Kage Ginko-ka (The Shadow Banker)

This recent remake of a classic Kurosawa film investigates themes of identity, and sublimation of the self. A common man of the streets must pretend to be the head of US Fed in order to maintain market stability. But what is the price he must pay?

It opens with a notorious central banker (Ben Bernanke) discovering a double exact duplicate of himself.

"He's an exact duplicate of me. He could be very useful. He's the worst sort of 

scoundrel-a drunkard, a gambler, a thief. As I say, an exact duplicate of me!"

Fearing unspecified plots against his life, he plans to use this doppelganger as a Kage Ginko-ka--a shadow banker. This shadow can take his place in public appearances, reducing the risk of unexpected economic events.

Arduous training follows--how to make verbose, meaningless statements about the economy; how to compose himself before the cameras during congressional hearings; how to conduct FOMC meetings; and the importance of low interest rates as a means of combating undesirable economic outcomes..

Ironically, despite his preparations, Bernanke succumbs to a mysterious ailment (possibly ink poisoning) compounded by numerous paper cuts.

Bernanke informs Fed Governors that he may die, and tells them to maintain low 

interest rates and keep his death a secret for at least three years to avoid market turmoil.

"I can see gold under $300/oz! Fly my banners!"

Rumours swirl of Bernanke's death, so to calm the markets, the Fed Governors trot out the Shadow Banker.

The Shadow Banker is introduced. The Fed Governors decide to use

him to convince the market Bernanke is still in control.

His first public appearances go very well. Many commentators note he seems more life-like than usual.

"Innovation, almost by definition, involves ideas that no one has yet had, 

which means that forecasts of future technological change can be, and 

often are, wildly wrong. A safe prediction, I think, is that human innovation

 and creativity will continue; it is part of our very nature." (May 18, 2013).

The human element is a major element in a tragedy. In this case, Bernanke's replacement, Tim Geithner, is distressed that he is being passed over for the position in favour of a common man from the streets.

Geithner (at right): "That should be me up there--not that fraud!"

Geithner schemes to expose the charlatan so that he can take over as Fed Chair. As an FOMC meeting approaches, the other Fed Governors prepare the shadow banker to sit quietly, listen to everyone's advice, then thank everyone for their input and close the meeting with an announcement the policy decisions will follow in the morning--said policies to be drafted by the other Fed governors.

But Geithner tries to sabotage the proceedings, by pointing out apparent overheating in some sectors of the economy and asking him to raise rates. Ignoring the others, Geithner demands the shadow banker make a policy decision on the spot.

The Shadow Banker rises to the challenge. "The interest rate shall not move."

Although the other Fed governors are impressed with his ability to think on his feet, they are disquieted by the disrespect shown by this common man from the streets. Some of them also fear that someone so clever might be tempted to "slip the leash".

Their fears are later confirmed when he releases a statement unilaterally raising the target rate for unemployment rate from 6.5% to 7%. Sensing the need to act, they dismiss him, admit the real Bernanke is dead, and appoint Geithner.

Determined to put his stamp on the Fed after his long period of frustration, Geithner embarks on a series of market interventions that end in disaster.

Bailed-in depositors lie on the field of battle.

Desperate to help, the shadow banker buys all the bonds he can, but it is too little, too late.

"I can't replace QE, but every bit helps!"

Killed by sharply rising interest rates, he is swept away by the river of fate.

A decision in the silver space

Earlier this month I couldn't decide whether silver was going to drop to an area of stability around $17, or move back to the area of stability near $30.

June has given us our answer.

There was a little head-fake at the beginning of the month.

Most of the price move needed to reach the LSA centred at $17 has happened. What needs to happen for silver to reach the LSA is time--about six weeks at or below the current price.

Friday OT the second

A rare double-header. Because Verdi.



We were fortunate last month to be able to see Richard Margison perform with the Etobicoke Philharmonic. I was able to bring my mother as a sort-of belated Mother's Day present, which was great because she is such a Verdi fan.

The evolution of the Case-Shiller index . . .

. . . viewed in real time is like watching paint dry, but without the possible dramatics of runs. Hence, the long break since the last time I looked at this.

In case you are unfamiliar with it, the Case-Shiller index is an inflation-adjusted index for house prices in the United States (data available here; methodology here - pdf). As the recent data is presented quarterly, the annual values in the graph below I have calculated as the average of the four quarterly values for a calendar year.

The analysis is the same as last time, where I outlined three possible scenarios we could see to 2015.

So far we are headed right down the middle towards the main area of stability, where inflation-adjusted house prices remained for about 50 years after WWII. You can throw an apple really high, but it's hard to keep it from falling afterwards.

Clearly, if people are to get wealthy from real estate, Bernanke needs to keep blowing (or is it sucking?)

Below is the same index, but quarterly.

The long and winding road has leads us back to our door.

We'll stop in and look at this later (next year)--after all we don't want to be like the crowd watching Thomas Hardy write in that famous Monty Python skit which would have been embedded right here except all that came up is a notice saying that "this video cannot be viewed on certain [chart-porn] sites".

Disasters in mining, part 723

A friend of mine was telling me about a mine that has encountered a tricky technical problem. The mine is under a lake, and in the company's original filings, they had an agreement to leave a certain thickness of rock between the top of the mine and the bottom of the lake. Of course that rock turned out to be ore, so the company started mining a little bit from the roof. Just a bit. Then a bit more. Then a bit more. Now the rock layer is only about one-third the specified thickness, and fissures have appeared along with water leaks.

As he was describing it, I asked if it was [redacted]. He wanted to know how I knew. I told him I didn't. But I do now.