The indicator telling you the future

Friday, 27 April 2018
Melbourne, Australia
By Jack Cameron

  • A race to the top
  • The towers of the future
  • What to expect

The other day I came across an article in the New York Times.

It was in the midst of a discussion regarding the threat of earthquakes facing the city of San Francisco.

You see San Francisco is in the middle of a building boom. Unsurprisingly so, given the rate of growth the city has faced in recent years.

But the city sits on earthquake prone ground, meaning larger buildings may provide a grave danger to residents.

A race to the top

In January of this year, the Salesforce Tower opened its doors to become the tallest building in the area, and the second tallest in Western USA.

Tall buildings inspire a childish awe in me. I’m also fascinated by large lobbies and churches.

It’s a nostalgic feeling of relative size that I haven’t felt since I was young.

Anyway, after reading the NY Times article I started to think about where we were at in our global race to the skies. And what this tells us about the future.

If you’re new to Port Phillip Publishing, you may be asking what relevance this has to anything.

Let me explain…

At the beginning of the boom in our boom and bust cycle, we generally see grandiose plans for skyscrapers.

And the term is becoming more literal as time goes on.

Yet these buildings have a habit of opening into economic recessions.

Jeddah Tower, in Saudi Arabia, is set to be the tallest building in the world upon completion at 1,008m high, a true sky scraper.

The US$1.23 billion project officially began mid-2011, and is estimated to be completed after 2020.

Originally it was planned to touch 1.6 km high, but the soil in the region proved too unstable to support the structure…Yikes.

The towers of the future

Another contender was a proposed set of supertall skyscrapers named Phoenix Towers in Wutan, China. Though like many projects, construction was pushed back and the completion date is now uncertain.



chart image

Source: The SkyScraper Center
Click to enlarge


It’s disappointing, as the Phoenix Towers will be a spectacle if they end up being constructed under the current vision.

The two towers are to represent the male and female dualistic nature of Chinese culture.

Feng, the tallest, representing the male, would include about 100 floors of residential, office, and retail hubs. While Huang would be home to ‘the world’s tallest garden’.

Here’s a CGI projection of what the GB£1.2 billion project is set to look like.



chart image

Source: Chetwoods
Click to enlarge


Fascinating right? It looks almost ethereal.

The towers are being designed by London-based Chetwoods Architects, in partnership with the HuaYan Group.

What’s the point here?

In Cycles, Trends & Forecasts, Phil Anderson discusses a series of economic indicators, including the phenomenon of the world’s tallest buildings as a reference to where we are in the real estate cycle.

He calls this phenomenon the Cantillon indicator, after Richard Cantillon — an Irish banker in the early 1700s.

In short, Cantillon was one of the first economists to suggest how a change in money supply and credit will affect the economy by changing prices. Namely, that changes in the availability of credit result in economic expansion which ultimately leads to a price rise and increasing imports.

This became a fundamental concept in economics and monetary theory. Booms lead to inflation, and inflation puts the brakes on economies through higher rates.

You can read all about the original concept in his major treatise, ‘Essay on the Nature of Trade in General’.

Though I’m not sure how you would get your hands on it, let alone understand it considering it was written in old French.

Cantillon’s story is enthralling. He amassed great wealth through a speculation bubble involving a French bank of which he was an early investor.

The bank was allowed to be set up under the promise to finance the French government’s debt at low rates, but was then sold off in shares using the bank’s own monopoly on the issue of bank notes to finance investors.

Cantillon later died in a house fire, the mostly widely accepted explanation being murder, though there was conjecture that he faked his death to escape harassment of his debtors.

More on this after the markets.

Markets

Overnight the Dow Jones Industrial Average closed up 238.51 points, or 0.99%.

The S&P 500 gained 27.54 points, or 1.04%.

In Europe, the Euro Stoxx 50 index finished up 20.20 points, or 0.58%. Meanwhile, the FTSE 100 gained 0.57%, and Germany’s DAX gained 78.17 points, or 0.63%.

In Asian markets, Japan’s Nikkei 225 is up 97.13 points, or 0.44%. China’s CSI 300 is down 0.86%.

In Australia, the S&P/ASX 200 is up 28.40 points, or 0.48%.

On the commodities markets, West Texas Intermediate crude oil is US$68.05 per barrel. Brent crude is US$73.66 per barrel.

Gold is trading for US$1,324.15 (AU$1,747.39) per troy ounce. Silver is US$16.63 (AU$21.95) per troy ounce.

One bitcoin is worth US$9,210.00

The Aussie dollar is worth 75.83 US cents.

What to expect

Let’s get back to the global race to the skies.

Here’s a crude bar chart I created based solely off Wikipedia’s data on scheduled skyscrapers.

I removed the buildings which had undetermined completion dates.



chart image

Source: Port Phillip Insider
Click to enlarge


A simple inference to draw from this is that we should expect a number of the world’s tallest, or country’s tallest, buildings to be erected from 2020-2022.

Maybe as society we’re heading for new heights.

Living 1km in the sky may become the norm.

In fact, as somebody who loves heights, I hope it does.

It also makes sense from an efficiency point of view. Many cities are running out of space, and if we can integrate vertical farming and forestry we may be able to solve housing and environmental problems alike.

But I might save this discussion for next time.

Another perspective to consider is that history is gearing up to repeat itself.

Every-time in the past the height of the tallest buildings has been a proxy for the height of the boom and the extent of the credit created.

That comes from Phil Anderson’s first monthly edition of Cycles, Trends & Forecasts back in 2014.

And here we are, at the beginning of a new round of tall buildings.

So what could the influx of new heights in the early 2020s indicate to us? And what can we do with this information?

If you follow Phil’s views, it could indicate the beginning of a mid-cycle slowdown in the real estate cycle.

There are many ways to prepare, and take advantage of this, but I’ll leave that explanation to Phil.

In the meantime, keep your eye on the sky, and we’ll do our best to try and understand the implications.

Cheers,

Jack Cameron,
Contributing editor, Port Phillip Insider