The Great Crash Ahead by Harry S Dent, Jr With Rodney Johnson – Book Review

Synopsis of Content: Harry Dent has been confounding the “experts” for twenty years by predicting economic and financial trends and markets based largely on demographic data and economic cycles.

This is his fifth book in a series that has predicted economic trends. If Harry Dent is right yet again everyone should be reading this book! Dent’s thesis is relatively simple enough: he submits that demographic trends drive economic cycles that have been predictable for several centuries and that these cycles drive the economy regardless of much else that is going on.

This fifth book traces that giant “baby boom” generation – 92 million people in the US born between 1946 and 1964 who have had the greatest impact on our economy and society in the past half century. He explains how this large demographic changes demand for goods and services as they pass through different phases from the explosion of school construction in the 1960s to educate them to through the strong economy of the 1990s and early 2000s when they were at the peak of their consumptive period.

The Great Crash Ahead now predicts an economic depression from 2008-2018 or longer due to the aging of this demographic and its reduced demand for goods and services. Combined with misguided government and financial policies this cycle built a giant “bubble” for real estate and credit during the first decade of the 21st century. This period from 2001-2007 was seen as a good time with easy credit and easy access to home ownership.

All bubbles in the economy are self-correcting. Dent describes how the correction in this credit and housing bubble combined with the steady reduction in spending by the largest group of Americans is working to create the worst financial depression since the 1930s. He weaves through this the over extension of credit both to the government and the private sector and how it cannot be quickly repaired. This then inevitably leads to failures of the financial markets and significant price deflation for the next decade. Dent does not limit himself to the US. He explains how similar bubbles and demographic trends led to the depressed Japanese economy for the past 20 years and will lead to similar problems in Europe and China.

Dent bases much of this on an 80 year cycle of boom and bust that his research shows has repeated itself many times over the past several hundred years. Now 80 years after the great depression we are again in the “winter” of this cycle which will last ten to fifteen years before a new spring will lead to a slow recovery in the 2020s.

It is difficult to ignore Dent’s theory. In the late 1980s he predicted the demise of the Japanese economy when most economists and pundits were bullish on Japan. Likewise in the 1990s when many were predicting difficult times for the US economy Dent was predicting the boom of the 1990s and early 2000s. The book traces the failure of government to correct this cycle because it simply cannot do so. It examines the huge private and government debt which must be paid off or written down to restore the economy. His macro predictions have been spot on so far, making it foolish to ignore what he says now. If he is wrong it will be the first time in his three decades of predictions and if he is right we are in for some tough times.

At the end of the book Dent gives advice for how we can use this information to protect assets, invest wisely in this “new” world. He teaches how to forget the way of doing things that we learned over the past half century and learn how to adapt to a new economy.

To be sure Dent has his critics. A quick Google of his name and books shows a number of highly critical articles arguing that Dent assumes too much, that his analysis while technically impressive overlooks other factors that will influence the economy beyond his demographic predictions and some who offer complex Elliott wave analysis suggesting that Dent has it wrong.

At the same time he has some impressive supporters. David Bach, John Thomas, Kim and Charles Githler, and a long list of others endorse his book. I cannot say for sure whether Dent is right or the critics are – but if he is right, he bears consideration. Again, while some of the details of his predictions may not have always panned out perfectly one cannot overlook or dismiss the general accuracy of his predictions to date.

Usefulness: It must be noted that any predictions of future economic trends and behaviors are inherently fraught with risk. However if Dent’s predictions in this book are as accurate as his past analysis this will prove very useful to anyone saving for retirement, investing, running a business or choosing a career.

Readability/Writing Quality: Dent writes clearly and well. The book is full of rather complex economic and demographic analysis. It is not an easy book to read but well worth the effort to understand.

Notes on Author: Harry Dent is an author and head of the HS Dent Financial Advisor Network. He publishes a regular financial newsletter. He is author of The Great Boom Ahead, The Roaring 2000s Investor, The Next Great Bubble Boom and The Great Depression Ahead.

