Tallest Buildings, they are telling us a crash is coming

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drbubb's picture
drbubb
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Tallest Buildings, they are telling us a crash is coming

 

DONT LOOK IT UP, JUST LOOK UP

 

Along with being the first business day of the new year, and the opening of the Burj Dubai,

yesterday was a "Combust Day" according Larry Pezavento.  That's a day where we often see market turns

(or within 24 hours, says Larry.)  SPX closed at:  1,133 +17.89 , up 1.60%, a new high since 2008.

+ + + + +

World's tallest skyscraper opens

By Adam Schreck .. 4th January 2010, 4:12pm

Dubai opened the world’s tallest skyscraper Monday, and in a surprise move renamed the gleaming glass-and-metal tower Burj Khalifa in a nod to the president of the UAE and leader of neighbouring Abu Dhabi — the oil-rich emirate which came to its rescue during the financial meltdown

Fireworks explode around Burj Dubai, the world’s tallest tower, during the opening ceremony in Dubai on Jan. 4, 2010. Dubai opened the world’s tallest structure on Monday, and a statement said it was 828 metres (2,717 ft) high. Dubai’s ruler Sheikh Mohammed bin Rashid al-Maktoum renamed the tower Burj Khalifa after the president of the United Arab Emirates and the ruler of the neighboring emirate of Abu Dhabi. (REUTERS)

 == ==

From Today's SCMP, Tom Holland's Monitor

The higher they build, the faster markets crash

2010 Tall Tower openings ... call to mind the work of Chistopher Rathke on the economics of tall buildings.

Back in 1994, Rathke, then working as a financial analyst in Tokyo, was inpired by the start of building work on Malaysia's Petronas Twin Towers to investigate the correlation between skyscaper construction and equity market performance.  

The results astonished him.  "Competing projects to build the world's tallest building are a sure-fire sign of sign of immanent financial collapse," says Rathke.  "As a rule of thumb, a bout of tallest building mania is followed by a 70 percent stock market crash."  

There are plenty of historical examples.  The skyscraper frenzy of the early 1900s, which saw the construction of New York's Singer Building and Metropolitan Life Insurance Company Tower, and was followed closely by the "Banker's Panic" in which the Dow Jones Industrial Average plunged by more than 50%.

The roaring 1920s saw another rash of skyscaper construction in New York with work starting on the Bank of Manhattan Trust Building, the Chrysler Building, and the Empire State Building.  Before they were finished, the party came to abrupt end with the 1929 Wall Street Crash.  By the time the last of the three took the tallest building crown in 1931, the American economy was in the depths of the Depression and the new tower was popularly dubbed, the "Empty State Building."

Fast forward to the late 1960s and there was another building boom in the US.  Construction began on both the World Trade Center in New York, and the Sears Tower in Chicago.  True to form, the twin towers were finished just in time for teh 1973 oil crisis and the 80 percent inflation-adjusted collapse of the US stock market that followed.

Towards the end of the 20th century, Asia caught the tall building bug.  First there was were Malaysia's twin towers, whose completion coincided with the Asian financial crisis of 1998.  Then came Taipei's Taipei 101, finished in 2004, just as Taiwan's equity market slumped 25 per cent.

And finally we had the most recent bout of skyscaper building, which saw ground broken on New York's Freedom Tower, to be built on the site of the old World Trade Centre, as well as the Shanghai World Financial Centre - better known as the Shanghai bottle opener - Hong Kong's very own ICC and the record-shattering Burj Dubai.

 . . .

The reason for Rathke's correlation between tall building construction and stock market crashes is simple enough.  Tall buildings are very expensive, so erecting them needs loose credit conditions.  As a result, competiting vanity projects to build ever-taller towers are a clear sign of an unsustainable credit bubble, whose inevitable bursting must inevitably trigger a stock market crash.

"Analysts can manipulate the numbers are much as they like to try and justify excess," Rathke says.  "But skyscaper construction is one obvious indicator you cannot ignore.  The warning signs are visible for everyone to see."

 . . .

The sort of "skyscaper boom and stock bust" the world has just witnessed happens at most two or three times in a lifetime.  Typically, each is followed by a lengthy bear market in stocks. "I believe we are in a Bear market that will last for at least 10 years," he says.

 

graham2's picture
graham2
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Re: Tallest Buildings, they are telling us a crash is coming

This is very interesting. I must admit I thought that the opening of Burj Khalifa would actually help the Dubai economy. I know they have huge debts, and even renaming the building shows how their dependence on help from outside is increasing. Nevertheless, I thought these would be just temporary difficulties. After all, nearly 100% of the building has already been sold, which in turn should mean enlivening of the economic situation? Well, it's hard to predict the future. Anyway, thanks for the article, still I hope the theory you introduced won't be observed in the case of Dubai.

Regards,

Graham.

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