This post is a continuation of "Trading the trade war US / China" article, an extension of an event likely to occur shortly as the result of a clash between those two major powers. The article will outline some of the likely scenarios based upon the research of currently used planned tactics from US administration participants (initiators) and the assets that those events could be traded on for short or long term time window. It might be a bit unusual subjects in discussion and for someone new to macro it might be better to come to this article within next 6-12 months after all the events already played out to see with a clearer head what the reasons were and why the scenarios in this article might not be just a bunch of conspiracy theories, hard to believe before they unfold. As each of subjects is rather deep and complex to explain the article will only outline the core extraction and potential end results, the rest is up for each individual to study in depth.
The outline being:
-re-structuring of global supply chains away from China and the impacts on petrodollar recycling that it poses on not just China itself but many other emerging countries
-decrease of dollar inflows into Asian economies, posing the risk of dollar liquidity shortage, posing inflationary pressures on emerging markets along with liquidity problems in financing the loans
-virus used as initiative "excuse" to use the extreme conditions to push for extreme measures in de-coupling process
-false assumption of market to think that trade deal is still around the corner and is completely in hands of US president to decide so
-opportunities created in US equity markets in next years as the global capital flows shift towards US, especially internally (US to US)
-opportunities in shorting emerging market currencies as the inflationary pressures mount in upcoming years (if global resources do not fully recover, such as oil, materials, etc...)
Trade deal? Think again.
As the initial article (part 1) on blog touches, both the US and China are running on a long term incompatible direction, which is impossible to solve in any manner of discussion or peaceful cooperation. Solving issues of where two major powers start to shift into large deficit spending as the consuming power of both economies growth results in :
-shortage of global capital that each of major powers needs to recycle its deficit ( in form of investment flows, increased production of exports against its competitors...)
-the cost of the labor force concerning its major competitors and the capital inflows that can sustain expensiver labor force, or the increasing costs of it
-the cost of imports such as oil, food or resources that can be denominated in its currency instead of currency of its competitor, etc....
All of such issues create the status where the rival country has to expand (China) to satisfy such demands (500 million of the population is lifted from poor to middle class as consumption of economy increases so does the deficit and the need to increase capital inflows), which in turn pushes against the status quo of the ruling global power of our times, the US (eating its pie). It is rather naive to expect that any of such huge issues can simply be solved by few discussions and deals between officials, and therefore my belief since early 2017 was that all of the "trade deals" between China and US will eventually fail, and they will escalate into further tariffs announcement at each stage. Either 30 or 50 billion in excess of goods purchases by either side simply does not solve the long term outstanding issue of global competition and needs that both countries have, thus deals will most likely not prevail. If one operates from the point of nature using evolution, the nature always optimizes for the whole never for individual, and same approach can be used on ecosystems of countries, un-sustainability of situation between those two countries is much larger macro than any potential deal trying to be made, no matter by whom. In fact, tariffs will likely be escalated soon within next months as the virus situation is used as the reason to do so, and onwards from there all trade deals are pretty much only left to be a political show to keep both countries still at talk officially (to prevent trigger happy scenarios) but in reality, it is only a show and nothing more, as the US has no real intention to negotiate, nor has China intention to wind down on the plans of China 2025 or the One belt-one road initiative. The virus might be exactly the catalyst and the reason used for tariffs to be escalated by July of 2020 (CCCP not providing detailed info on outbreak in early January), or at the latest by the time of elections. From trader's perspective this is important to understand, as that allows to trade against the risk on flows of markets, which anticipate return to normality present a few years ago. Whether it is the flows in gold, Treasury bills, dollar or any other major risk instrument, the failure of reaching a deal is never fully priced in ahead, as many market participants still hold to hope, along with many producers, suppliers and manufacturers who hold to hope as taking the situation seriously and pushing into alternatives mean drastic problems and capital loss, which impacts the way markets price in any hope in trade deals into trading instruments.
Virus, the tool of the decoupling
The strategy of the US administration to de-couple the trade partnership and investment partnership between the US and China has been well laid out several years ago. None of the newly implemented attempts from the CPDC (Committee on present danger China) or any other institutions should come by surprise by now. But one thing that was rather difficult to predict was the use of the extreme situation that would lay the cascade and push the de-coupling process between those two countries into overdrive - the virus. The situation between the US and China has several common problems which are rather unique to current circumstances if compared to historical contexts of other major super-powers that came into conflict in history (Rome/Carthage, British/Spain, Netherland/Spain, Mongols/China, US/Soviet union,...), it is the fact that the trade route and the capital exchange between the US and China are at unprecedented levels of cooperation as compared to any of other historical examples.
