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It was 1971 in Montreux close to where I live. But it wasn't me who ...

We've got just married in that time!

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The story is pretty well covered by these sources. The wikipedia article quotes further sources, if you want to get into more detail

The wikipedia article has this :

" On 4 December 1971, Purple were in Montreux, Switzerland, to record an album using a mobile recording studio (rented from the Rolling Stones and known as the Rolling Stones Mobile Studio—referred to as the "Rolling truck Stones thing" and "a mobile" in the lyrics) at the entertainment complex that was part of the Montreux Casino (referred to as "the gambling house" in the song lyric).

On the eve of the recording session, a Frank Zappa and The Mothers of Invention concert was held in the casino's theatre. This was to be the theatre's final concert before the casino complex closed down for its annual winter renovations, which would allow Deep Purple to record there.

At the beginning of Don Preston's synthesizer solo on "King Kong", the place suddenly caught fire when somebody in the audience fired a flare gun toward the rattan covered ceiling, as mentioned in the "some stupid with a flare gun" line. Although there were no major injuries, the resulting fire destroyed the entire casino complex, along with all the Mothers' equipment.

The "smoke on the water" that became the title of the song (credited to bass guitarist Roger Glover, who related how the title occurred to him when he woke from a dream a few days later) referred to the smoke from the fire spreading over Lake Geneva from the burning casino as the members of Purple watched from their hotel. "It was probably the biggest fire I'd ever seen up to that point and probably ever seen in my life" said Glover. "It was a huge building. I remember there was very little panic getting out, because it didn't seem like much of a fire at first. But, when it caught, it went up like a fireworks display."

The "Funky Claude" running in and out is referring to Claude Nobs, the director of the Montreux Jazz Festival who helped some of the audience escape the fire."

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