were free. He placed them in the box, connected the tubing, and filled it with water.

He was shocked and surprised that the water would reach 180 F quickly and began using this hot water to heat his pool and hot tub. His pool would get so hot that he would have to shut the system down because he couldn’t use all the hot water. His solar heating array (approx 20 SF) was so successful that next year he plans on building a larger and permanent one on his roof.

What impressed me about his little project was the cost, he spent no money (I’m not counting labor to build and install) on materials to build it. He just believes that “one man’s garbage is another man’s treasure” and kept his eye open for some good materials that people were throwing away. His motivation for this project? He didn’t want to spend money (energy) on heating his pool and hot tub!

It goes to show you that you don’t need to spend thousands of dollars to help the environment or reduce your energy use, you just need to be creative, frugal, and use your brains!

Shares of Pfizer Inc (PFE) gapped up on Friday and they popped up on one of my scans. I owned PFE for my wife’s portfolio a few years ago and sold it after it gained a dollar or so, good thing I did because it went no where. The monthly chart still shows PFE below the 50 MMA. Nope, nothing to see here, moving right along.

Here’s the deal, volatility is probably going to remain elevated throughout the Holiday season. The brunt of the subprime mess is just hitting now and the Fed will probably lower rates one more time just to stabilize things. If they don’t, expect the S&P500 to be trading somewhere below 1200 (my guess). I’m a buyer at any signals below 1400 so we continue to remain on the sidelines.

The charts are below, for some reason the PNG’s are not showing up in the WP image box.

SP500 Volatility Returns 112307

SP500 Volatility Chart 112307

SP500 Volatility Indicator 112307

Yesterday, on Black Friday, we saw a nice relief rally in the markets but the cynic in me says it won’t last. The markets have room to go lower and everybody’s wondering if Santa Claus will skip Wall Street this year. The initial results from my S&P500 Volatility model is showing elevated volatility still remains and any news on more subprime write downs would be sure to push the index lower. I’m not a buyer at these levels but would get very interested in BUY signals below 1400.

Check my members section tonight for my full S&P500 Volatility Timing report. It’s still free to signup but not for much longer.

The following is next week’s Forex and Futures forecast from my neural net models:

• AUDUSD – UP
• GBPUSD – UP
• EURUSD – UP
• USDJPY – UP
• CHFUSD – UP
• Gold – UP
• Oil – UP