SPEAKING FREELY A bull market goodbye from Dubai By Pete Kendall and Steve Hochberg
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There is a great, and little-noticed, irony associated with the celebrations
surrounding the 75th anniversary of New York's Empire State Building:
historically, the construction of record-breaking skyscrapers has been
associated with financial collapses.
The Empire State itself, for example, was begun during the euphoric 1920s and
finished during the Great Depression. If we
are concerned about an upcoming global decline, we might look around the world
and ask: Is there a wave of super-tall buildings under construction despite
collapsing markets?
Unfortunately, there is, and the most massive piece of evidence - literally -
is the Burj Dubai, designed to be the world's tallest building, now under
construction in the Persian Gulf city-state. Another screaming parallel is the
response to the plunge since
December in the stock market of Dubai and other once-remote financial outposts.
The chief investment strategist for a major Wall Street firm called the 53%
collapse over four months in Dubai "an adjustment phase" and told a daily
newspaper in the emirate, "We believe that Dubai is the Shanghai and Hong Kong
of the Middle East." He'd better hope not. The Shanghai Stock Index remains
down 42% from its bull-market peak nearly five years ago, while Hong Kong's
Hang Seng Index is still down 13% from a peak in March 2000.
But what about the significance of that skyscraper in Dubai? This chart
captures the remarkable heights that human ambition is scaling at the greatest
top of all time.
The closest precedent is what happened in the late 1920s. Here's a description
from a review of the book Higher: A Historic Race to the Sky by Neal
Bascomb:
At the tail end of the 1920s, the Jazz Age was in full swing,
and Americans experienced an unprecedented level of prosperity with no apparent
end in sight. Though the Great Depression would soon wipe out many of those
gains, three landmark buildings on the New York City skyline - the Chrysler
Building, the Empire State Building, and the Manhattan Company Building [40
Wall Street] - remain as tangible reminders of the enormous ambition and
exuberance that characterized the era.
All three buildings were
conceived in the bull market and built through the peak, only to open for
business amid the worst office-space market in decades. That great race to be
the world's tallest is the building frenzy Edward R Dewey used to identify the
"Skyscraper Indicator" back in the 1940s.
The latest "race to the sky" also features three contenders, in Malaysia,
Taiwan and Dubai. But this time, the first two skyscrapers actually held the
title of world's tallest for only a few years, eventually exceeded by an even
taller monument to another region's euphoric surge in social mood.
Dewey originally observed that the "world's tallest" sell signal for stocks is
given when a tower is conceived, because construction takes a while to
complete. A new world's tallest building is invariably occupied only in the
aftermath of the bull market that gave rise to its creation. All three of the
new ones fit this profile, as the Malaysian market double-topped in 1994 and
1997, before the completion of the Petronas Towers; Taiwan peaked in 2000 ahead
of the 2004 completion of the Taipei 101 building.
Everything points to a similar fate in Dubai, where the Burj Dubai is now being
built through the wreckage of a crashing UAE Stock Index. As with the
contestants for the world's tallest building in the 1920s, the height of the
Burj Dubai is being kept secret for now. The latest projection is 800 meters,
which would be a 77% increase from this era's first record breaker, the
Petronas Towers. Billed as "the world's greatest vertical megaproject", the
Burj Dubai is designed to "beat all records, and on a scale that will be a
dramatic testament to Dubai's faith in the future". The same kind of rhetoric
surrounded the move toward the heavens in 1929.
The latest sell signal rates as even more potent than that of 1929, for several
reasons. A major one is the sheer audacity of the last and most dramatic tower.
At 800 meters, the Burj will be close to half a mile high, more than doubling
the Empire State Building's 381-meter height. Also, in addition to the
repetition of the signal, there is its geographic spread and distance from the
hub of the mania, New York City. In 1929, the projects were all within a few
kilometers of the New York Stock Exchange. Dubai is 10,330km away, a city of
less than 1.5 million people that was virtually non-existent just 50 years ago.
It's also in the midst of an unstable region.
A big difference between this peak and those of the last century is that no new
heights are being scaled in the United States. Since 1996, a handful of plans
to construct the world's tallest building in the US have been announced only to
be derailed for one reason or another. It takes a high level of social
cooperation to pull off the tallest buildings, because they are less efficient
than smaller structures (and, as it turns out, excellent terrorist targets).
In a divergence from the dramatic harmony at the end of 1929, developers just
cannot pull the pieces together the way they did in the heart of the bull
market. Through the peak in 2000, the aspirations are just as grand but, at
this point, antagonism among developers, lenders, governments and other parties
is making it hard even to replace the towers of the New York World Trade Center
(WTC) that were destroyed on September 11, 2001.
Originally, the Freedom Tower, which is being built on the site of the WTC, was
supposed to win the crown of world's tallest building at 540 meters, but the
project has been continually delayed. A New York Post columnist described the
effort to date as a failure that is "Homeric in scale. The paralysis can only
be explained by a heart that was never really in the job, or gross incompetence
- or both."
Construction work on Freedom Tower finally did begin last Thursday. But as a Daily
Show "news" commentator dryly noted, Osama bin Laden may have brought
down the WTC Towers, but he did nothing to destroy the bureaucracy that will
keep a new tower from ever being rebuilt. All of this is evidence that the
United States has begun to lose its world dominance.
Pete Kendall and Steve Hochberg, analysts with Elliott Wave
International, edit The Elliott Wave Financial Forecast.
(Copyright 2006 Elliot Wave International. Used by permission.)
Speaking Freely is an Asia Times Online feature that allows guest writers to have
their say.
Please click hereif you are interested in
contributing.
December in the stock market of Dubai and other once-remote financial outposts.