Three Great Ideas You Can Use:

1. The economy is driven primarily by demographic trends which in turn drive economic cycles. External activities including wars, natural disasters and government actions have a minimal effect on these trends. Understanding these cycles and trends is critical to plan for the future and protect investments.

2. In the later part of the first decade of this century we have entered a winter phase of a very large 80 year demographic and economic cycle. Nothing the government does will change this. This winter cycle will lead to large debt restructuring, market corrections and deflation. The period between 2008-2018 will look much like 1930-1940.

3. Understanding this mega trend and its inevitable consequences is essential to investing wisely over the next decade to protect current assets and exploit the winter economy.

Publication Information: The Great Crash Ahead by Harry S. Dent, Jr. with Rodney Johnson Copyright 2011 by H.S. Dent Publishing Published by Free Press, a division of Simon and Schuster

How to Trade – Book Review – John Murphy, Intermarket Analysis

The majority of literature that discusses asset allocation linking multiple markets has a heavy dose of macro and microeconomics. Typically, macro-micro relationships require applying econometric models to comprehend the structural linkages between the two intertwined fields of economics.  John Murphy removes the hard statistical methods while retaining the economic logic with chart-based reasoning.

John Murphy was the technical analyst for CNBC-TV for seven years and a professional analyst for over 25 years. His career includes time at Merrill Lynch as a Director of Commodity Technical Analysis.  John has his own consulting firm, JJM Technical Advisors.  He is also president of MurphyMorris, Inc., which was created to produce educational software products and online services for investors.

There are adequate reader reviews on Amazon and Google Book Search, to help you decide if you will get the book. For those who have just started or are about to read the book, I’ve summarized the core concepts in the larger and essential chapters to help you get through them quicker.

The number on the right of the title of the chapter is the number of pages contained within that chapter. It is not the page number.  The percentages represent how much each chapter makes up of the 246 pages in total, excluding appendices.

1.  A Review of the 1980s.  16, 6.50%.

2.  1990 and the First Persian Gulf War.  16, 6.50%.

3.  The Stealth Bear Market of 1994.  18, 7.32%.

4.  The 1997 Asian Currency Crisis and Deflation.  14, 5.69%.

5.  1999 Intermarket Trends Leading to Market Top.  16, 6.50%.

6.  Review of Intermarket Principles.  16, 6.50%.

7.  The NASDAQ Bubble Bursts in 2000.  18, 7.32%.

8.  Intermarket Picture in Spring 2003.  16, 6.50%.

9.  Falling Dollar During 2002 Boosts Commodities.  14, 5.69%.

10.  Shifting from Paper to Hard Assets.  14, 5.69%.

11.  Futures Markets and Asset Allocation.  20, 8.13%.

12.  Intermarket Analysis and the Business Cycle.  20, 8.13%.

13.  The Impact of the Business Cycle on Market Sectors.  18, 7.32%.

14.  Diversifying with Real Estate.  18, 7.32%.

15.  Thinking Globally.  12, 4.88%.

Focus on chapters 3, 7 and 11-14, which makes up about 46% of the book. Especially chapters 11-14 are relevant for practical trading purposes.  Unlike my prior book reviews, where I’ve summarized the key points for each focus chapter, I will summarize the key points across chapters 3, 7 and 11-14. This is to recognize the connectivity of intermarket relationships across the 4 main asset classes of Stocks (Equities), Bonds, Currencies and Commodities.  The context of the summary is to be viewed from a retail option trader’s perspective.

Here are the Key Directional Intermarket Relationships in brief.

The U.S. Dollar (USD)

  • USD turns up as Bonds rise under normal conditions but Bonds fall during deflationary periods. USD turns down as Bonds fall but Bonds rise during deflationary periods.
  • USD turns up as Commodities fall.  USD turns down as Commodities rise.
  • USD turns up as Stocks rise but Stocks fall during deflationary periods. USD turns down as Stocks fall but Stocks rise during deflationary periods.

