Popular Delusions

The market is a forward looking mechanism that discounts the future.

Is it, and does it? If so, what was the market predicting in the middle of 1974? What was it predicting in October of 1987. January of 2000? October of 2007? October of 2008?

Japans Nikkei index reached a peak of 39,000 in 1989. Less than three years later the index had dropped to just over 14,000, a drop of more than 60%, and has only managed to climb back to half of the 39,000 peak a handful of times. Almost twenty years after Nikkei's Mt. Everest, the index trades at only 8,500 or 22% of its former self.

What was Japan's market looking at in 1989?