April 2006, EWFF
A Bull Market Goodbye From Dubai
How big is this peak? Click here to view a chart that 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 amidst the worst market for office space for decades on either side. 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 regions’ 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 doubled-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. As our discussion of the Arab stock markets over the last three months indicates, everything points to a similar fate in Dubai, where the Burj Dubai is now being built through the wreckage of a crashing Dubai Stock Index. As with the contestants for the world’s tallest building in the 1920s, “The Burj Dubai’s height is a closely guarded secret.” 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 mega-project,” 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 incredible repitition 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 couple miles of the New York Stock Exchange. Dubai is 6,420 miles away. And it is a city of less than 1.5 million people that was virtually nonexistent just 50 years ago. It’s also situated in the midst of an unstable region. The Burj Dubai is just one of a wide range of wildly exotic projects now being constructed in Dubai. Others include: the first luxury underwater hotel; “a man-made archipelago of private, residential islands (yes, the biggest development of its kind) that will resemble a map of the world when seen from above”; a set of man-made resort islands shaped to look like a palm tree when seen from above; the first commercial spacecraft flight center; Dubailand, a sprawling tourist attraction that is geared to be a combination between Disney World and Las Vegas; and Eco-Tourism World, which will present “natural” environments and biosphere structures to create a “place that celebrates the natural beauty of our planet.”
But, the bear market is wasting no time throwing a monkey wrench into the works over in Dubai. Here’s the latest news from the Burj Dubai building site:
Asian workers angered by low salaries and mistreatment smashed cars and offices in a riot that interrupted construction Wednesday on the site of a building meant to be the world’s tallest. The violence, which caused an estimated $1 million damage, illustrated the growing unrest among foreign workers who are the linchpin of Dubai’s breathtaking building boom.
—Associated Press, March 23, 2006
Thanks to extremely low labor costs, the developers will undoubtedly work through this dust up. But the depth of the excess in this once forsaken desert town suggests that the Burj Dubai may not make it to its rumored height of 160 stories. It was a small riot, but it will probably go down as the first important sign that something turned rotten in Shangri La.
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 United States have been announced only to be derailed for one reason or another. It takes a high level of social cooperation to pull off a tallest building because they are less efficient than smaller structures (and, as it turns out, excellent terrorist targets in bear markets). In a divergence from the dramatic harmony at the end of Supercycle wave (III) in 1929, developers just cannot pull the pieces together the way they did in the heart of the Grand Supercycle bull market. Through the peak of Supercycle (V) in 2000, the aspirations are just as grand as they were in Supercycle (III), but at this point antagonism between developers, lenders, governments and other parties is making it hard to even replace the towers of the World Trade Center that were destroyed on September 11, 2001. Originally, the Freedom Tower, which is being built on the site of the World Trade Center, was supposed to win the crown of world’s tallest building at 540 meters, but the project has been continually delayed. A NY Post columnist describes 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.” As a Daily Show “news” commentator dryly noted, Bin Laden may have brought down the 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 on a Grand Supercycle scale, the U.S. has begun to lose its world dominance.
September 11, 2001, The Elliott Wave Theorist
During the 1990s, we studied the history of skyscraper construction and issued several reports on the correlation between the erection of tall buildings and the late stages of positive long-term social mood trends. As EWT stated in April 1996, “Of all the cultural relationships we consider here, the link between stock prices and the tallest buildings is one of the most fascinating because it is literally etched in stone.” We concluded that skyscrapers are “monuments to peaking social mood.” Some people take such studies as frivolous. They are not. Now that we are in a negative social mood trend of greater magnitude than any since the construction of the first skyscrapers in the 1890s, we should hardly be shocked that the forces expressing the emerging downtrend in mood have aimed their sights at these towering structures, symbols of the productive optimism of Grand Supercycle wave.
April 1996, The Elliott Wave Theorist
Edward R. Dewey was a pioneer in observing cyclic phenomena. One indication of economic peaks he noted was the “skyscraper indicator,” which is that tall buildings are built at the end of economic booms. The largest free standing tower in America is expected to open in Las Vegas in April. The Stratosphere Corp. is funding the construction of the Stratosphere Tower with (of course) a series of public stock and bond offerings. It will surpass the height of the Sears Tower, which was built in 1972 on the approach of the stock market top of January 1973. That building surpassed the height of World Trade Center I, which was built through the market top of 1966. That building in turn surpassed the Empire State Building, which was built through the market top of 1929. The world’s tallest building is now under construction in Kuala Lampur. China is planning to surpass it in 1997 with the Chongquing Tower in Sichuan.