Assuming this behavior elicits a visit to the scene from the coroner's office, will the coroner attribute your demise to your falling to the Earth or to the Earth's rising up to meet you?

Incredibly, there is an element of truth to the latter explanation: Gravity describes a mutual attraction.

Those of you who did not take the first challenge are invited to look at a chart of the U.S. stock market since the end of June 2004.

Did it rise because of increased demand, decreased supply or some combination of both?

Some would look at the chart below and argue that the net shrinkage of U.S. equities due to mergers, privatizations and other corporate actions propelled the U.S. market higher via a reduction in supply.

The Equity Supply Side

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Source: Federal Reserve, Howard Simons

The law of supply and demand, much like the law of gravity, operates in both directions, so we cannot dismiss the importance of the shrinkage in the U.S. equity supply. And, as noted on the chart, a similar spate of equity shrinkage during the 1980s leveraged-buyout era did coincide with some solid stock market gains.

But this leaves us with a problem: Can we explain the 40% total return in the U.S. market as measured by the broad Russell 3000 index with an average quarterly reduction of just under 0.3% of U.S. market capitalization, as calculated by the Federal Reserve?

U.S. and Non-U.S. Returns

More critically, how can we explain an even stronger bull market outside of the U.S., as measured by the Morgan Stanley Capital International World Ex-U.S. index? This index's total return in dollar terms over the same period has been an eye-popping 91.1%.

The answer to these questions is twofold: "No" and "No at an accelerating rate." If we index both the Russell 3000 and the MSCI index to the January 4, 1999, introduction of the euro and compare their total returns, we find the U.S. market has lagged the rest of the world rather badly since the equity shrink began in mid-2004.

U.S. and Non-U.S. Equity Total Returns Since Advent of Euro (USD Terms)

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Source: Bloomberg, Howard Simons