The USD remains the most liquid of all major traded currencies and maintains its position as the primary global reserve currency, despite growing sentiment for an alternative basket of currencies to replace it.

Bonds

  • Bonds turn up as the USD falls but the USD rises during deflationary periods. Bonds turn down as the USD rises but the USD falls during deflationary periods.
  • Bonds turn up as Commodities fall.  Bonds turn down as Commodities rise.
  • Bonds turn up as Stocks rise. Bonds lead Stocks and Stocks lag behind Bonds. Bonds turn down as Stocks fall. Again, Bonds lead Stocks and Stocks lag behind Bonds.

Commodities

  • Commodities turn up as the USD falls.  Commodities turn down as the USD rises.
  • Commodities turn up as Bonds fall. Commodities turn down as Bonds rise.
  • Commodities turn up as Stocks fall. Commodities turn down as Stocks rise.

Stocks

  • Stocks turn up as the USD rises.  Stocks turn down as the USD falls.
  • Stocks turn up as Bonds rise.  Stocks turn down as Bonds fall. Again, Bonds lead Stocks and Stocks lag behind Bonds.
  • Stocks turn up as Commodities fall.  Stocks turn down as Commodities rise.

Specific to Equities, as you trade the options on Sector Indexes of the S&P 500, please be aware of the correlation versus non-correlation with other equity and non-equity traded products. I am stating in brief, the more commonly known relationships that are repeatedly elaborated on in the book:

  • Changes in Energy (XLE) especially Oil (OIH, OSX) impacts Semiconductors (SMH, SOX).
  • Utilities (XLU, UTH, UTY) are negatively correlated with Semiconductors (SMH, SOX).
  • With broad-based Equity Indexes, the highest correlation is between Dow Jones and S&P 500.
  • Canada benefits from rallies in oil being the ninth largest producer of crude oil globally.  While Japan, a major net oil importer suffers. The tickers for this inter-play would be FXC/XDC (Canadian Dollar), FXY/XDN (Japanese Yen) and OIH/OSX (Oil).
  • Gold (XAU, GLD) behaves like the Australian Dollar (FXA, XDA). Australia is the third largest producer of gold globally.
  • Top three currencies that have the tightest correlations with commodities are the Australian Dollar, the Canadian Dollar and the New Zealand Dollar.
  • Gold/Silver (XAU, GLD) has very little correlation with other Indices.
  • A deeper understanding of these inter-plays can help you construct effective pairs trading methods.

In conclusion, from a retail option trader’s viewpoint, always remember that it is volatility that you are trading.  To trade the volatilities across multiple asset classes, use an optionable Index representing that particular asset class.  Remember, Implied Volatility can be added to or reduced from your portfolio, as not all Asset Classes or Sectors or Individual Companies or Countries move up/down in value ALL at the same time; and/or, ALL at the same rate.

 

This is not a criticism of the book but a personal observation.  It does not address the use of Relative Strength as a mechanism to cycle in or cycle out of an asset class, as one asset class weakens or strengthens against another asset class.  I have written about Relative Strength in another article, entitled “Stock Option Trading – Fundamental Flaw in Fundamental Analysis and Stock Picking”. Please read it as a supplement to this article.

The Stars Shine Down by Sidney Sheldon: A Book Review

I got tired of mouse clicks and clicking pages on my laptop. Instead, I badly wanted a feel for solid pages in my hands. That’s when I thought I would take a break and enjoy reading a novel, flipping through its pages for real by my favorite author, Sidney Sheldon.

I went to the nearest bookstore and felt compelled to buy three novels by him and hoped to enjoy weeks reading them which is exactly what I did. One of these books was, “The Stars Shine Down”. I do want to provide a review of this well-structured, well-plotted and well-crafted novel. Read on for the review.

