Authored by Mark Thornton via The Mises Institute,
The Skyscraper Index is a chronicle of world record-setting skyscrapers that culminate in a major economic crisis – the Skyscraper Curse. The Index has a remarkable record from the late 19th century to the present and is described historically and theoretically in my new book, The Skyscraper Curse, and How Austrian Economists Predicted Every Major Economic Crisis of the Last Century.
In a 2005 article I first explained how otherwise unrelated events — skyscrapers and business cycles — are connected. Of course skyscraper construction does not actually cause business cycles and economic crises. Both phenomenons are caused by monetary expansion and artificially low interest rates.
On January 1, 2016, I published a “skyscraper alert.” A skyscraper alert occurs when a new world record-setting skyscraper project is underway and highly likely to be completed. At that time, media reports indicated that the construction project was fully financed. At the time I noted:
Above ground construction on the long-delayed Jeddah Tower started in September 2014, but there was considerable doubt that the financing of the one-kilometer (3,280.84 feet) tower could be obtained, given the shaky financial conditions in Saudi Arabia.
A skyscraper alert should cause some concern, but it actually is a sign of a boom in asset prices. Since the alert was given, the NASDAQ Composite Stock Index is up by 2/3 of its value!
The next question is when to issue a “skyscraper signal.” In contrast to an alert, a signal indicates a high degree of danger of a looming economic crisis. No one knows for sure, but my rule of thumb, based on historical experience, is that skyscraper signals should occur when the project approaches a record-setting height of livable space. Completion and opening dates come later, very often in the midst of the economic crisis. That was the case with the last crisis and the Khalifa Tower in Dubai.
Currently the Jeddah Tower in Saudi Arabia remains listed for “completion” in 2020. If completed as planned, the Tower would set a new world record and trigger the Curse. Completion usually means that a skyscraper has been built and a good portion of the interior of the building is completed and available for occupancy.
Currently the construction of the Tower seems to have stalled since late 2017 on this relatively secret project. Indeed, there have been several long delays since underground construction began in 2013.
The reason for the current delay is that two of the project’s most important players — Bakr Bin Laden, chairman of Jeddah Tower’s construction company Bin Laden Group and Saudi Arabia’s Prince Al-Waleed bin Talal, a prominent investor — have been caught in the kingdom’s anti-corruption purge. The purge by the Saudi government detained and questioned hundreds of important citizens on accusations of corruption.
It is believed that the condition for release from detention is to turn over a large percentage of your wealth. That would obviously put the completion of the project at risk.
However, canceling or stalling of the project does not mitigate the skyscraper alert; it only clouds the timing of the skyscraper signal. The Tower was originally scheduled to break the record in 2018 or 2019 and the current construction delay will likely prevent that from happening. However, there is nothing magical or mechanical about the construction records triggering a signal and curse.
I think it would be irresponsible for me to stand aside and wait for the possibility that the Jeddah Tower project gets restarted and breaks the record. This is especially so given the state of fundamental and contrary indicators. For example, the yield curve is flattening and bullishness on stocks is very high.
In the absence of a true signal, I am issuing a “skyscraper warning” regarding the potential for an economic crisis — don’t be surprised by the emergence of an economic crisis before the year 2020 even though a true signal might not happen for two or more years.
This is not investment advice. It is hard to protect yourself from an economic crisis, but the key thing is not to be surprised and overly extended in your investments and debt. Financial advisors have techniques and strategies to reduce your risks under these anticipated conditions.
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