One of the biggest trading routes ever established in the history of mankind ongoing between those two countries makes any drastic changes in the policy of trade, geopolitical cooperation, capital flows or else very difficult since both countries instantly start to feel consequences. And due to such reasons creating a huge change in "normal" conditions is rather difficult by politicians or administration, and that is where the virus that comes into play.
Corona virus and the measures that countries had to implement allowed US administration to kick the decoupling process from all possible angles into speed-up, using the abnormal situation to push the decoupling process in a foundation that will be impossible to shift back and will likely last for years to come, even after the virus situation is completely taken under control. It is well known historically that biggest shifts in constitutions, global trade or capital recycling flows always come at the direst situations around the globe, and the virus is a common ground that will potentially be used to set the initiation for that. This means the implementation of legislation from proposals of Senate/Congress, by lobbyist and bi-partisan politicians, to top-down increases of spending to support national industries inside of the US to shift supply chains away from China, to large increases in military budget spending to lure China into spending spree... As usual, as a reader do not take any of my words as biased against or pro certain side because I have no strong biases, nor strong political opinion, my task as a macro observer is only to study the strategies of administration of each of the countries to anticipate the moves that might take place, regardless of the results that it might create for each of the countries. It is only to anticipate where the world is heading in the next upcoming years, as for trader that gives you huge edge advantage in anticipation of where the global instruments and trading assets might move, and the events that might initiate them.
Global stall
The core issue as outlined above is that both of those countries share strong supply chains in their collaboration, and shifting those chains apart without taking significant damage on the economy of either of countries is rather impossible. However, while it is impossible to not damage the economy, it is possible to shift the production chains over a midterm, if certain support policies are implemented by the US to support the shortfall for the companies that would feel the pressure of such measures.
For example that would relate to creating large tax reductions to US companies that would willingly shift their supply chains from China to the US, or creating government / Treasury side capital provisions or cheap loans on the large scope (trillions of USD) towards new small companies in the US that would be more willing to source from internal producers rather than external China or any other internationally-based manufacturers. The idea is that US treasury and FED have huge capital and printing press abilities, that are capable of financing such a global shift, even if that means sacrificing a rise in inflation.
In the end, both countries will likely see a shift toward inflationary policies (the US and China) as the US tries to create growth internally and China doing pretty much the same, but over long run what matter is who can afford to maintain financing with lower inflationary exposure, taking less attrition in doing so over a period of many years. And for that it depends on the amount of external capital that flows into the country (petro-X recycling), the size of the printing press, outstanding M0 and M1 money supply at the moment, the cost of the labor force and startup of new businesses, global relations, etc. As of today one of those players stands at much stronger stance, unless this changes over time in the span of 10 years or more. One thing that the virus has jumped in and filled the gap was to solve the issue of creating those significant shifts in supply chain distributions for US administration. As noted before, the US would have difficulties issuing such moves under "normal" conditions, thus the virus solved that problem. As the global economy comes into a halt or a stall, the distribution networks around the globe come to a standstill. No goods move from suppliers to manufacturers to sellers, and as many businesses on the primary supply chain spectrum start to go bankrupt this causes serious loophole for the government to fill in such a situation. For example, how this sets into the event, it starts with a business in China that runs out of business because there is no demand for their manufacturing for few months, which creates gap opportunity for US supplier to fill the gap, especially if US government provides subsidiaries in capital or tax benefits, which then turns new selling (middleman) business in the US that are just starting up to choose a US manufacturer rather than Chinese, especially if tariffs keep increasing and creating very unsure conditions / environment which middleman certainly do not like (how much further will tariff increase?). It might seem like a small step, but this multiplied by thousands of cases and multiplied by capital provisions from the government in size of trillions of USD starts to create large cascade with drastic consequences and re-balancing of global supply chains. All of which backed by new upcoming policies from DOJ, SEC, FED, CPDC and government in the upcoming months and years. All of which are under creation currently as of writing of this article. Why was a stall needed (provided by a virus) to create such shift is because under normal conditions the corporations and even small businesses are simply not inclined to shift their supply chains, unless the margins on business turn negative, which might take a very very long time if only done by tariff escalation.
As someone who tracks Amazon FBA businesses very closely and many sellers in the businesses who use Chinese suppliers or Asian suppliers that becomes very obvious in terms of how this dynamic works. And for such reason, the stall in the global economy is the only thing that was strong enough to create crippling effects in forcing the businesses to reconsider the supply chains.
