February 2012 - Richard 'Jerry' Haworth: Two sticks and a banana….

“When you are thinking about something you don’t understand you get a terrible feeling and it is called confusion. It is a very difficult and unhappy business. So most of the time you are rather unhappy with this confusion because you can’t penetrate this thing.

The confusion is because we are like some kind of apes working on a problem. Like putting two sticks together to reach a banana and we can’t quite grasp how to do it.

I get that feeling the whole time, that I am an ape trying to put the two sticks together. I feel stupid.

Once in a while though I manage to put two sticks together and reach the banana.”

Richard Feynman – theoretical physicist and Nobel prize winner.

We share his state of general confusion but in relation to markets not physics.

The source of our confusion is that in markets, prices and volatility are two sticks that help us get to the banana - the answer. We get honest feedback from prices and volatility. When there is volatility, we are being made aware that something is amiss that requires attention. Perhaps a re-allocation of resources, an adjustment of prices?

But when Central Banks intervene by lowering interest rates, supressing equity and bond volatility and adding enough liquidity to ensure that investors are NOT made aware of what needs to be fixed, it is not surprising that we cannot understand what is going on and where we seem to be heading.

We cannot reach the intellectual “banana”. Prices hang like they are in suspended animation, slowly rising as the monetary tide of Central Bank printing “lifts all boats” even the leaky ones!

And therein lies the confusion… watching a leaky boat that should be sinking… rising!