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.

John Beck Free and Clear Review

For months and months, I’ve been seeing John Beck’s late-night infomercial on tax sale properties. Having been in the tax sale industry for almost 10 years, I can tell you that I’ve occasionally seen deals as good, or better, than the deals you see on TV for John Beck’s Free and Clear system. But let’s look at some of the realities that come along with investing according to John Beck’s system.

To get properties from tax sale, you will have to invest in a tax lien or a tax deed. Your state will offer one or the other, or sometimes both.

If you buy a tax lien, you will generally wait a period of time from 6 months to 5 years while the owner is given a chance to pay the lien off. Only after that time expires will you be able to apply for a deed to the property. I think most of the examples in John Beck’s Free and Clear System are of properties that were purchased through a tax lien. What the commercial doesn’t tell you is that the student probably had to wait a long time, and purchase over a dozen liens, to get the property featured on TV. This is because most liens on good properties pay off during the waiting period.

You also have to investigate dozens, or hundreds of properties to settle on a property to purchase a lien against. This is because many properties offered at tax lien sales are not even worth the amount owed in taxes, especially considering the time you have to leave your money tied up and possibly pay subsequent taxes.

I highly doubt that any of the properties purchased for under $1000 on the commercial for John Beck’s Free and Clear system were purchased at a tax deed sale. Tax deed sales offer immediate ownership of the property at the time of the sale. Therefore, these sales are well attended by investors, and the bidding process drives the final purchase prices well above the minimum amount, and often near retail. Therefore you will not see many $20,000+ properties going for under $1000.

But John Beck’s Free and Clear System has its merits. If you have IRA or other money that you want to invest at above-market rates, tax liens may be a good investment for you. Just don’t plan on getting many properties.

Also, it does at least identify tax sale properties as one of the most profitable niches in real estate investing. So how do you make money by acquiring cheap properties through tax sale, if most liens pay off and tax deed bargains are rare?

Simple! Identify the owners of tax sale property who are about to lose their property to a tax deed sale, or running out of time to pay off their tax lien. Then contact them by mail or phone, and offer them a token amount for their property, or work another arrangement with them so they won’t lose it. Avoid waiting for tax liens to mature, and circumvent the bidding process at tax deed sales. The profits can be enormous. When someone decides to walk away from their property and quit paying the taxes, you’ll be on top of it!

Is John Burley’s Progressive Profits Real Estate Really a Good Opportunity to a Lot of Make Money?

What is John Burley’s Progressive Profits Real Estate?

John Burley’s Progressive Profits Real Estate is a DVD series with information needed to begin making money in real estate. This course is said to be useful even to people that have no prior real estate experience allowing them to start making money fairly quickly. The package includes three guides that explain how to begin; the Quick Start System, Cash Flow Secrets, and Quick Cash Secrets.

Do these manuals really explain ways to make a lot of money by utilizing the methods?

The creator of the series, John Burley claims the program can help to increase an individuals net worth significantly and transform ones financial situation in under 90 days. This sounds a little too good to be true. However, John Burley is actually a legitimate expert investor and author with a massive amount of experience. So there is valuable real world information in this product however the infomercials and other marketing avenues used by Burley to promote this product tend to portray it inaccurately with regard to the level of success experienced amongst those who try the methods. Of course as with any other program there will be varying results and not everyone will make money.

Can John Burley’s Progressive Profits Real Estate really work?

Yes the program really works, but as mentioned earlier results will vary meaning it will not work for everybody. John Burley is often referred to as “One of the Premier Investors in America.” He has also been named in the Who’s Who of American Business People and International Entrepreneurs and possesses a vast amount of knowledge of the real estate market.

After viewing the video for John Burley’s Progressive Profits Real Estate some folks wonder the program is legit. It is absolutely legit but it is a just a short summary of techniques and is not for real estate new-comers. The real estate market can be a risky unless one has a sufficient level of knowledge and expertise on the subject.

What is it really like to be active and successful in the real estate market?

There is a lot involved in the process of buying and selling property. It is absolutely possible to do well in real estate today. As with any other area of business it is beneficial to work with or have access to someone that is experienced in the field already and can act as a guide. Many related products offer good information but a genuine real world mentor is better than anything you can buy. The reason for this is that when one begins a business there will always be times when they will have some question that is crucial and having a resource for these times can be paramount to being successful.

John T. Reed’s Views of Various Real Estate Investment Gurus

You wake up in the middle of the night – unable to fall back to sleep, so you start flipping through the channels. Undoubtedly, you will come across a station – where a nicely dressed person in an exotic location is telling how rich he or she became selling real estate. Then you hear testimony after testimony from people stating how they too became rich by following the gurus advice. Depending on how your day was at work – you start contemplating calling and giving it a shot. I remember in the late 80’s, I almost signed up for Robert Allen’s no-money down seminar. However, a friend who had attended it in the past talked me out of it. He saved me a few bucks, because then – like now real estate was in a recession.

John T. Reed reviews all of gurus past and present including Robert Allen, Wade Cook, Robert Kiyosaki, Carleton Sheets, Donald Trump and many more.

It pained me to read his review of Robert Kiyosaki. After reading his quite elaborate review, I was almost embarrassed to say that I learned anything from Kiyosaki’s book “Rich Dad Poor Dad.” I did read it in the 98-99 time frame. So, maybe I was very impressionable at that time. I did agree that most of Kiyosaki’s subsequent books were simply rehashes of “Rich Dad Poor Dad” and its follow up “Cash Flow Quadrant.” I have Kiyosaki’s latest book that he co-authored with Trump, but I still haven’t made it pass the first couple of pages yet. Regardless of Reed’s opinion, I still enjoyed “Rich Dad Poor Dad.” However, if I ever met Reed – I would keep that information to myself.

Take a look at his reviews of the Gurus. You will never view those infomercials in the same light again.

Real Estate Investment Gurus Review