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Markets Are Not True

“Markets are not true.”

This was the quote from the chairman of UBS, Axel Weber, in an article by Gillian Tett titled, “Investors are ill equipped for our unfathomable future”, in this last Thursday’s Financial Times.

Mr. Weber went on to explain that investors need to understand many markets are not true because of heavy government intervention, saying,

“I don’t think a single trader can tell you what the appropriate price of an asset he buys is, if you take out all this central bank intervention.”

In addition, Mr. Weber makes the case that investors have been driven into investments that they do not understand.

I wholeheartedly agree with this statement and Ms. Tett’s analysis. Central banks’ interest rate suppression has caused investors to go on an investment yield buying spree. In so doing, the price of dividend yielding investments have far surpassed their historical averages.

The quotes from Mr. Weber are significant in several ways. First of all, he isn’t someone who is selling a book or a newsletter by issuing a siren call. Mr. Weber is the former head of the Bundesbank. He has the experience and credibility to make this statement.

In addition, the quotes are significant because of his current role as chairman of UBS. You are starting to see similar quotes like this in the financial press from unlikely sources.

From my past experience, these usually come from an outlier in the investment community, not the chairman of an international bank in an International Monetary Fund (IMF) presentation. All of these points should give investors a wakeup call.

We are truly in uncharted waters.

When I read Mr. Weber’s statement, “markets are not true”, my mind went straight to my woodworking hobby. What do you do when your board is not true? You plane off the excess.

I am afraid for investors who do not understand the current risks of the market. Removing the excess could be a painful exercise.

 

Source: “Investors are ill equipped for our unfathomable future”, by Gillian Tett, October 13, 2016