Zerohedge published this interesting article:

Then last night, none other than BofA’s Michael Hartnett who is one of the very few strategists out there who “gets it”, issued a report warning investors to “anticipate a massive policy shift in 2016” which would be a DM/EM mirror image: in the US/EU/Japan from QE to fiscal stimulus and in China from fiscal stimulus to QE & FX depreciation. In other words, the last big reflation push is almost upon us.

His key thoughts:

Neither deflation nor inequality has hindered the bull market on Wall Street in recent years. On the contrary, QE policies to end deflation & spark employment have been very beneficial to asset prices. But now:

• The perception of unfair globalization, gilded elites & inauthentic politicians is leading to a rise in both populist politicians (Trump, Sanders, Corbyn) and parties (SNP, Syriza, Podemos, National Front) and…
• …calls for the Fed to raise rates to boost the elderly’s return from saving are becoming louder…
• …and the fragile improvement on Main Street is threatened by a stalled global economy in 2015.
• If the secular reality of deflation & inequality is intensified by recession & rising unemployment, investors should expect a massive policy shift in 2016. Seven years after the west went “all-in” on QE & ZIRP, the US/Japan/Europe would shift toward fiscal stimulus via government spending on infrastructure or more aggressive income redistribution. And seven years after China went “all-in” on fiscal stimulus, a shift toward QE/rates/FX to support activity would be likely in the east.

And finally, getting to the point of this post, this is how Hartnett says investors should trade this “massive policy shift”:

• …buy TIPs, gold, commodities, Main Street not Wall Street, China small cap
• This new policy mix (which would be in response to recession & Quantitative Failure) would be most positive for TIPS/gold/commodities, for Main Street rather than Wall Street plays (e.g. mass retailers versus luxury), and for Chinese small cap. These are the assets bears should accumulate if markets head to new lows.
• A trough in inflation expectations (Chart 7)…positive for Gold, TIPS & real estate
• Income redistribution…buy Main Street, sell Wall Street, long KRX, short XBD