The initiation, medical sector (drug supplies)
In my personal view, the sector where this will likely start and take motion at its hardest and quickest will be the medical sector. The primary supply chains used in the production of medical supplies and drugs for the US will be used as the starting point that will cause all the rest of the supply chains to follow and the rest of the industries. The virus situation will likely be used as an excuse/reason to begin such initiation, where the Senators, lawmakers, and lobbyists will likely use the reasoning of how much the US is tied to China supply chains that in a dire situation such as pandemic it cannot even sustain and provide the needed medical supplies for its residents, and such situation being unacceptable. Again..this is not my view that this supply shift has to take place, or that I believe that such situation is unacceptable, I am just interpreting the reasons that likely will be used to initiate the shifts. It is a fact that huge amount of drugs and medical supplies to the US come out of China, and if there is one thing that triggers the general public into action and to support the politicians is the emotional component that lack of medical supplies create when they are the most needed. It is a very easy card for the administration to play on, as any member of the general public will get behind it. Thus in my view, this will be used as the starting ground, but by no means, it will end there. The next industries that will probably follow are likely to be the ones where the US competes with China and are the most sophisticated technologies, such as 5G tech sector, production of computer chips and components, robotics, AI, military hardware (still lot of components of those are made in China), etc.... It will start with a sector that has to be decoupled as they pose strategic disadvantage if doing it too late, and the rest industries that will follow are likely higher-margin consumer goods producers that general US consumer finds on the pages of Amazon.
Political weaponization of virus situation
An interesting aspect of the latest speeches by the US government and president (corona taskforce team) is that the word "corona-virus" was ditched, instead, it was replaced with the word "China virus". This is by no means random, it is a move to fit the situation into the needed actions and blame the situation on China regardless of consequences. There are even suggestions by certain Congressmen to request reparations from China due to acting too late in the early months of January when the virus began to spread, as that would give the world a few weeks preparing for the virus outbreak. Whether that is the case of reality and if it would help is irrelevant from a macro perspective, it only matters that the motions are set in place, and such events could very likely turn out to be the case in near future, creating a huge impact on the way global markets behave especially Asian markets.
Pension funds and restriction of capital participation from US
As already mentioned in the previous article on the blog one year ago, the target of US administration is to dismantle the US capital away from China, and one way to do that is to prevent pension funds and large scale investors to invest in Chinese securities or especially the indexes. However, this is only the initiation, not by any means the endpoint. Just as the medical sector is only the starting point of de-coupling the supply chains across all of the industry sectors, so is the prevention of investments into pension funds. It starts with the most delicate or sophisticated category, but it will soon spill down into other investment categories as well, from hedge funds to investment banks down to small retail trader who will likely be unable to invest or trade Chinese listed stocks on the Nasdaq in near future. It might be initiated by DOJ (department of justice), or SEC (security exchange commission), but the motions are already starting to take place (certain managers of investment funds that were placing funds into Chinese equities were either taken by law enforcement or were expelled into China in 2020).
As a trader, that means a large shift in the way global capital flows move, as China is very likely to retaliate against such moves of the US, as that is usually how global politics work. This means that global flows into Treasury bills from Asia could be in near future forever changed, with FED left to pick up the slack in buying the T-bills as demand from Asia dries out. I do not believe for one second that China can dump the T-bills into the open market as many macro speculators out there tend to believe (due to enormous need of dollar financing in China) but what realistically can happen is that once China starts to export less into the US, the demand for dollars and T-bill recycling starts to decrease which will leave the FED to pick up the slack, since US growth of debt expansion will not wind down by any means in the future if anything it will pick up.
In my view, this might lead to inflationary policies in the US (not hyper-inflationary, but certainly much higher than just 2% inflation rate) in the near term, as well in China as inflows of dollars start to shrink down, exposing the growth of M0 money supply in China as a huge problem, as inflation now can no longer be made by huge capital inflows. From a trading perspective, this opens potentially more inflationary environment to trade, much higher risk environment in near future (as both countries de-couple, each of them starts to push with riskier moves against counterpart as they are no longer in as strong collaboration as before), which can provide a trading environment on gold and especially the dollar.
The dollar liquidity shortage
With de-coupling taking place, China and many of south Asian economies will likely experience the same situation that certain developing economies experienced in the 1970s, when the dollar shortage started to hit the global markets, especially after Paul Volcker raised rates substantially, creating large dollar shortages across many economies amidst the heist of cold war.
