Why Do Markets Melt Down? Rathke's Law

HALLOWE'EN IS a time not only for horror stories, but for superstitions of every kind - and the stockmarket is far from immune.

Imaginative analysts have claimed you can predict the market's movements using anything from the height of the latest hemlines to the result of American football's Superbowl. Chicken entrails have not so far been mentioned, but it can only be a matter of time.

But there is one theory - apparently as daft as any of the above - which can claim some success in predicting this year's collapse of Far East markets and the turmoil we have seen ever since. This theory suggests that long-running bull markets tend to collapse just as a new contender for the world's tallest building is nearing completion.

US analyst Christopher Rathke, who coined the idea, dates this century's first three major US bull markets as running from 1895-1906, 1921-1929 and 1949-1966.

The record-breaking skyscrapers he cites are the Singer Tower (completed in 1906), the Chrysler Building and Empire State Building (both completed in 1931), and New York's World Trade Centre (completed in 1973).

The World Trade Centre connection seems somewhat tenuous, but otherwise there seems some sense in thinking that the hubris which leads developers to break records may come just as a stockmarket bubble is about to burst. There may well be a connection between the mania for building record-beating skyscrapers, when equities are riding - literally - sky high, and busts, when sudden humility strikes.

After all, this only reflects the old saw whereby if a company whose annual reports were always shabby productions, suddenly publishes glossy colour magazines with a picture of the Chairman on every third page, that's the time to dump your shares.

But how well did Rathke's Law of Very Tall Buildings - operating now on a global scale - perform in predicting this year's collapse in the Far East?

The relevant building here - which has just taken over as the world's tallest - is Malaysia's Petronas Towers in Kuala Lumpur. This imposing structure was completed just a few months after the FT/S&P World Pacific (ex-Japan) index started to fall on 12 August, 1997.

Not such a tall story, after all?