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The Chairman
Victor Niederhoffer


12/23/2004
Victor Niederhoffer: Sometimes a Word is Very Important

Old timers remember how in 1991, Secretary of State Baker was able to drop the market 5 percent in a second, by using the word "regrettably" to indicate that no solution short of war with the Iraqis was possible. The book "What Makes Stock Market Prices" which the Collab and I are using as one of the sources for "How to talk like a big 19th century operator" with a view to walking the walk and talking the talk of manipulators of current day stocks knocked down to unseemly levels by bear raiders of the current day has a similar incident in December 1916 relative to Bernard Baruch and US Steel Common.

Mr. Baruch -- "The thing that affected the market first was the German Chancellor's speech. This was followed by Lloyd George's speech in Parliament on December 19th. The first cable said that he refused to consider peace. Later as the full speech came through he went on to say "but." The next day I covered a third of the stocks I was short on. The technical position was bad and this speech was a body blow." Somehow the linguistics of this speech remind me of the Palindrome and Bin Laden in addition to bringing back many pleasant memories of the tone deafness of Secretary Baker who single-handedly caused the crash of 1987 by his attempt to intimidate Germany into raising the value of the mark. I am interested in other single words that have had terrible impacts also.

Gregg van Kipnis Responds:

I do not think this is the correct explanation for the stock market meltdown in 1987. It was Congressman Rostenkowski who, for the 2nd or 3rd time, the week before Black Monday, said he would have his committee move a new tax bill to deny the deductibility of the interest costs associated with leveraged buyouts that did the market in. There we nearly 100 large cap stocks that had large price bubbles built in to their price on the rumor/belief they were takeover targets. As these stocks plunged simultaneously they brought down indexes which in turn kicked in futures selling to maintain the delta of the synthetic put protection products (i.e., portfolio insurance invented by Leland O'Brien and Rubenstein) that were all the rage at that time. A rather obscure white paper was published by the Fed about a year later emphasizing this explanation over all the alternative theories circulating at the time, that confirmed my own conclusion on this point.

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