Monday, August 17, 2015

Why Does the Number 7 Keep Showing Up??

What's so important about the number 7?  Why does it keep coming up? This is the question posed by Peter Degraaf in a commentary on Kitco, posted last Thursday.
Reaching back to forty nine years ago (7 x 7), in 1966 the USA experienced a ‘credit crunch’.   In August of that year the US bond market suffered a serious ‘liquidity crisis’.

Seven years later in 1973, the world experienced an ‘oil embargo’ followed by a dramatic rise in the price of oil. There were long lines of cars at gas stations.

Move forward by 7 years and in 1980 Wall Street avoided the collapse of some of its banks and brokerage houses by forcing the Hunt Brothers to stop accumulating silver.

Another seven years passed and in the fall of 1987 stock markets crashed around the world. ‘Black Monday’ of October 1987 saw the Dow lose 22% in one day.

Then seven years later, in 1994, the bond markets crashed.

Seven years passed and in 2001 Wall Street was closed for 5 days due to the militant Islamists attack on the World Trade Center in New York.  The DOW lost 684 points on Sept 17th 2001. Banks received billions of dollars of newly created money from the Federal Reserve, to keep the system afloat.

The seven year cycle moved on and in 2008 we saw the Subprime Housing Market Collapse, along with the overnight bankruptcy of Lehman Brothers. The Lehman investment bank fell so fast, none of the employees had any idea their jobs were disappearing. The DOW lost 777 points on Sept 29th 2008. The banking system almost collapsed, (banks refused to cash checks except after a three day ‘hold’, for fear that the issuing bank might fail), but the US FED saved the day, by massive injections of newly created cash, not only into US banks, but also some Canadian and foreign banks. The debt problem was ‘solved’ with more debt!
On the 7th straight of 7 year cycles, the Dow lost 777 points??  I think if I was into numerology I'd be saying, "you've got to be kidding me!" and "are you trying for style points?"

The point of this isn't the previous 7 financial problems; the point is that it's 7 years since 2008 and conditions aren't looking very rosy.  For example, Bayou Renaissance Man and others linked to the story that "The Doomsday Clock for global market crash strikes one minute to midnight..." in the Telegraph.  Of course, I've written an acre of words on this subject.  I know I've written about expecting a crash around the end of this September recently.  I thought I said it more forcefully than this piece in May of 2014.  Looking at the diverging wedge pattern in the DJIA index, I said:   
You can see that there is typically a very large pull back within these two year periods.  That will be in 2014 to 2015; for what it's worth, many big crashes tend to come in the fall, around the end of the Fed.Gov fiscal year (September 30).
I'll note that the same diverging wedge appeared in the Russel 2000 index.  Diverging wedges are generally not good. 

As Degraaf points out, here we are in 2015, 7 years later, and the problems of 2008, despite (or because of ) Dodd-Frank, weren't solved, they were papered over with money printed by the Federal Reserve.
"I told them the real 2014 deficit was $5 trillion, not the $500 billion or $300 billion or whatever it was announced to be this year. Almost all the liabilities of the government are being kept off the books by bogus accounting. The government is 58% underfinanced. Social Security is 33% underfinanced. So, the entire government enterprise is in worse fiscal shape than Social Security is, but they are both in terrible shape. [On future prospects] If you take all the expenditures that the government is expected to make, as projected by the Congressional Budget Office (CBO), all the spending on defense, repairing the roads, paying for the Supreme Court Justice salaries, Social Security, Medicare, Medicaid, welfare, everything, and take all those expenditures into the future, and compare that to all the taxes that are projected to come in, then the difference is $210 trillion. That is the fiscal gap. That is our true debt."
Lawrence Kotlikoff a professor of Economics at Boston University, in testimony before the US Senate,  [emphasis in the original - SiG]
As we've said here many times, the stock market has been running entirely on the monetary creation of the worlds' central banks.  We've also talked about how creating debt to get out of debt can't work in the long term.  John Maynard Keynes once famously said, "The long run is a misleading guide to current affairs. In the long run we are all dead", as a counter to the argument that his policies would lead to destruction in the long run.  A lot of people are concerned it may now be the end of the road.  It may be "the long run".  
This chart is a little tough to read, but it's the DJIA values indexed with 1/31/2005 chosen at 100%, with other lines drawn on it: five and three year moving averages in red and yellow (red-ish, yellow-ish) and a black line drawn on it as an envelope to add the author's interpretation of the general shape of the pattern.  This is from another excellent piece on Elliott Wave analysis, by Jay Taylor of, which also points to likely downturns in the next several weeks. 

It really seems like a time to be preparing for Bad Things.  Prepare for collision.   As Taylor concludes that second piece,
Of immediate concern is how do we prepare for the cataclysm that is to come, despite all hopes and prayers that it won’t.
We can always look at a pattern like this, of seven straight seven year cycles with Bad Things happening and say, "Past performance is no guarantee of future results".  On the other hand if seven times in a row I walked out my front door something painful happened, by the eighth time, I'd be looking out for it.


  1. Read The Harbinger or The Schmitah by Jonathan Cahn. Interesting insight into the Biblical 7 year cycle and cycles of 7 year cycles. Coming to a September near you.

  2. We are now in the Shmittah year, which has implications here in Israel for those of us who adhere to the Torah commandment to give the land its own sabbatical. We need to purchase fruits and vegetables with reliable rabbinical supervision. Even after Rosh HaShanah, we still will need to wait until all of the Shmittah year produce works its way out of the food distribution chain before we can just purchase any fruit or vegetable.

