Intermarket Analysis — Murphy: COMPLETE

The background first, cited openly. Murphy — first an analyst on television, later founder of MurphyMorris and eventually chief analyst at StockCharts — had written The Visual Investor (1995) for the beginner and the textbook Technical Analysis of the Financial Markets (1999) for the aspiring technician (both have their own courses here in the catalog). Intermarket Analysis (2004) became the third corner: the book about how the asset classes talk to each other.

The neighboring courses are the doorway and the encyclopedia — this course is the very interplay itself, and that differentiation is the course's rails: in The Visual Investor you learned to read ONE chart; here you learn to read four at the same time.

The 1980s were the intermarket revolution, and Murphy names the mechanisms without hedging. One: globalization — the world's markets opened up and capital began to move across borders in real time. Two: the financial futures markets — index, interest rate and currency futures made every asset class shortable and thereby genuinely two-sided. Three: program trading and the computers — arbitrage between related instruments became automatic.

Four: the flow of information — satellite TV and screens meant that an interest-rate move in Tokyo was visible in Chicago the same second. The consequence: the analyst who kept studying the stock market in isolation was studying a picture with three-quarters of it outside the frame.

The 1980s' own tracks became the book's evidence. The decade's intermarket chain, as Murphy reconstructs it: a falling dollar (with the Plaza Accord of 1985 as accelerator) → rising commodity prices (inflation comes back) → rising interest rates and falling bond prices → a stock market that struggled despite economic growth — and that crashed in October 1987.

Note the order: the trouble showed up IN THE BONDS AND THE COMMODITIES first, in the stocks last. That is the whole book in one sentence: whoever looks only at the stock market sees the end of the story — and sees it last.

The sequence, which Murphy himself lived through as an analyst and reconstructs chapter by chapter. Spring 1987: the commodity market — led by the CRB index — broke out powerfully upward; inflation, presumed defeated, came back to life. At the same time the bond market turned down: interest rates rose, bond prices fell, and interest-rate tops were rebuilt one after another.

The dollar had fallen sharply since the Plaza Accord of 1985 and stayed weak — a classic 1980s inflation triangulation: weak currency, rising commodities, rising interest rates. And in that environment the stock market rose — first powerfully, in the spring's program-driven rally, and against a wall of deteriorating external conditions.

The decisive signal was the relative one: the dividend yield of stocks. As interest rates rose and share prices rose, the dividend yield of stocks rose too — against the government bond rate — until the distance between them was essentially gone: for the first time in a very long while, a valuation gap emerged in which bonds paid as much as or more than stocks without the risk of stocks.

Murphy's reading: when the bond yield reaches parity with the expected total return of stocks, stocks lose their most important argument — and the money that moves first moves into bonds. In October the bond market broke new ground downward, and on October 19 the stocks collapsed. The crash was worldwide — further proof that the system was now one system.

The course's own added warning, openly edited in: THE DOWNSIDES OF HINDSIGHT. In hindsight the chain looks self-evident — commodities up, bonds down, crash — but in real time every single signal had alternative explanations: the commodity rally could be temporary, the rate rise technical, the dividend gap structural.

That is precisely why the end product of this course is not the memory of 1987 but a rulebook: intermarket signals without rules become stories — and the controversy chapter (chapter 15) shows what happens to them in the next crisis. Murphy built rules; the memory of his crash without rules is just story-telling.