Absurdly lavish spending by new-money millionaires has always been a tell-tale sign of bubble tops. That’s why record-breaking art auctions — led namely by Chinese property developers — is an ominous sign that China’s brightest days are behind it.
A Chinese property developer is reported to have purchased two dogs… for a total of 18 million yuan, or $2.8 million.
I could go on… but you get the idea.
While more and more people are now beginning to smell the whiffs of bubbly excess in China’s air, the question still remains: How do we profit from China’s credit-and-construction bubble?
Well… if Harry’s job is to forecast bubble-busts long before they hit the radar of the mainstream media… my job is to recommend specific tactics for profits from the disequilibrium.
Last October, I shared with Boom & Bust subscribers one way to profit from a collapsing art market, which I expect to follow China’s bust, as newly wealthy property developers retrench. There’s still time to get in on this recommendation, so click here to gain access via a subscription to Boom & Bust.
I’ve offered two more China-bust recommendations here, in Survive & Prosper.
One was a bet against copper miner, Southern Copper Corp. (NYSE: SCCO). Click here to read my original alert.
We’ve been in this play just three weeks… and we’ve already earned about 11%. Not bad! Take a look…
While I think copper, and Southern Copper Corp., have further to fall over the long run, it’s prudent to lock in some profits after such a quick and sharp move.
So if you sold short shares of SCCO on or around February 28, I recommended closing a portion of your position (with a “Buy to Cover” order) today, locking in a roughly 11% gain.
Another tactical way to play China’s slowing growth is to bet against the Australian dollar.
Australia has enjoyed unprecedented growth, thanks to China’s voracious appetite for the country’s natural resources. That, in turn, boosted the value of Australia’s currency.
But now that China is slowing and at risk of a full-fledged credit-crunch meltdown, you’ll want to be on the short side of the Aussie dollar. I already offered specific tactics, back in June 2013, for betting against the AUD/USD. Specifically, I recommended getting short at 94 cents, with a stop-loss order at 99 cents and a profit-target order at 80 cents.
The trade has worked out well so far, even as the Aussie dollar bounced higher — from about 87 cents to 91 cents — from late January through mid-March.
I’m expecting that bounce to be short-lived, giving you another chance to make a short sell entry at the current price, around $0.9030.
If you’re not set up to trade the spot Forex markets, don’t worry… you can also play the Australian dollar via the CurrencyShares Australian Dollar ETF (ARCX: FXA). Take a look…
With FXA trading around $90.44 today, I recommend cutting losses if it rises above $91.50 and locking in profits on part of your position on a drop to $87.
One thing is certain: $2.8 million dogs are sure signs of hubris.
Any good contrarian should realize China’s decade-long growth spurt can’t continue on without a good deal of pain. Tactical bets — against copper and the Australian dollar — should do well to capture gains from the country’s unsustainable, warped reality.