The S&P 500 stock market index soared 29 per cent, the second-highest gain in 21 years. The MSCI World Index was up around 24 per cent, France’s CAC40 up 27 per cent, and the Shanghai Composite Index up 23 per cent. Although the British and Hong Kong governments scored own goals in the year, their stock markets were up 12.7 per cent and 9 per cent respectively. This is not a review of the markets in 2020, but of 2019. This year has been dominated by talk of economic destruction, recession , job losses and business closures because of Covid-19 restrictions – and yet money has flooded into asset markets. Over 50 years ago, the S&P500 index broke 100. It then took nearly 30 years to hit 1,000; another 16 years to reach 2,000 and just five more to breach 3,000 in July last year. With the S&P breaching 3,700 this week (up 14.5 per cent in the year to date), it could hit 4,000 in less than two years. Goldman Sachs is calling 4,300 and UBS 4,400 for the end of 2022; let the good times roll! My predictions for 2020 were for a significant pullback, and I was right – at least in February and March when the market lost a tidy 20 per cent. What I did not fully appreciate, as an advocate of sound money, was the determination of allegedly responsible central banks and governments to create cash out of thin air by printing it. Before the mini-recession of 2008-9, the US Federal Reserve’s balance sheet was a pathetic US$882 billion. It jumped to US$2.2 trillion to get us out of the global financial crisis and rose in leaps and bounds as every little slowdown was met by another big bazooka of cash. By the end of 2019, it was US$3.7 trillion. It is now US$7.2 trillion. Recessions are bad things, people (and politicians) lose their jobs, but unfortunately capitalism needs one every now and then. Policymakers have driven real interest rates to negative levels, so governments and the rich can borrow for nothing. That is the forget-about-tomorrow idea behind the self-serving modern monetary theory . If you keep debasing your money, you will pay the price in inflation and value destruction on a much greater scale that you were hoping to prevent earlier. Lest the US be singled out, in 2008, Japan had a balance sheet equivalent to US$1.1 trillion; it is now US$7 trillion. The Bank of England had a balance sheet of around £97.3 billion (US$130 billion) in 2008, which we thought was big then; it is now US$1.2 trillion. The European Central Bank’s balance sheet was the equivalent of US$2 trillion in 2008 and is now US$8 trillion. China has taken a different approach . Rather than injecting money into the economy through central bank quantitative easing, it has encouraged the state-owned bank lending mechanism to stimulate the non-financial sectors – often to build infrastructure. This had caused overall debt to rise to 335 per cent of gross domestic product as of September. No one believes this debt can’t be paid off just yet; governments will print more to satisfy their obligations. How much US debt does China own and why is it important? All that cash flows into and out of our pockets into asset prices. The following figures are approximate as markets could surprise us with a flash crash before the end of the year, like the more than 10 per cent dip in December 2018. However, in the year to date, the tech-heavy Nasdaq is up nearly 40 per cent, Shenzhen around 30 per cent, Korea 23 per cent, Shanghai 8 per cent, Japan 12 per cent and India 11 per cent. At the bottom are Europe and Hong Kong, both down 6 per cent, while the UK has fallen 13 per cent. Who says politics has no impact on stock markets? The indices are hiding huge movements in individual stocks. Oh, to have had a portfolio of small tech counters in China, many of whose gains far outstripped the big US tech ones. By comparison, Tencent and Alibaba showed rises of a “mere” 56 per cent and 25 per cent respectively. You would have done well to pick out Moderna as your vaccine stock as it rose 715 per cent to Pfizer’s 5 per cent. Inexplicably, Tesla saw a 650 per cent rise this year. US long bond yield fell from 1.47 at the start of 2020 to 0.92 per cent per annum, reaching midyear yields of 0.52 per cent, having begun 2019 at 2.66 per cent. These gains have borrowed value from the future, driven simply by the weight of money. According to the Institute of International Finance, global debt now stands at around US$277 trillion. In simple terms, the authorities are buying their way out of short-term recession by using up the resources we will need in the long term. Of course, past performance is no guide to future success, but the high liquidity flows are likely to make the bulls stampede for a while. What may happen next year is for next week’s column, where a special guest will give us his thoughts on 2021. Richard Harris is chief executive of Port Shelter Investment and is a veteran investment manager, banker, writer and broadcaster, and financial expert witness