The Day the Markets Roared: How a 1982 Forecast Sparked a Global Bull Market. 2021. Henry Kaufman with David B. Sicilia. Matt Holt Books.
The latest book by finance veteran Henry Kaufman, titled “The Day the Markets Roared,” focuses on the events of August 17, 1982, but offers a much broader perspective. Kaufman chronicles his personal journey from escaping Nazi persecution as a child to becoming the head of research at Salomon Brothers. Along with co-author David Sicilia, a business historian, Kaufman delves into his innovative approach to analyzing financial markets using flow-of-funds data to generate interest rate forecasts.
Interwoven with his personal narrative, Kaufman discusses how the transition of Wall Street from partnerships to corporations has eroded research independence and led to increased concentration in the financial industry. He also raises concerns about declining corporate credit quality and the changing definition of liquidity. The book also includes some score settling with former Salomon Brothers chairman John Gutfreund and a prediction that the rating agencies will downgrade the US government.
However, the highlight of the book is Kaufman’s recounting of the day he triggered a massive rally in the stock market by revising his interest rate outlook. Prior to this event, he was known as “America’s Interest Rate Guru” and “Dr. Doom,” reflecting his influence among institutional investors and his staunch belief that federal deficits would drive interest rates higher. The rally on August 17, 1982, was based solely on Kaufman’s changed opinion, highlighting an anomaly in the efficient market hypothesis.
Kaufman acknowledges that the way economic and investment information reaches Wall Street has changed significantly over the past four decades, making it unlikely for a private-sector individual to have the same market-moving impact today. However, he notes that at the individual security level, price movements can still be driven by revised interpretations of existing information.
The book is not without minor inaccuracies, such as misidentifying Ayn Rand’s immigration timeline and inconsistent references to a past US Federal Reserve chairman. Nonetheless, it offers valuable insights and perspectives on financial markets spanning over 60 years. Additionally, Kaufman provides an insider’s view of Wall Street history, including his relationships with influential mentors and fellow industry partners.
1 An interesting fact is that approximately a month before the August 17 rally, a rumor about Kaufman revising his interest rate outlook had already triggered a one-day rally, as reported by the New York Daily News.
2 The efficient market hypothesis argues that market prices fully reflect all available information. However, Kaufman’s market-moving impact on August 17, 1982, challenges this hypothesis.
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