KEY POINTS:
Hundreds of thousands of Taiwanese have been taking to the streets of Taipei to oust their president, prompting observers to wonder what is going on.
Prosecutors have been questioning President Chen Shui-bian over a series of scandals. Others point to his unsteady handling of relations with China, which considers Taiwan a renegade province. I'm wondering if it might make more sense to look at the skyline.
Standing out amidst the tangle of skyscrapers is the 509m Taipei 101, which is the world's tallest building. Its presence, coupled with a worsening political crisis that could trip up the economy, reminds one of the "Skyscraper Curse".
History shows an uncanny correlation between tallest-building projects and financial crises. Be it in Kuala Lumpur in 1997, Chicago in 1974, New York in 1930 or the Tower of Babel long ago, mankind's penchant for architectural overreach is a strangely reliable omen of troubles.
A coincidence? Perhaps, yet economists such as Mark Thornton, senior fellow at the Ludwig von Mises Institute in Auburn, Alabama, argue that skyscrapers can speak volumes about a nation's wealth, technological prowess, ambition and, perhaps most importantly, hubris.
"It's these features that make skyscrapers, especially the construction of the world's tallest building, a salient marker of 20th-century business cycle," Thornton argues.
For a time in the early 2000s, analyst Andrew Lawrence, then with Deutsche Bank Securities in Hong Kong, published a periodic Skyscraper Index for investors. As 2007 approaches, perhaps we need more building-project barometers.
Take Dubai, which is undergoing one of history's greatest construction booms. After visiting the city recently, economist Claudia Zeisberger of the Asia Pacific Institute of Finance at Insead in Singapore quipped: "All the building going on made me feel like I was experiencing the last days of ancient Rome."
Perhaps it is just a coincidence, but Dubai is putting the finishing touches on a 701m building that will top Taipei 101. In China, the 101-storey Shanghai World Financial Centre will become the most populous nation's tallest building. And a residential construction project in Chicago will top the Sears Tower, currently North America's tallest skyscraper.
Developers are planning to build a 140-storey skyscraper in the city of Gurgaon, near New Delhi. In 2008, South Korea will complete the 580m International Business Centre, which the Government hopes will solidify Seoul's place as a global business hub. Massive skyscrapers also are being considered from Australia to Russia to Brazil.
"It all makes sense given current conditions," Thornton says.
Even though the Federal Reserve, Bank of Japan and European Central Bank have been raising interest rates, markets are still awash in excess cash. Loose monetary policies have fuelled investment frenzies in London, Shanghai, Tokyo and elsewhere.
They have increased the amount of leverage in the global financial system, raising the stakes if growth slows markedly in 2007.
Over-investment and financial speculation led to each of the Skyscraper Curse episodes during the 20th century. Coincidence or not, history suggests such projects are often less about technological innovation than economic booms. The desire to have the tallest building correlates suspiciously well with sudden capital inflows that pump up credit creation and confidence.
For example, New York's 47-floor Singer Building opened, followed by the 50-story Metropolitan Life Building. Both were planned, financed and raised while the US was in the midst of the panic of 1907, a credit crunch that necessitated help from financier J.P. Morgan.
In 1929, the opening of 40 Wall Street and the Chrysler Building were harbingers of the worst-ever US meltdown, the Great Depression. A year later, the Empire State Building became the world's tallest building, presaging years of gloom.
The 1970s saw the completion of New York's World Trade Centre and Chicago's Sears Tower. They opened amid stagflation in the US economy, a fiscal crisis in New York and the breakdown of the Bretton Woods monetary system.
More recently, Malaysia's 452m Petronas Towers were being completed during the Asian crisis. And in 2004, Taipei 101 grabbed the tallest-building title. That year President Chen survived an assassination attempt and tensions with China hit a fever pitch.
We will stay tuned to events in Taiwan, and for architectural one-upmanship in countries hoping to draw attention to their skylines.
The plunge in the US dollar that analysts have predicted for years may come in 2007. Other risks include a slowdown in China, higher global interest rates, and inflation and geopolitical risks from North Korea, Iran, Iraq and a number of other regions. Oil prices may also climbagain.
Add to this the rapid increase in hedge funds and the so-called yen-carry trade. A favourite among hedge-fund managers, this involves borrowing in ultra-low-interest-rate yen and re-investing the funds in riskier, higher-yielding assets elsewhere.
None of this means a crisis is on the cards. Yet a smooth year would mean avoiding the Skyscraper Curse. History suggests that's a tall order.
- BLOOMBERG
