Sparks Fly in China

Vice-President Joe Biden and the basketball team of Georgetown University both went to China last week, and neither one of them received a warm welcome.

College basketball teams are permitted to go on an international exhibition tour once every four years and many universities do so. An international trip is a great opportunity for the young men to play more basketball but also to learn more about other cultures.

Georgetown University embarked on a 10-day trip to China intended to promote goodwill through sports and coincide with Vice-President Biden's trip to China.

Everybody Was
Kung Fu Fighting

For decades, Chinese sport promoted the slogan "friendship first, competition second," but that ideal has been lost in China's zealous race to become the best at everything.

At the tail end of a closely contested 64-64 game, one American player got into a shoving match with his Chinese counterpart and suddenly players from both benches stormed the floor and exchanged blows and threw chairs. Spectators tossed full water bottles at the Georgetown Hoyas players and coaches as they left the floor.

That wasn't the only U.S.-China scuffle. American reporters were hastily pushed out of a press conference just moments after Biden told China's vice president, Xi Jinping, of his "fond hope" that their personal relationship would grow and flourish.

That was apparently the only sound bite the Chinese officials were going to allow and ordered reporters to leave the building. Reporters being the stubborn mules that they are didn't leave so they were physically pushed out.

Xi Jinping, the second in command and next in line to take over when Premier Hua Jintao steps down next year, was more polite ...

"It is the joint desire of the people of China and the United States and elsewhere in the world to stay in constant cooperation. Our commitment to establishing a close and serious relationship of the utmost importance to my country."

Biden and Xi have a different idea of what "cooperation" means though.

To China,
Cooperation Means ...

China wants assurance that its $1.2 TRILLION of U.S. government bonds, despite the S&P downgrade, are safe. And Biden did his best to reassure Chinese leaders that our country is committed to tackling its fiscal challenges and emphasized the new debt ceiling deal and deficit reduction plans.

Biden said,

"We appreciate and welcome your concluding that the United States is such a safe haven, and we appreciate your investment in U.S. Treasuries. And very sincerely, I want to make it clear that you have nothing to worry about."

Nothing to worry about is overly optimistic. And neither I nor the Chinese really believe that hype.

To the U.S.,
Cooperation Means ...

Biden pushed hard for China to permit its currency to rise faster against the U.S. dollar. A strong yuan will make U.S. exports cheaper in China.

The United States exported over $110 billion dollars worth of goods and services to China last year, which is estimated to have created more than 500,000 jobs. And the Obama administration believes a stronger yuan is one of the keys to reviving our ailing economy.

You can bet against the dollar or for the yuan.

A slightly stronger currency may actually be a positive to help China deal with what is becoming a worrisome inflation picture. A stronger yuan will make it cheaper to buy the BILLIONS of dollars of oil, copper, natural gas, and coal; as well as the Nike shoes, iPhones and Louis Vuitton purses it purchases every month.

The consequence of satisfying both the U.S. and China is a combination of both a stronger yuan and weaker dollar. And it really doesn't matter whether the cause is a strong Chinese economy or a too-deeply-in-debt American economy.

What matters is that you can profit both ways!

If You Want to Bet
AGAINST the Dollar ...

Take a look at the PowerShares Deutsche Bank U.S. Dollar Bear ETF (NYSE:UDN). This ETF is meant to track the Deutsche Bank Short U.S. Dollar Index (UDSX) Futures Index, a benchmark composed solely of short U.S. dollar futures contracts. These futures contracts are designed to replicate the performance of being short the U.S. dollar against a basket of six major currencies (listed below).

If You Want to Bet
FOR the Chinese Yuan ...

The best way to profit from an appreciating yuan is to invest in a currency ETF that follows the yuan. My favorite is the WisdomTree Dreyfus Chinese Yuan ETF (NYSE:CYB).

This ETF is designed to appreciate in lockstep with the Chinese yuan against the U.S. dollar. If the yuan appreciates should make money.

If You Want to Bet
BOTH Ways ...

The no-load Merck Hard Currency fund (MERKX) is a hybrid of pro-yuan and anti-dollar strategy. MERKX invests in the extremely short-term AAA debt of the world's strongest economies and monetary policies. It also keeps around 10% of the portfolio assets in gold. That strategy essentially makes MERKX a non-dollar money market fund with very low volatility.

To be fair, I should disclose that my Asia Stock Alert subscribers own this fund and are already sitting on an open profit that I expect to get even bigger.

It doesn't matter whether you are pro-yuan or anti-dollar, the above three funds are ways you could profit from those trends.

As always, you need to do your homework and decide whether any of these securities are appropriate for your personal situation and financial goals. And as you know, timing is everything when it comes to investing, so you should wait for these to go on sale before jumping in or wait for my buy signal in Asia Stock Alert.

Best wishes,


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Posted 08-26-2011 3:10 PM by Tony Sagami
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