The Greatest Lie About The Stock Market

Mar. 31, 2016 1:20 PM ETCBOE, CME, GOOG, ICE, MA, MCO, SPGI, V16 Comments
Harry Long profile picture
Harry Long


  • Stock markets don't always rise.
  • Markets don't rise magically, divorced from valuation or the economies that house them.
  • Failed societies have failed markets.
  • Structural failure leads to performance failure for equities.

"...people will believe a big lie sooner than a little one; and if you repeat it frequently enough people will sooner or later believe it."

- OSS report on Hitler

Today, we're going to debunk the biggest, most insidious lie of all. We are constantly told The Great Lie, that over a multi-decade time frame, the stock market always rises. This is simply not true. Japan, which for years was the world's second largest economy, totally disproves this lie.

The Nikkei 225 index is far lower today than it was a quarter century ago. Anyone holding a broad-based index of Japanese stocks since 1989 has seen the value of their holdings decimated.

The Nikkei 225 index peaked at 38,957 intra-day in 1989. Yesterday, it closed at 18,886, making a 51% decline over more than a quarter century, which inversely mirrored its phoenix-like rise from the ashes of WWII.

What lessons can we draw from this?

1. Stock markets don't always rise.

2. Markets don't rise magically, divorced from the economy or valuation.

3. Failed societies have failed markets.

4. Structural failure leads to performance failure for equities.

We have already faced the always-rising stock market lie and vanquished it with facts.

The problems of a severely over-valued Japanese equity market in 1989, low birth rates, the refusal of Japan to allow for mass immigration, the aging population, the decadence of large banks refusing to write-off bad loans, and the low interest rate policy of the Bank of Japan have been widely discussed, dissected, and analyzed.

Re-hashing those severe problems is not my purpose here, except to note in passing that we also face an aging population, decadent financial institutions, and an indulgent central bank.

What is the solution for investors who must make decisions at the portfolio level and react

This article was written by

Harry Long profile picture
Harry Long is the inventor of Hedged Contango Capture and Hedged Convexity Capture and is the Managing Partner of Zomma, an innovative algorithm creator.Mr. Long is a globally recognized expert on the research and development of algorithmic investment strategies. The Zomma IP portfolio of algorithms is sought after by asset management firms, investment banks, hedge funds, principal trading organizations, index providers, ETP sponsors, energy companies, and private equity firms to help them develop and deploy competition crushing algorithmic investment strategies.Mr. Long's algorithms have been used by institutions such as: CargiilMacquarieCastletonFreepoint Commodities.Zomma helps institutions create long term value by replacing emotional decision making with cutting edge technology based upon objective evidence.Mr. Long is a graduate of Rice University with a B.A. in Economics.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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