The novel describes a 17-year old girl, Lara who has a hate relationship with her Dad because no matter how much she wants to impress and love him, he always passes on stinging remarks about her. After her Dad passes away, she dreams of erecting a building in a nearby spot from where she currently lived in a boarding house. Eventually she materialized her dream and that was how she got into real estate business.

She also aged and became a beautiful lady and everyone was mesmerized at the first glance. Yet she was America’s princess travelling London to New York, from Rino to Rome constructing buildings, hotels and shopping centers. She was successful and became a self-made billionaire. Of course, she had help all along. She also came across her soul mate while travelling, who happened to be a pianist. They fell in love and married each other. Yet they were from different backgrounds, one erecting high rise and the other engrossed in music.

When all her valuable assets seemed to be crashing down and she almost broke off with her husband, a surprise birthday party from her husband, friends and colleagues made it all a happy ending for her.

This is a fabulous book to encounter. I would recommend it to anybody who is interested in reading novels.

Some of Sidney Sheldon’s blockbuster novels are “The Sky is Falling, “Tell me Your Dreams”, “The Best Laid Plans”, “Morning, Noon & Night”, “Nothing Lasts Forever” and a countless other ones. Almost all have been number-one international bestsellers. His first book, “The Naked Face” was acclaimed by the New York Times as, “the best first mystery of the year” and received an Edgar Award. Most of his novels have become major feature films or TV miniseries and there are more than 300 million copies of his books in print throughout the world. Undoubtedly, Sidney Sheldon reigns as one of the most popular storytellers of all time.

Multiple Streams of Internet Income by Robert G Allen – Book Review

Title and Author: Multiple Streams of Internet Income by Robert G. Allen

Synopsis of Content:

Allen’s thesis here is threefold: first, that you can make serious money on the internet, that it is the gold mine of the future; second, that in order to maximize internet opportunities you must exploit several of them, or what he calls multiple streams, and third, done right this is a fast way to make profits.

The strength in this book is the innumerable tips and tricks that a person new to internet commerce would not know but a veteran likely would. The important websites and internet resources alone are probably worth the price of the book if you are starting out on the web or even are fairly new to this. Another strength of the book is the myriad of ideas it suggests for you. You can and should return to this book time and again to mine from it the gems of information that can lead you to opportunities. This is not a detailed how-to manual. It is a great survey of the basic ways that people are making money on the internet.

The chief weaknesses of the book are that it makes assumptions that may not be valid for the inexperienced reader and it promises too much too easily. Typical of the Allen approach, he is short on the obstacles and limitations and long on the promise for wealth and ease of effort. For example he discusses how quickly you can generate rapid sales from a well written sales letter by email but fails to tell the reader that this only works when you have built up a very impressive email opt in list and that they take either a lot of money or a lot of time and effort to create.

If you can bear that caveat in mind and remind yourself that there are no get rich quick schemes (at least none that are legal) you can still benefit significantly from this book.

I have not seen an all around basic introduction into the many opportunities to make money on the internet that is better than this one or more comprehensive. If you want to see the opportunities out there and get excited about following one or more such “streams” this book is a great introduction and a good motivator. Just remember there is a whole lot of work and a lot more education needed to accomplish the kinds of income flows that Allen suggests are easy to do. This book may well be the start of your internet wealth library but only the start – it will take a lot more to get you there.

One principle that Allen teaches here however is worth a comment as it is very true and very important: it is critical to set up multiple sources or “streams” of income on the internet because you are not like to find any one source that is perfect or last forever. Many internet sales systems burn out over time and new “campaigns” need to be launched to capture more sales.

This book was written in 2001 and is therefore very dated. The internet and internet commerce is changing rapidly. When he wrote this there were no social media such as Facebook and very little use of video on the web. On a conceptual level Allen’s book remains relevant but on a technical level much has changed since he wrote it.

Readability/Writing Quality:

This book is easy to read. Allen writes clearly and makes it all interesting. He uses lots of sub titles and organizes the information well. He uses text boxes with supplemental information, many of which contain gems worth more than the regular text.

