Of Note This Weekend

The Skyscraper Indicator just got triggered in China. I noticed this headline today on Yahoo: Skyscrapers setting records in China.

The headline lead to this story China's skyscraper boom buoys global industry where the following paragraphed reminded me of the Skyscraper Indicator.

China has six of the world's 15 tallest buildings — compared with three in the United States, the skyscraper's birthplace — and is constructing more at a furious pace, defying worries about a possible real estate boom and bust. It is on track to pass the U.S. as the country with the most buildings among the 100 tallest by a wide margin.

The Skyscraper Indicator was popularized by Ralph Nelson Elliott in the 1930s. It was also expanded upon in Carol Willis' 1995 book Form Follows Finance: Skyscrapers and Skylines in New York and Chicago which stated: "In boom times, rational pricing gives way to irrational buyers' behavior; buyers bet on ever-increasing demand and rents and are willing to pay more than they would normally."

Willis also noted that "height is a barometer of boom." "The tallest building generally appear before the end of a boom, their height driven up by the speculative fever that affects both developers and lenders."

I found this news especially interesting coming so soon after the cover story in last week's New York Times Sunday Magazine about the challenges surrounding China's transition from a industrial culture to a consumer culture. That story's sub-headline contained the following nonsensical statement: "Building a consumer society in China won’t be easy, but the health of the world economy depends on it."

This is like saying the world depends on cheap goods. It's an example of the widespread perception that China is some sort of miraculous economic invention that will singlehandedly cure the world's malaise when it is still merely a parasite of the West's fast-fading consumption addiction.

The editors seem to have overlooked the implications of this reality, but not Guo Shuqing, a party official and the chairman of China Construction Bank. “We’ve got a problem,” Guo said. “We realize this kind of growth is not sustainable. It’s not the kind of problem like a financial crisis. But if such inefficiencies accumulate for quite a long time, you reach the point where, suddenly, maybe things burst.”

Wish China the best. They're going to need it.

So is Private Equity. Another sign of a 2007-style reversal of fortune is indicated by yet another New York Times article After a Rough Night, Hotel Investors Are Waking Up. The first line is a classic: "Is this as bad as it gets?"

Private equity giants like the Blackstone Group and entrepreneurs like Richard Branson are diving into the sector, others are starting to think it has finally hit bottom and may be bouncing back.

Blackstone teamed up with two other private equity players in May to acquire the Extended Stay hotel chain out of bankruptcy court, and in September, Mr. Branson announced plans to create a Virgin Hotel empire. And when big names reach for their checkbooks, other investors usually aren’t far behind.

So far in 2010, there have been 77 lodging deals in the United States valued at $8.5 billion, according to the research firm Dealogic, up from 30 deals valued at $1.2 billion in that period in 2009. (This is still far short of the 2007 peak, when there were 141 deals valued at $42.3 billion — including the biggest leveraged buyout of a hotel ever, Blackstone’s troubled $26 billion purchase of Hilton Hotels.)

More than 40 private equity funds are hunting for deals in the hotel sector now, and many are under the gun to buy earlier rather than later, says Bjorn Hanson, dean of the Tisch Center for Hospitality, Tourism and Sports Management at New York University. About half had cash in hand for lodging investments in 2007 and early 2008 before the sector fell apart and have been sitting on the sidelines, while others have raised money in the last year.

All are under pressure to invest, lest they miss the opportunity to jump in before the sector goes into full rebound mode, when “everybody else gets in and prices get bid up,” says Mr. Hanson.

The smartest guys in the room are at it again. The same guys who were merrily buying at the top of the market in 2007 when this story ran:

Private Equity: Hot for Hotels.

Sound familiar?

And finally there is the latest dirt from Europe, where Angela Merkel apparently raised some eyebrows the other night at an EU dinner. Angela Merkel warns that Germany could abandon the euro.

The German chancellor, Angela Merkel, has warned for the first time that her country could abandon the euro if she fails in her contested campaign to establish a new regime for the single currency, the Guardian has learned.

At an EU summit in Brussels at the end of October that was dominated by the euro crisis and wrangling over whether to bail out Ireland, Merkel became embroiled in a row with the Greek prime minister, George Papandreou, according to participants at the event's Thursday dinner.

Merkel's central aim, which she achieved, was to win agreement on re-opening the Lisbon treaty so a permanent system of bailout funding and investor losses could be established to deal with debt crises that have laid Greece and Ireland low and are threatening Portugal and Spain. The Germans also called for bailed-out countries to lose voting rights in EU councils.

At the Brussels dinner on 28 October attended by 27 EU heads of government or state, the presidents of the European commission and council, and the head of the European Central Bank, witnesses said Papandreou accused Merkel of tabling proposals that were "undemocratic".

"If this is the sort of club the euro is becoming, perhaps Germany should leave," Merkel replied, according to non-German government figures at the dinner.

This was not overlooked by the globalist diehards in Brussels. No one messes with the EU, not even the ones who contribute the most to it. So stick it in your eye, they said.

Bailout Fund May Be Boosted in Break With Merkel

Dec. 5 (Bloomberg) -- Belgian Finance Minister Didier Reynders said the euro region could increase the size of its 750 billion-euro ($1 trillion) bailout fund, breaking ranks with German Chancellor Angela Merkel and France’s Nicolas Sarkozy.

Reynders told reporters in Brussels yesterday that the current cash pool could be increased if governments decide to create a larger fund as part of a permanent crisis mechanism in 2013. “If we decide this in the next weeks or months, why not apply it immediately to the current facility?”

The International Monetary Fund also supports boosting the facility after 2013, Reynders said at the end of a week in which Belgian bond spreads jump to the highest in at least 17 years.

“The IMF is in favor of a larger mechanism,” said Reynders, who said that the fund didn’t need to be increased right away. “They are ready to follow the process if we decide in Europe.”

Now they've involved the IMF even more. It's globalism vs. nationalism. My money's on the Deutsche Mark.