As the dollar inflows from investments and especially the export sector decrease into China from the US, this leaves many low margin companies exposed to bankruptcies, and the real estate sector that was built on top of perpetual economic growth of 5+% starts to wind down. And as history tells us there is no such thing as infinite 5% growth, building an economic model on such an assumption requires consistent dollar flows from abroad, with expanding rate each year, as per current projections for China's economy. So what happens when that is not achieved or is completely reversed (current yearly China GDP will hit recessionary numbers instead of 5%)? In such a case, the financial derivates of mortgage and real estate sector are likely to form a cascade, and the need of banks to access more dollars to fill the liquidity holes in low margin manufacturing companies starts to increase. And the more capital that flows out of Hong Kong and China the more it exhilarates the shortage of liquidity, and as the economic growth flows down, so does the growth and inflow of dollars into all of the remaining Asian countries in terms of tourism, investment, industry demand and else which has been built on top of consistent demand from China in last several years of developing Asian economies. All of which creates the issue of lack of dollar liquidity within the system, which is not a surprise why the FED started to expand the repo activities to many external central banks over last several weeks as the virus situation and the stall of global demand causes the shortage of dollars pretty much in the majority of countries around the world, and at this point, it is at the mercy of FED to decide who will and who will not be bailed out. And it comes with no surprise that countries that were provided with repos were G8 countries, while China and many Asian economies were excluded from such provisions (look at picture above). Understanding dollar liquidity is one of the key points to understand which countries might return to normality after financial crisis and which might not, at least historically speaking for emerging market countries. The exclusion of Asian countries in dollar swap lines of repo provision is the key, perhaps one of the most overlooked aspects of current events since the earlier March. As the liquidity for dollar tightens around the world, the countries that will be left alone without liquidity provision from FED will be the most exposed to dollar strength (if currency strengthens against other EM currencies) and there are certain strategic arguments to be made, that this was done intentionally to speed up the liquidity problems in China for the strategic interest of US administration to remove Chinese communist party from the power (over time with revolution set by the economic crisis, as it was planned for SU, and eventually played out more or less).
From trading perspective watching those liquidity holes to who does get swap lines from FED and who does not is very important as it does not just dictate the midterm flows in currency markets but as well liquidity problems around the world of emerging countries that are left out of the "lifeline". Whether that means liquidity shortfalls of banks or companies that present themselves on currency or equity markets, allowing for short term trades on such instruments. As of current by reports of BIS and IMF, there is approximately 13 trillion dollar-denominated debt outstanding towards countries around the world, a large portion of which is held by emerging market countries. Those debts have to be repaid in dollars no matter what, which exhilarates the issue of liquidity shortage especially when the economic growth around the world slows down, creating the revenue issues for emerging countries, especially those that are large exporters of goods or resources, as those are mostly paid back in dollars and recycled trough internal financial system of such country. While the number of 13 trillion is not an issue at its core, as it is completely relevant only in the context that is placed in, but in a high growth global economy, the dollar debts can generally be just recycled by borrowing more, paying the old debts with new borrowed dollars and that generally works for 10 to 20 years, until there is global downturn such as we are experiencing currently where the global recession dries out the demand, crushing the prices of petrodollar denominated resources, which poses big issues for emerging market countries, adding to the shortage of dollar liquidity. (Oil producers get less dollars from their oil exports, raw wood exporters get less from their wood exports in dollars, meanwhile the outstanding need to pay back the loans remains the same or in reality - it increases, especially if internal currency of such country weakens against dollar, which is what happens in 95% of cases). Wrong misconception that macro observers often have is that China is in full control of its currency and can manipulate it as it wishes up or down. That is a highly skewed view since all countries that export heavily to US markets and are key participants of petrodollar recycling marry the monetary policy of the US, at least partially if not fully. Usually, that means soft pegging the currency to the US dollar, and maintaining the reserve ratio on the balance sheet of their central bank in terms of FX reserves (petrodollars) or Treasury bills. As the liquidity shortage deepens the issue for China becomes that it can no longer control the fall of its currency, the yuan as the capital outflows from country weaken the currency, and the use of FX reserves by country to prevent currency to fall too quickly or to use reserves to pay for consumption/import resources such as oil increases the fall of currency, even more, leaving the central bank without the ability to prevent such thing, unless emergency rate-hiking takes place. And since many emerging market countries are heavily indebted in dollars, and they are forced to repay those debts in such currency, it is impossible to expect that dollars status as a reserve currency would go away or be challenged by any other currency in the near term of 5 years, as many macro observers tend to believe out there, especially not within the current conditions of decreased global demand and increased need of dollar financing or the dollar inflows.
