• Jonathan Furest

Market Timing with Skyscrapers

Over the years, we've seen our fair share of "strategies" that attempt to time the market. However, this newest one is probably the most bizarre we've seen. What might be even more bizarre is that it seems quite accurate. But there's a huge catch. More on that in a bit.

According to the Barclays Skyscraper Index, skyscraper booms, or more specifically, the construction of record setting skyscrapers often coincide with economic downturns, market corrections, or crashes. The belief is that skyscraper construction can be viewed as a sentiment indicator of what the masses are thinking of (and speculating on) the current market conditions. The premise is that a skyscraper boom indicates a widespread misallocation of capital which eventually leads to an economic downturn. They used data from 1873 through 2010, starting with the world's first skyscraper, to the world's current tallest skyscraper, the Burj Khalifa in Dubai. The list is as follows with the building completion date and subsequent economic downturn.

  • Equitable Life Building (1873) coincided with "the Long Depression" (1873-1878)

  • Chicago's Auditorium (1889) and New York World (1890) coincided with the British Banking Crisis of 1890. (How they relate these events together? We haven't a clue.)

  • Chicago's Masonic Temple, Manhattan Life Building, and Milwaukee City Hall (1893) coincided with the panic of 1893 caused by the collapse of the railroad overbuilding.

  • Park Row Building and Philadelphia City Hall (1901) coincided with the first stock market crash on the New York Stock Exchange.

  • Singer Building and MetLife Building (1907) coincided with the Bankers' Panic and US economic crisis (1907-1910).

  • 40 Wall Street, Chrysler, and Empire State Building, (1929, 1930, and 1931 respectively) coincided with the Great Depression (1929-1933).

  • World Trade Center (1972-1973) and Sears Tower (1974) coincided with the collapse of the Bretton Woods System, a rise in oil prices that caused a global crisis and wide speculation across all aspects of the market.

  • Petronas Towers (1997) coincided with the Asian economic crisis (1997-1998).

  • Taipei 101 (began 1999, completed in 2004) coincided with the Dot-Com/Tech bubble (2000-2003).

  • Burj Khalifa completed in 2010, it stands at 2,717 feet. Construction surpassed the height of Taipei 101 (1,671 ft) on July 21, 2007. As we all remember this coincided with the Global Financial Crisis and Great Recession.

When will we see the next "omen" you ask? Currently two projects have started recently. China's Sky City, is expected to be around 2,749 feet tall. There isn't an expected completion date at this time because construction has been halted by China's central government. The other is Saudi Arabia's Kingdom Tower. It is expected to open in 2019 and will be the tallest skyscraper in the world at 3,281 feet. This would be the first skyscraper to reach the 1 Kilometer mark.

While it is shocking that this shows correlation, we do not believe it is causation, and neither should you. Nor is this solid proof or a sure way to predict when a economic down turn will occur. Historically speaking, there has only been 20 changes in ownership for the title of worlds tallest skyscraper. Respectively, there has been over 50: corrections, panics, crashes, or depressions throughout the world in a similar time frame. While there appears to be a correlation, it clearly doesn't forecast every or even most economic downturns for that matter.

Even with all the economic downturns that we've experienced, we know historically that the market has always rebounded, often just as fast as it fell. The "huge catch" is that you would only be in a good position following this "method" if you knew exactly when the downturn will occur so you can sell at the peak. And then, buy back in at the lowest point to catch the rebound. Even if we considered this a realistic possibility, nobody in the history of investing has ever been this lucky, especially over long periods of time. This index is a great example the perseverance of the markets, capitalism and the human spirit. No matter what is thrown our way, no matter how bad it gets, we keep aspiring for bigger and better things. Additionally, it can be detrimental to try to time the market by changing allocation or moving to cash. Doing so, generates transaction fees, sales charges, and worst of all, taxes. All of which hurt your returns more so then investing for the long term, buying the lows and rebalancing throughout. If there's anything to gain from the Skyscraper index it's that hindsight is 20/20.


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