Is America on the path to a 'lost decade' like Japan?

America's stocks are making new highs and the AU.S. economy looks poised to stick a rarely seen soft landing.

- Jacky Wong

What could go wrong? A lot, actually.

Stocks aren't as expensive as they were two years ago, but are still pricey compared with their prepandemic 10-year average. Some of the so-called Magnificent Seven tech stocks, in particular, have bold assumptions baked in.

To see what can happen when such optimism proves misplaced, look no further than Asia. Japan's recently roaring

Nikkei is within 8% of its record high of 38,957 last seen in December 1989, just before Japan's bubble economy imploded. The Dow, which is coincidentally now around the same level, was below 7,000 back then. China is shaping up as, potentially, another cautionary tale: The MSCI China is trading well below where it sat in mid-2007.

The U.S. today is a very different place than boom-era Japan or China. But both should serve as obvious, painful counterexamples to the idea that "stocks always go up in the long run" or "it doesn't matter when you buy." Sometimes, it does.

It doesn't take a war or a pandemic to destroy market returns for long periods. Bad economic policymaking, weak demographics and toxic politics can be more than enough.

Japan's example is instructive.

Back in 1989, Japan was taking over the world. The country's economy had grown 6.7% in 1988. Sony had just bought

Columbia Pictures, one of the largest Hollywood studios, for $3.45 billion. Japanese property company Mitsubishi Estate took control of Rockefeller Center in New York City that October.

When land prices peaked in Tokyo, Japan's Imperial Palace grounds were more valuable than all the land in Florida. Then the Nikkei dropped about 60% in the first two years of the 1990s.

Multiple comebacks have fizzled.