NEW YORK (TheStreet) -- The news of the day includes a rate cut by the People's Bank of China and a commitment by the European Central Bank to expand its asset purchase programs. Earlier in the week the Bank of Japan announced increased quantitative easing measures.
The result is new stock market highs. But the performance of the Nikkei 225 over the last 25 years suggests money printing creates bubbles that eventually break, which is why 10-year bond yields stay low in Japan and the U.S.
Must Read: Warren Buffett's Top 10 Dividend Stocks
Let's begin by comparing the performance of the Nikkei 225 to the S&P 500 since March 2009.
The Nikkei 225 rebounded 150% from its March 2009 low of 7022 to its Nov. 14 high at 17520, while the S&P 500 surged 210% from 666.80 in March 2009 to an all-time intraday high at 2071.46 as of noon on Nov. 21.
The long-term graph of the Nikkei 225 should be viewed as a warning that money-printing does not work and that asset bubbles always pop.
Courtesy of MetaStock Xenith
The above graph shows monthly bars for the Nikkei 225 (17357) going back to 1980. From 6850 in October 1982 the Nikkei 225 surged 469% to the all-time intraday high at 38957.14 set on Dec. 29, 1989. When this year ends it will be the 25th anniversary of this bubble peak. The post-bubble low was 6995.90 set in October 2008 so the top to bottom decline was 82%.
The green line is the 120-month simple moving average which is now a key level to hold at 12473.