Notes on Author:

Robert Allen is an author who has written on wealth building for many years. He started out with a book called No Money Down about how to buy real estate for no money down. A great deal has been written over the years about the validity of Allen’s real estate theories. I will leave that to another time and place when we do an author feature on him. For now it is enough to remind the reader that Allen is long on motivation and promises of the possibilities and short on acknowledging what can go wrong, where the weaknesses are, etc. He is a great read if you want motivation and want to stimulate your wealth building imagination. He should never be the final word – to do your due diligence in building any kind of business you need more than a motivational introduction.

Three Great Ideas You Can Use:

1. Once you set up an internet money machine, that is an internet sales system, it operates almost on auto-pilot. It takes little daily attention and if it was done correctly and if you have built a sufficient opt in list your sales will flow in day and night without much effort on your part.

2. The key to building solid and sustained sales on line is to build a good opt in list and to continue to grow it.

3. Good copy – that is, well written sales pages, are the key to turning those potential customers on your opt in list into actual buyers. Practice and refine the art of good copy writing to maximize your sales opportunities.

It is difficult to narrow the list to three. Allen does have a lot of gems here that you need to know from some source if you want to make money off the internet. If that is your interest this book is an excellent introduction.

Publication Information: Multiple Streams of Internet Income by Robert Allen, Copyright: 2001 Robert G. Allen. Published by John Wiley & Sons, Inc.

General Rating:Good

Increase Your Financial IQ Book Review – Part 2 -Protecting Your Money

Once you have learned to solve problems and earn some money, the next thing you need to do is to protect that money from what Robert Kiyosaki calls “financial predators”. Real world predators do not always look the part. Sometimes, they are ordinary people with well-meaning intentions. Their job is to “legally” take money from your pocket…and your job is to “legally” have them take as little as possible.

According to the book, there are 7 financial predators you need to protect your money from. They are:

  1. Bureaucrats who legally take money from you through “taxes”
  • Taxes are your single largest expense
  • Know which type of income you’re earning money from and paying in taxes
    • Earned Income – salary, commission, etc
    • Portfolio Income – income from paper assets such as interests, dividends, etc
    • Passive Income – royalties, rental income from real-estate, licensing, etc
  • Bankers who legally take money from you through “fees”
    • Banks and credit card companies charge you with all kinds of fees, some of them you or your company might not even be aware of
    • For every dollar you have in the bank, the bank can lend out twenty dollars to your credit card. The bank pays you 5 percent for one dollar and makes 20 percent on twenty dollars. That is how banks make money.
  • Brokers who legally take money from you through “commissions”
    • Look for brokers who are students of their profession and invest in what they sell
      • For real-estate brokers, ask them how many properties they are invested in.
      • For stock brokers, ask them which stocks they personally invest in.
    • “Good” brokers make you rich, “bad” brokers make you poor. Build a relationship with “good” brokers.
  • Businesses who legally take money from you through “profits”
    • Buy products that make you rich
    • Poor people buy products that make them poor, paying them for years with a very high interest rate
  • Brides and Beaus who legally take money from you through “alimony/marital asset split”
    • Get a prenuptial agreement before you marry
    • Think of your exit plan before you enter into the agreement
  • Brothers-in-law who legally take money from you through “inheritance or financial wishes”
    • Consult an estate planning specialist to plan your exit
    • Use legal vehicles such as wills & trusts to protect your wealth from death predators
  • Barristers who legally take money from you through “court & legal fees”
    • Hold assets of value in legal entities instead of your own name
    • You must buy insurance before you need it…not the moment you need it.

    Rich Money Habits Review Notes:

    • Protecting your money is like plugging holes. You first need to be aware what the holes are before you can actually plan on fixing them to stop the cash from flowing out.
    • Learning to protect your money is a never ending process as the rules regularly change. The ways to protect your money yesterday may no longer be able to protect your money today or tomorrow.
    • Protecting your money reduces your expenses. The more money you keep, the more money you can utilize for productive endeavors.