...that's when "Kenny" said buy China

This morning, the Shanghai Composite Index was up 5%. But at the time we’re about to describe, it was down 5%.

The setting was Vancouver two weeks ago — on our way out. Upon examination, something was off… like Caitlyn Jenner… or Lindsay Graham.

He didn’t have a sex change — at least we couldn’t have known for sure. It was just the fact that the taxi license displayed said his name was “Kenny.” But that couldn’t have been his real name.

He spoke like Mr. Chow from The Hangover movies, replete with “herro” and “prease”…

His eyes didn’t seem open…

Even fishier, he was bullish on China!

Driving to Vancouver International Airport, “Kenny” tipped us off to what’s really going on Beijing.

But before we relay the message, a thanks to our colleague Brian Maher is in order. Because he held down the fort in our email edition last week, I was able to ponder man, economy and state from the beach on vacation instead of in Baltimore.

Things are how we left ’em. U.S stocks are favored. Gold is loathed. And Treasuries are paradoxically the safety trade.

Under the sun, Kenny’s words replayed in our head — literally. We had torn a page from the NSA’s playbook and recorded him speaking without permission. Toes in the sand, we listened to the audio, disjointed sentence for disjointed sentence:

“There’s a good chance nowaday to make money in China…

“If you speak Engrish, you go to China. You teach Engrish to children, and make $100,000 American money in cash. Many are going to China right now.

“It’s same thing as 25 years ago in Japan. If you remember that in Japan, 1986-1999, they were very rich everywhere. They went everywhere with tourism, they buy everything.”

“But then they slowed down,” we interrupted. To which Kenny replied passionately…

“Because U.S. fight them down! It very simpuh. The U.S. tell them, ‘Hey, your yen is worth moh than double U.S. dollah.’ Then yen goh up 100% in one ye-uh.

“Japan, if you look at their financial industry, they will tell you it took one ye-uh. It hurt everything in Japan. That’s why stock market in Japan has been down, down, down every ye-uh for 20 ye-uhs.

“In China, the U.S. tries to do the same thing. They say, ‘your yuan is worth moh than that, you must raise it up.’ But the Chinese government never listen to the U.S. because they know U.S. wants to do the same thing they did to Japan. They won’t do it, that’s why they smart.

“So anyway, I just tell you that Japan in 25 years, they will tell you how the U.S. government fought Japan to knock them down.”

“So do you think China will slow down?” we asked…

“They will slow down, yes. How can one country, within 30 years, go from the lowest up to the second!? None of the countries can do that, I tell you.

“But now, we’re not communism anymore. China want same system as Canada — the freedom, with communism. The Chinese government always says that: ‘A special communism system.’

“I tell you, you see that. In Canada, you think everything is freedom? Noh…

“One of my friend, he bought apartment outside the area of city park. When he bought the property, the government said noh problem, you can build high-rise 30 stories. After he bought it, you noh what happen?

“Behind him, they sell apartment that is built five stories tall. And they tell my friend now noh, we cannot let you build the high rise. Why? Because they have a view! And if my friend build a high-rise, they cannot see over him anymore! They don’t allow him to build the high-rise.

“So… is that freedom!? Noh…

“In the U.S. same thing. Except the U.S. look around the world and say you’re not free, you don’t have human rights. But do the U.S. have human rights? Noh! It’s just that they are strong — they are the ones to say who has human rights and who not.

“But you should go to China. Right now, everything improve. They will slow down, but they not stupid. If you want to make the money today, go into China financial mahket. The stock mahket is down, but only because people don’t noh better. The stock market still new there.

“They will learn, though. If you smart, you visit and invest money there…”

We’re not sure what he was getting at. But we meant to ask him why he was driving a cab in Vancouver…

Meanwhile, China seems to have stopped their stock market rout… for the time being. The Shanghai Composite Index is still down 30% from its peak. Like the little Dutch boy, the government has its red finger in the dam, only to ensure the water will sprout out through a dozen other cracks.

Luckily for you, a new ETF was launched in June that’s an easy way for you make some money when it does. It’s called the Direxion Daily CSI 300 China A Share Bear 1x Shares (NYSE: CHAD).

CHAD is what’s known as an inverse ETF, meaning it goes up as the Chinese market goes down. It’s an easy way to bet against their market.

“It could be a good play,” explained Jim Rickards this morning during August’s live Strategic Intelligence briefing. “With any investment, if you buy, only make it a slice of your portfolio. Don’t go all in on any of these things.

“With that caveat, the Shanghai Composite Index is clearly a bubble. That said, bubbles never go straight down. There’s always somebody on the other side who says, ‘Buy the dips’ or ‘Here’s a good buying opportunity,’ and then it goes up a little bit, and then down and maybe back up a little bit.

“But once the bubble pops, it tends to grind down, and go way down — as much as 70 or 80%. So you need to fasten your seat belt to deal with the daily volatility,” Jim cautioned. “Don’t go out and buy an inverse ETF and then the Shanghai Composite Index goes up 5% the next day and then say to yourself, ‘Well, that was a dumb idea.’ Let it play out. It could serve you well over, let’s say, a one-year time frame.”

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Peter Coyne
for The Daily Reckoning

P.S. Here’s an interesting map we saw this morning courtesy of @AmazingMaps. It shows each country’s source of imports. As you can see, there’s uh… a lot of red… there.


To “Kenny’s” credit, the map’s an symbol of the power shift from West to East. But don’t go long China just yet. Before the shift is complete, bubbles will be bursted. Mr. Rickards has more, right here.

The Daily Reckoning