Global dollar short squeeze
Any country that borrows large amounts in dollar-denominated debt and has a large number of imports that are paid in dollars such as China (crude oil, natural resources, ...) is by default in dollar short stance or position. This largely depends on how strong that imbalance is, the higher the debt and the higher the growth of living standard backed by increases of dollar imports, the more it accelerates the dollar short squeeze, especially once the internal currency starts to lose its value against the dollar. Such examples have been noted in many cases of the 20th century across many EM countries, which resulted either in defaults or hyper-inflationary crisis. Such a case is very likely to be the result of current conditions that the world is heading into, lead by China, and followed by certain other weaker EM countries that have been increasing imports over last few years too much, expecting never ending economic growth, especially on the crude oil resource to maintain the growth of the economy.
Historically, once a dollar short squeeze is in progress it is very difficult to stop it, as there is no single country usually that can solve the problem, instead, it is the global problem, as we see currently by the dollar liquidity tightening across the globe. And since EM central banks cannot afford to hike rates in the current environment where the global growth has collapsed (to slow down the dollar short squeeze) it is a stall situation for those economies to only sit and waits.
Inflationary enviornment with dollar as king currency
In my view, the dollar shortages will be the key global events on financial markets in upcoming years, and will likely dictate the flows of currencies and especially anchor the dollar as the world's strongest currency in upcoming years. Surely one might ask, how can ones view be that the US is running into a potentially inflationary environment and policies, and yet at the same time to think that dollar will be the strongest currency in upcoming years? The reason is that the global currencies are set in a sandbox of global capital, and what dictates the strength of one currency is not just the internal policies of central bank or government but rather the capital inflows and outflows as a result of their policies and the external situations (virus, cold war, damp of global demand....). Meaning that when anticipating the strength or weakness of certain currency it is the key to always compare this currency or economy towards the rest of the world, never to isolate in order to get potential realistic outcome. Even with 0% rate policies at FED and high liquidity provisions from Treasury or Senate (from taxpayers), if the inflows of capital into the US are maintained and the rest of world suffers large capital outflows or more importantly, the stall of capital inflows from the US into those countries, then that alone will dictate the strength of the dollar against the counterparts of other global currencies. And in my view all of those motions are not to take place, in fact, they already are taking place if one takes the last 2 years under a microscope in terms of global capital flows. In currency markets that will potentially open shorting opportunities against emerging market countries, especially those that are in need of dollars the most to finance their previous outstanding dollar-denominated debts or the ones that require dollar liquidity in the system to sustain the inflation and attract global capital. There is a wide list of countries and currencies but this is only a basic guide, as for edge on trades one has to wait for certain short term catalysts to take place before picking clearer directions on currencies.
Investment opportunities in military sector
As the globe shifts into deeper cold war over the next years between those two countries, one thing that remains on expansion is the budget for the military that each country will contribute on its own. There was no secret that in the conflict between the US and Soviet Union each side was spending large amounts of budget on expanding the military capabilities, on technology competitions or proxy conflicts to starve out the counter-side as much as possible, especially under the initiation of US. And such measures are already in plan for the US budget in the next 5 years, and will likely start taking place in the upcoming 2 years. From investing perspective this could open window into larger-cap companies such as Lockheed Martin (LMT) or other smaller cap tickers with larger risk to rewards, especially the companies that produce parts for US navy as that is the most likely the area where the escalation on budget spending will take place. This is up to each individual to research by him/herself as it is very difficult or even impossible to know ahead which company might be picked as a supplier and which not, and usually safer bets are just large-cap "all-all" companies such as Lockheed (but with much lower risk to reward potential).
Not just from investing perspective, it can also provide solid trading opportunities, as long as one patiently waits for a proper fresh catalyst to hit was the US government picks certain of those companies as a new major supplier, and then place leveraged trades along the direction of fresh catalyst. In the majority of cases, all of those announcements are not priced in ahead since they are rather secretive for government to only tell them once all the details are really settled, and the only part of the population that has some advance info is in relation to military itself (low %, unlikely to be priced in ahead by strong amount).
For anyone seriously considering this as invetment or trading opportunity make sure to research historical conflicts and the US military budget escalations since late 60s till today (70s, 2001-2005, 2012-15, 2019-). There are certain patterns that become very clear and are very low risk on investing side, while they might not offer too much of reward unless leveraged trades are taken, they surely are very low risk.
