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The Erection Index: Using This Little-Known Index For Maximum Portfolio Returns
By Brian Hunt, Investment U
Tuesday, February 10, 2004: Issue #311
[Editor's Note: Once again, we welcome Brian Hunt to this column. Enjoy. - Steve Sjuggerud, President, Investment U]
“In no nation are the fruits of accomplishment more secure.” – Herbert Hoover, in his inaugural address, 1929.
At a height of 1,250 feet, the Empire State Building was to be the tallest building in the world.
It was the late 1920s, and America was the greatest nation on earth, as President Hoover explained. Caught up in the excitement, millionaire speculator J.J. Raskob forged ahead on his plans to build the hundred-story Empire State Building.
The building was completed in 1931, two years after the stock market peak.
Planned during the stock market mania of the late 1920s, the Empire State Building (along with the Chrysler Building built at the same time) is a classic example of “The Erection Index” at work. Today I’ll reveal this little-known index, and give you a specific way to use it in your portfolio for maximum returns.
How The Erection Index Works
The Erection Index – the idea that stock markets crash soon after the plans for the world’s tallest building are hatched – has a remarkable track record.
As good times progress to bubble times, people forget about risk. And bad investments are made.
People buy drastically overvalued stocks. Business are financed that shouldn’t be. And rich guys build really tall buildings.
The record for the world’s tallest buildings stood from the early 1930s until the late 1960s Then the stock market entered what was called the “Go-Go Years.” Good times progressed to bubble times. And plans for the World Trade Center were hatched at the peak in 1966.
The World Trade Center and the Sears Tower in Chicago were both completed in the early 1970s. Stocks did absolutely nothing from 1966 to about 1981. Those who understood the Erection Index knew a peak in stock prices (and the economy in general) was near.
The Sears Tower held the record for nearly a quarter-century, until good times turned to bubble times, this time in Asia. Foundation work on the Petronas Towers in Malaysia started amid the Asian stock frenzy of the mid-90s.
The towers were completed in time to welcome the Asian crisis in 1998. Malaysian stocks had already fallen by 69% in dollar terms in 1997 To this day, in 2004, Malaysian stocks are still 50% below their 1997 peak.
What The Erection Index Says Now
So where’s the next “world’s tallest building” being built? You guessed it China.
Scheduled for completion in 2007, the Shanghai World Financial Center is on track to become the new world’s largest building.
Buy into the China boom now if you like. You may make a ton of money. But remember the lesson of the Erection Index. And be willing to sell. Based on the history of the Erection Index, sometime in 2005-2006 should be about right.
Good investing,
Brian
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