The Skyscraper Cycle: A Major Economic Top Ahead

One classic long-term indicator is flashing major danger signals.

When a long economic boom is ending, like in 1929, 1972, and 2007, major skyscrapers spring up like weeds in the leading-edge cities of that era.

There was the 1,049-foot high Chrysler building in New York, completed in 1930.

There was the 853-foot high Transamerica Pyramid in San Francisco, completed in 1972.

2008 saw the completion of (among others) the 856-foot high Hotel & Casino Grand Lisboa in Macau, the 1,361-foot high Two International Financial Center in Hong Kong, and the 1,614-foot high Shanghai World Financial Center.

Now, just a few days ago, China completed the shell of its latest behemoth, the 2,073-foot high Shanghai Tower. And it plans to complete construction of the 2,749-foot high, 196 story Sky City in April 2014.

If that news doesn’t send you screaming for the hills, then this is the wrong newsletter for you.

This Skyscraper Cycle is crystal clear and we’re in for a rough ride ahead…

Of course, some critics of this cycle suggest there have been many major stock crashes and major recessions not been associated with such building peaks. Take the recession of 1920 to 1922 for example. Or the downturn from 1937 – 1939… the crash of ’87… or the recession from 2000 to 2002.

But that is missing the point.

The Skyscraper Cycle is not associated with stock crashes per se, but with peaks in major long-term economic booms, which are then followed by stock crashes.

The bigger and longer the economy booms, the more confident builders and developers become, committing to larger and larger projects. And the more brazen the leading edge countries and cities become, using large, record-breaking skyscrapers as a sign of strength and success. Banks in major cities join the chest-thumping parade, displaying their strength and dominance by putting their names on the tallest buildings in town.

The thing is, the tallest buildings in the world, built in the leading edge cities, tend to be completed just after a major long-term peak in bull markets, as you can see in this table…

See larger image

Just after the panic of 1907, the Singer and Met Life buildings were completed in New York.

Just after the 1929 stock peak came 40 Wall Street (1929), the Chrysler (1930) and Empire State buildings (1931).

In 1997, just as a five-year financial crisis was beginning in southeast Asia, the Petronas Towers (gorgeous in real life) were completed in Kuala Lumpur in Malaysia, the tallest building in that region.

In the latter part of the last decade, Dubai had half of the building cranes in the world. The first landmark was the Burj Al Arab – you know the one in the water that looks like a giant sail… how could anyone top that? Well, Dubai did with the spectacular Burj Khalifa in 2010, at 2,717 feet and 163 stories. That building is so tall, its top floors are often shrouded in clouds.

And like I said above, China is now in full skyscraper-swing of things. The biggest surprise is that its Sky City building is in the middle of nowhere. Changsha in the more inner part of China, where they also built the largest mall in the world… the one that remains largely vacant. It’s also closer to the largest ghost town, Ordos, built for one million people and largely vacant.

This all shows the extent to which China is willing to finance and build major projects, regardless of actual demand and need. And it’s one reason I say China has the greatest overbuilding bubble and real estate bubble in modern history.

You all know what happens to bubbles. They ALWAYS burst.

This Skyscraper Indicator is yet another measure pointing towards the inevitable bursting of China’s insane real estate bubble… and the fact that we’re at the precipice of a major long-term global top, not just another recession and correction ahead.

The first half of 2014 now looks like the time when our global stimulus bubble will start to crack and crash again.

Make sure you’re not caught up in the weeds.

Harry

 

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Categories: Economy

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.