  3. If you want to see a pattern than that is what you will see.
    The same could probably be said for other numbers tied to other
    events. Just as humans are hardwired to see faces in inanimate the 'face on mars'....we 'see' patterns because
    we are hard wired to do so. It helps us cope with the anarchy of

  4. OT, but how's your back?

  5. Maybe 7 years is the limit of the memory of people who consider themselves the financial "grownups."

    Central Banker: "Hey! Maybe this will make me teh riches!"

    SiG: "How did that work out last X times people like you tried it? Including you?"

  6. As your first Anonymous commenter suggested, seven-year cycles are nothing new....

  7. Most/many things in life are cyclical and some of them are predictable because of it. As sure as we have economic recoveries we will also have economic recessions. Being accurate in your predictions is a whole other story. To believe that 7 years or some other "magic" number can predict important things is naive. I predict this struggling economy that never really recovered from the last recession will collapse but when is anyone's guess. The Democrats, the administration and all of the bureaucrats want to stave it off, kick the can down the road, etc. No one wants this economy to tank on their watch. AND the Democrats would love it if this disaster of an economy collapsed the same week a Republican moves into the White House. So they may be able to push this off for another 16 months or so.

  8. Anon, 1st comment - I'm well aware of the Shmittah year. Both my old post that I linked to and the original Degraaf post I linked to talk about it. One of my points by not talking about it is that we don't need to invoke the Shmittah year or Jubilee year for the folks who are likely to dismiss "old Jewish folk tales". Just look at the normal patterns that technical analysis shows and you'll see a lot of reasons to expect a really bad crash this fall. The diverging wedge pattern in the DJIA has a history of predicting a bad crash, generally around 2 years later. The next one is due Real Soon Now, and I pick the end of September because most big market crashes happen in the September/October time frame. You can credit RoshHaShanah or you can say it's because of the end of the fiscal year, your pick, but the timing is real.

    Anon 2034 (currently last), and Dan, a couple of points. If seven straight times you opened your front door you got whacked in the face, how would you feel bout opening it for the 8th time? Would you put you hands up or just open it again? What if it's harder to spot, more like instead of 7 straight times, you got whacked in the face every 7th time. How long would it take you to notice? Bet it would take less time if you kept meticulous records, like the markets do. The technical analysts plotting market trends every day might just see these things sooner.

    I know that we're hardwired to recognize patterns. I've made the same argument myself. We've developed mathematical tools to distinguish whether there really are periodic things going on here, statistical and signal processing. I don't have the full data sets to crunch, but even more than that, I think it's going to depend on how you ask the questions. I can see tons of questions based on the events Degraaf chose, and I'm perfectly willing to concede it may be spurious that those 7 7-year cycles had these Bad Things. We'd need to see what happened in the intervening years. If there were events that were worse than the ones he mentioned that he ignored that argues he had a pattern and was fishing for stuff that matched it.

    Notice he didn't point out 1973 was the year Nixon got us off the gold standard, which is what caused the oil problems.

  9. Mark - thanks for asking. The back is about 98% normal. I broke down and visited my family doc and he gave me some good drugs. I was hardly using the cane to stand up and sit down within 24 hours.

  10. It is natural for humans to look for conspiracies and "magic" (as in "I can predict the future..."). Growing upliking science, facts and truth this is "strange" to me. Yes our economy is cyclical and yes it is to some extent predictable in the same way you can predict that a pendulum will swing back one it reaches it's maximum hieght in either direction. And even 'yes' some people do use this basicknowledge to enrich themselves. But to believe that some biblical prophecy or hollywood guru has the answer is... well, bizarre. Our econmy is toast, of that I'm sure. When it willstart showingmore signs of being a disaster and less manipulated I don't know but it could indeed coincide with the mythical 7 year itch or cycle or whatever we want to call it. If it does some/many will use this toreinforce their superstition. I will not, I cannot and still believe in science and math. To me the answer(s) are so much more simple; humans have free will and the need to "fix" things. But politics and greed often combine to hijack the "fixing" and make it bend to someone's benefit. This explains a lot of why we have economic problems and why the conspiracy theories seem so believable. But it doesn't make the number "7" special.

  11. Here's another seven: Portugal, Spain, the Netherlands, France, Britain, USA. Oops, that's six. Anyway, each of these countries in sequence were the top world empire for about 225 years, and had reserve currency status for the last 100 years. Then they hyperinflated their currency and the middle classes' savings were wiped out. The USA is at the age when we should expect the hyperinflation to occur.

  12. Re: The USA going the way of " Portugal, Spain, the Netherlands, France, Britain" etc.
    This does seem to be inevitable but clearly preventable. We now have a majority of people on some kind of welfare/handout and a minority of people who are productive and tax paying. The majority are demanding more free stuff and the politicians are falling over themselves to promise more free stuff. Taxes must go up to pay for free stuff for the low information voters who are easily lead by the left. Inevitably this will destroy the middle class and lead to less productivity and innovation. You will see the day when everything is made overseas (or if it is made here it will be made by foriegn owned companies). The tax system and repressive regulations will force the money off shore and the jobs will follow. This will require more free stuff for a growing majority of "do nothings" which in turn will accelerate the problem.
    Can it be stopped? Easily but what politicians in his right mind would dare tell the truth and what politician running against him would resist the urge to expose the "truth teller" as the guy who was going to take away the free stuff? So there we are! It is greed pure and simple that causes the downfall of nations.

  13. Does it count when people are so eager to validate their prophet that they go out of their way to make the prophecy happen?

  14. > This does seem to be inevitable but clearly preventable.

    Why do you conclude the positive feedback loop of parasites destroying their hosts is easy to stop or prevent? If my Windows didn't have any programming bugs it would never crash. If human beings didn't have instincts to self-organize into monkey troops and follow charismatic leaders, maybe they could be talked into behaving sensibly. But humans do have that programming, and we can't wish it away.