THE MAGNIFICENT NUMBER 7 AND A PHARAOH’S DREAM - KARIM GHAIDAN

THE MAGNIFICENT NUMBER 7 AND A PHARAOH’S DREAM

A few months ago I wrote about the power of the number 7 as a macro economic measuring tool. It can be read here.
 
This piece is another tongue in cheek look at why the number 7 is quickly becoming my favourite number.
 
Many years ago an Egyptian Pharaoh woke up sweating after having had a nightmare. In his nightmare he had seen 7 skinny, miserable cows eat 7 very healthy cows but even after having eaten them they remained skinny and miserable.
Realising happily that it was just a nightmare he quickly went back to sleep only to have another one! In this one he saw 7 healthy fat ears of grain being devoured by 7 sickly, miserable ears of grain.
This time he awoke in a panic, did not go back to sleep and immediately summoned a chap called Joseph who apparently was a guy able to understand nightmares.
 
Now this Joseph fellow was a very clever bloke and he explained to the Pharaoh that his nightmare meant that 7 years of good times are invariably followed by 7 years of bad times. He explained the concept of 7 years of feast followed by 7 of famine.
 
Now comes the really clever bit. To overcome this 7 year good/bad cycle Joseph suggested to the Pharaoh that he issue a new law making it compulsory that 20% of all food stock should be saved each year to help ease the 7 years of famine that would inevitably follow.
This would mean that the people would remain happy and in love with the Pharaoh and Joseph would keep both his job and head. Clever fellow indeed.
 
In fact this Joseph chap quickly got a cult like following with people writing about him:
In Genesis book 41, verse 36 Joseph states clearly to the Pharaoh: “That food shall be a reserve for the land against the seven years of famine that are to occur in the land of Egypt, so that the land may not perish through the famine.”
His cult like status continues to this day as witnessed by the musical blockbuster “Joseph and His Technicolour Dreamcoat”.
 
Okay, enough triviality, now let’s get serious. What has all this got to do with modern economic macro theory?
 
Joseph was the world’s first forward thinking, prudent finance minister/central bank governor ever. By explaining to the Pharaoh the concept of feast and famine he was explaining the economic cycle. By explaining that stuff needed to be saved in good times to help ride out the bad times he was explaining countercyclical policy whereby excess is taken out of a growing, potentially overheating economy and this excess is then used to aid the subsequent downturn.
Besides that Joseph created the world’s first ever sovereign wealth fund. Putting 20% aside in every good year to invest into the subsequent bad years is exactly what today’s sovereign wealth funds are supposed to do. 
 
Interestingly we are now approximately 3,000 years after the Pharaoh and his nightmares and his dream analyzer at the potential end of the last 7 year feast and embarking on the road to famine.
 
The main event that demarcates the end of the 7 year feast and the beginning of the next 7 year famine was last month’s FED decision to end its ZIRP policy which had been in effect since 2008, 7 years ago. 
 
7 years of ZIRP has had enormous consequences:
1.    It is estimated that global debt has grown by 30% since 2008 the last time the world markets collapsed because of too much debt in the first place
2.    A heavily indebted world with ZIRP is manageable. With rates rising it may not be
3.    Rather than saving during the good times as Joseph advised countries borrowed more with debt to GDP levels having risen virtually across the board
 
So is 2016 the beginning of the next 7 years of famine?
Let us have a look at some headline facts.
 
 In Europe the Eurozone is in a mess both politically and economically. Political unity is in fact disunity. Witness the individual member responses to the ongoing refugee crisis.
Economically, 7 years after the debt and banking crises that brought down peripheral Southern European states none of the underlying causes have been solved.
The rich Northern European states grow richer financially and in terms of manpower. The Southern ones continue to be forced, begging bowl in hand to feed on the scraps as its youthful future flee northwards.
The disparity grows, the unity does not.
 
The UK is a microcosm of the Eurozone in one country. The rich get richer, the government borrows excessively, the Union may split with Scotland leaving and there is real fear of a UK exit following the referendum on Europe.
 
In the Far East the powerhouse China highlights clearly what happens when too much borrowing in good times is faced with an economic slowdown. The result is bankruptcies, a further slowing down followed by further bankruptcies.
 
Finally we have the USA.
Here we have started interest rate tightening. It has clearly marked the end of the 7 year feast of cheap money. Is the US economy strong enough to withstand more expensive money? In other words has the USA taken heed of Joseph’s wise words and put enough aside for a potential period of famine?
The fact is, it has not. Debt both at the corporate and individual level has grown hugely over the last 7 years. 
 
Economics did not start with the present day thinkers. Whilst they wallow in their new found pseudo fame espousing their theories and predictions we must remember that not one of them predicted 2008 or any other economic turn for that matter.
For that we have to go back 3,000 years, to a Pharaoh prone to nightmares and a chap called Joseph who in order to keep his head on his shoulders spoke unwittingly prudently.
 
Assuming he existed of course.
 
These macro pieces are MY opinion, you may think differently. Connect with me on LinkedIn to share YOUR opinion.
 
For timely, accurate trade signals follow our STTS service.
For those who want to join the lucky ones receiving real time, accurate and 100% honest and transparent trade signals visit and subscribe here.

Stay nimble. Good luck trading.

CHECK OUR INTERACTIVE ECONOMIC CALENDAR FOR FULL LIST OF UPCOMING DATA RELEASES

DISCLAIMER
The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Users acknowledge and agree to the fact that, by its very nature, any investment in CFDs and similar and assimilated products is characterised by a certain degree of uncertainty and that, consequently, any investment of this nature involves risks for which the user is solely responsible and liable.
Any recommendation, opinion or advice contained in such material reflects the views of TFF, and TFF expressly disclaims any responsibility for any decisions or for the suitability of any security or transaction based on it. Specifically, any decisions you may make to buy, sell or hold a security based on such research will be entirely your own and not in any way deemed to be endorsed or influenced by or attributed to TFF.
Past performance should not be seen as an indication of future performance. Market and exchange rate movements may cause the value of your investment to rise or fall and an investor may not get back the amount invested.
Investors considering opening a self-trading account should limit their exposure to maximum 10% of their investment capital.
Investments are not obligations of, deposits in, insured or guaranteed by TFF.