China USA TensionsGlobal tensions between the USA and China were already a "thing" prior to the Coronavirus rearing its ugly head. However, in a post-coronavirus world that has severely impacted economies, supply chains and trade, the sheer extent to which countries - in particular the USA - are dependent on vital goods such as key ingredients for pharmaceuticals, medical equipments and auto-parts for example, has been highlighted in dramatic fashion. Significant sectors of US industry have sacrificed "price advantages" over "security" in a long established US led transition of exporting manufacturing and jobs to China.

In a world where China and American trade relations may continue to sour and worsen, such dependency can no longer be viewed as a smart play. China has never been viewed as a fair player. They play to win at all costs. The mis-handling of the coronavirus outbreak has not endeared China to the world. The US which has suffered the worst impact of the coronavirus worldwide and where the governement was slow to take it seriously, has decided to blame the WHO (World Health Organization) for not being more circumspect about what was happening in China and more suspect about information regarding the outbreak and therefore wasting precious time.

The US pulled its funding from the WHO much to the chagrin of its allies while China was more than happy to cough up a couple of billion dollars to plug the funding gap and win more favor. An investigation is now underway within the WHO. It's fair to say that very few countries were prepared for a pandemic. It was never a matter of "if' but "when" and most of the world chose to ignore the matter of preparedness. That changes only in the instance of a pandemic hitting and by the time that happened - as we have all witnessed - it was already too late.

The coronavirus is accellerating change towards a new world. The battle for economic alpha has been on for some time now, between China and the USA, but the stakes have never been higher. China is seen as a global powerhouse and aggressor looking to displace the USA as the top dog. The USA is taking an increasingly hard line and looking to re-assert its authority. The US made it unambigously clear to the UK government that if they did not take a hard line against incorporating Huawei 5G technology, that they would lose critical US intelligence access. US companies are no longer supplying Huawei with chips or components. The list of "dont trade with" China companies is only going to grow as tensions escalate.

China in the interim is looking to assert more power and rule over Hong Kong, the power-house Asian finance and trading center. To say this has been met with great disdain by natives of Hong Kong and western goverments would be an understatement.

Let's be clear. The stage is set for an escalation of trade and political tensions between US and China. The root reason for this is a battle for global economic supremacy and influence. The end result is most likely that both sides will loose economic benefits and advantages.

In addition to China-US tensions, we are in the midst of a devastating economic impact from the Coronavirus with 40 million people unemployed and a wave of business failures in motion and to come. One has to wonder why the markets are signalling so bullish. The coronavirus wont be behind us until we have a vaccine and some powerful anti-vrial treatments and they have been successfully administered to hundreds of millions and billions of people. When that will be the case is hard to forecast, ranigng from a wildly optimistic 5 month period to a more realistic and still very ambitious 18 month horizon.

The level of uncertainty about the economic impact the country is facing and will continue to face, until a vaccine is discovered and distributed, is building. For now, the advent of the economy starting up again in the US, hope for a vaccine and more federal funding if it is needed, is providing reassurance and reasons for the "Bull" to continue. The markets are putting US-China on ignore, along with the 40 million unemployed and every bonafide virologist who is saying a resurgence of the coronvirus in Winter is a certainty, not a maybe. Corporate debt levels and credit mark downs are at an all time high this year already. Millions of people are already defaulting on rent and their mortgages. Many businesses will go into chapter 11 and disappear altogether. Retailers will need to operate more cautiously. In-store social distancing measures will limit commerce.

We think caution is in order for the short-term.