Book Review: The Day the Markets Roared


The Day the Markets Roared: How a 1982 Forecast Sparked a Global Bull Market. 2021. Henry Kaufman with David B. Sicilia. Matt Holt Books.

title of Henry KaufmanThe latest book is focused on a date, August 17, 1982, but the material is much more widely spread. Kaufman recounts his personal history as head of research at Salomon Brothers at the age of nine from the Nazi terror with his family in 1937. Close to the conclusion of the volume, he discussed the market impact of the COVID-19 pandemic.

Writing in collaboration with a University of Maryland business historian David SiciliaIn this, Kaufman shows that he was an innovator in the analysis of financial markets, highlighted by his pioneering use of flow-of-funds data to generate interest rate forecasts.

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Aside from this narrative, Kaufman argues that the shift from Wall Street involvement to corporations reduced research independence. He also lamented the increasing concentration of the US financial industry. Between 1990 and 2000, they reported, the proportion of financial assets held by the 10 largest financial institutions rose from about 10% to as low as 80%. Other trends that concern them include deterioration in the quality of corporate credit and a massive redefinition of liquidity assets that are easily convertible into cash and have the ability to borrow. There is also a prediction that rating agencies will downgrade the US government, with the late Salomon Brothers chairman John Gutfreund set some points.

However, the book’s centerpiece is a recap of the day when Henry Kaufman revised his interest rate outlook to trigger the biggest one-day increases in the S&P 500 Index and the DJIA. Prior to that event, he had been dubbed “America’s interest rate guru” by Institutional Investors and “Dr. Doom,” apparently by New York Post, which Kaufman called “designed for those without the patience to wade through one of the more important papers.” The first nickname recognized his immense influence among institutional investors, while the latter mocked him for holding on to his view that a growing federal deficit would continue to raise interest rates. Due to his insistence, he also received death threats. Kaufman’s name was found on a list of key individuals who were targeted for murder by a terrorist arrested by the FBI.

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As Kaufman freely admits, the trend in interest rates turned positive only 10 months before their reversal, causing the markets to roar. No other news of 17 August 1982 could account for the grand rally of that day. Prices inevitably rose based on nothing that qualifies as strictly defined information by financial economists. The only thing that changed was a person’s opinion about the facts already known.1 In short, the phenomenon qualifies as an efficient market hypothesis (EMH) anomaly.2

Die-hard EMH followers can rest themselves with the thought that this all happened four decades ago and could not possibly happen today. Kaufman implies as much:

“The way economic and investment information reaches Wall Street has already changed significantly over the past forty years, which may be another reason why the market roared to the same degree as anyone in the private sector. or collapse).”

At the individual security level, however, it is still common for prices to rise to nothing that can be regarded as new fundamental information, but instead in response to individuals’ modified interpretations of previously disseminated information. To cite a representative example, on March 25, 2021, Cisco Systems (CSCO) shares rose 1.7% in price, while major stock indexes gained only 0.1% -0.6% and tech stocks lagged. Several news outlets attributed the CSCO’s outperformance to Goldman Sachs analyst Rod Hall’s upgrade from hold to buy. At least one reporter also noted that Evercore ISI increased its CSCO target price from $54 to $58, but this reviewer did not find any articles that cited any events as of March 25, 2021 which has promised to increase the future earnings of the company.

The Book Jacket of Financial Markets History: Reflections on the Past for Today's Investors

Rarely does one come across a book that does not contain a single inaccuracy. the day the market roared erroneously included Ayn Rand, who came to the United States in 1926 among the “European intelligentsia”. . . who emigrated to the United States during or after World War II.” In addition, the text refers to the former US Federal Reserve chairman as “Banker G. William Miller” and (correctly) “Businessman G. William Miller”. (By the way, the one-time CEO of Textron began his career as a lawyer.)

Despite the book’s minor flaws, investment professionals can benefit from this page-turner’s 60-plus-year outlook on the financial markets. As a bonus, the book provides an insider’s view of the history of Wall Street, a notable philanthropic interest of Kaufman. Particularly pleasant are the affectionate portraits of his illustrious mentors and fellow Salomon Brothers partners, as well as his first Boston counterpart and friend Albert “Dr. Death” Woznielver.

1. Even more remarkably, about a month before the market roared, New York Daily News reported that a Rumor That Kaufman had revised his interest rate outlook, triggering a one-day rally.

2. In “Do Brokerage Analysts Recommendations Have Investment Value?Kent L. Womack summarized the argument previously presented by Sanford Grossman and Joseph Stiglitz as follows: “Information is expensive to process. Brokerage firms spend hundreds of millions of dollars annually analyzing stocks and trying to convince investors that some stocks are more or less attractive than others. . . . Market prices may not fully reflect all available information, otherwise the information gatherers would not receive any compensation for their costly activities.”

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All posts are the views of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of the CFA Institute or the author’s employer.

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Martin Fridson, CFA

According to Martin Fridson, CFA, new York Times, “One of Wall Street’s most thoughtful and perceptive analysts.” The Financial Management Association International named him its Financial Executive of the Year in 2002. In 2000, Fridson became the youngest person to be inducted into the Fixed Income Analysts Society Hall of Fame. He has been a visiting lecturer at graduate business schools at Babson, Columbia, Dartmouth, Duke, Fordham, Georgetown, Harvard, MIT, New York University, Notre Dame, Rutgers and Wharton as well as the Amsterdam Institute of Finance. Fridson’s writing He has been widely praised for his humour, rigor and usefulness. He holds a BA in History from Harvard College and an MBA from Harvard Business School.

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