Amazon, the opportunity hole
With a large number of products coming from Chinese manufacturers, Amazon will suffer large re-balancing of production and revenue structuring, especially concerning high margins sellers and Amazon itself. In my view the era of super-high margins that many sellers on Amazon were used of is gone, as the supply chains shift towards US and more expensive production costs the margins will drop, creating smaller revenue for Amazon, however that will likely be offset by the fact that over next years the online shopping by consumers will still increase over time, and Amazon by itself will not suffer long term drastic loss of revenues. In the short term, it is possible to expect that, but long term probably not. From a trading perspective, these events as the supply chains shift over the next years will create short selling opportunities on the ticker of AMZN, but only short term trades, over the long run things are likely to balance out. But well worth keeping eye on those developments, especially from the side of the US government or administration to prepare some good macro trades ahead when fresh catalysts hit the market. From a business perspective, however, this shift in supply chains will open large opportunities to sellers who use US manufacturers and that sell on Amazon, as the competition of cheaper Chinese manufacturers will start to drop significantly over next 2 years, creating big opportunity holes that can be filled with being at the right place at the right time. And considering the fact that majority of Amazon FBA sellers still hold onto the Chinese suppliers and are not taking current development seriously, tells how big the opportunity hole is and the timing is still very early.
Alibaba, the one with to loose the most
As mentioned in the previous article already, one of the companies that can potentially lose the most from the ongoing situation is Alibaba (ticker BABA). Not just from the fact that there is a huge amount of manufacturers that currently strictly produce for US market listed under the "index" of Alibaba, but the fact that many of those companies are very low on margins and cannot afford to shift their sourcing or distribution partners to any other countries since there is no market big enough that can compete with the demand side of United States. Leaving those manufacturers stranded, and since Chinese internal consumer demand will still take many years to pick up to the slack of US, it is difficult to avoid for low margin manufacturers to go out of the businesses, especially those in debt, which puts more strain on the banking sector of China altogether. My personal focus will be on shorting BABA as the events unfold in the near future and as the real lower-end suppliers and sellers start to shift their supply chains away from China towards the US. This is not the type of event to trade with long term positions or using leveraged positions and holding for a while, as this is very long term macro play. Instead, the ideal way is to wait for a fresh catalyst that is in line with a larger macro catalyst (de-coupling of supply chains) and then trade within that direction on BABA placing short term trades. It requires patience but once there is such catalyst one can easily extract 10-30R trades, especially trough options or in some cases even by just trading a stock.
Personal approach
There are many asset classes to play the outcomes and short term catalyst of current de-coupling process of US-China, my personal approaches are:
-shorting emerging market currencies with large outstanding dollar-denominated debts under strong short term catalysts (shorting peso or ruble under the crash of oil price last 2 months)
-longing Treasury bills trough derivate instruments (going short instruments that are counter the T-bills) with small position sizes, using 1-3 months holding time. Basically using retail leveraged instruments for smaller accounts.
-shorting Chinese yuan directly as the main center-piece of all the events unfolding in next years
-longing dollar long term on dips
-shorting BABA on short term catalysts of trade war escalation or any other supply chain linkages
Flagship play: US equities long
Above examples are the outlined plays that will come into trading window here and there, depending on short term catalyst, however the real long term flagship play will in my opinion be in US equities. As the dollar shortages around the world increase and the virus and dampening on global demand leaves structural problems over next 12 months or more, as the global supply chains shift and US government with the help of FED provides large scale capital provisions towards economy it will create potentially similar conditions after the depression of 1932 where the US markets bounced strongly. Considering that printing press size of FED and the capital size from US government is unmatched by any other country, creating the shift in capital flows towards US in the next upcoming years is likely as the rest of the world struggles to keep up. And a lot of that capital will not just flow into risk-"free" assets such as T-bills, but more importantly the equities.
While the case for equities rally is one of the ways to trade it, in my expectations the recovery of equity markets will probably not be too strong. With global growth slowing down it is unrealistic to expect large recovery or new all time highs on SP500 very quickly.
This creates a solid dip buy opportunity of current market crash in next months in US equities along with providing the pullback longs in upcoming years. However the scenario for equities and potential bottoming as of writing of this article (+- 1 or 2 months) is only applicable if virus does not have second round of pandemic in next early winter season of 2020, if such case was to happen and virus was to mutate the bottoming case for equities goes out of the equation leaving for potentially un-imaginable outcome for global markets and society in general.
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