The Story:

A new ETN (similar to an ETF but structured differently, with credit and futures components) that just launched really caught my eye. The Market-Vectors Renminbi/U.S. Dollar ETN, Symbol CNY. It's joint venture between Van Eck and Morgan Stanley, this new instrument does not invest directly in the Yuan-Renminbi, but instead tracks an index based on futures on that currency. Simply put, the shares in this ETN (currently pricing near $40) go up when the Chinese currency appreciates against the U.S. dollar. This follows the launch of several other ETNs on other, more common currencies which can also be easily traded directly. The primary difference with this ETN: The Yuan-Renminbi has been unavailable to trade for the individual investor up to now.

What to do now:

Buy some CNY! Since I consider the Chinese currency to be one of the best and safest places to park money right now, I advise you to do the same, placing a portion of the money you currently have parked in low-risk instruments such as money markets or treasuries. There is still some minor execution and credit risk buried in the instrument, but I consider it minimal and you're likely to get more than 10% in the next year or so - possibly a good chunk more. It's traded throughout the day so ease of entry and exit is high.

Why this Yuan-thingee vs. other currency ETNs for my safe money?

The Yuan-R is almost assured to continue appreciating steadily against the U.S. dollar. And this relationship is likely to continue regardless of economic developments here, there or elsewhere.

Some history: From 1994 until 2005, this currency was loosely, but clearly, pegged to the U.S. dollar. Now's it's still obviously pegged to the dollar (in a slowly inflating relationship), but also supposedly influenced somewhat by a basket of other currencies.

Below is a chart showing the progression from being completely fixed to the dollar at about 8.3 Yuan-R to the dollar, to slowly and steadily appreciating against it following China changing its policy in 2005 in response to intense pressure from the U.S. Now, as you can see, a dollar is only worth about 7 Yuan-R, so it has depreciated - a dollar buys fewer Chinese Yuan-R now. The action of the CNY ETN, had it been in existance through this period, would be the inverse of this chart, as the Yuan-R was appreciating agains the dollar.

This currency is currently up to (nobody knows for sure) 30% -40% undervalued against our buck based on the long term manipulation by the Chinese government to keep their currency exchange rate and exports cheap. That's why half of what you own is made in China and so many U.S. jobs have been discarded due to the unfair competitive advantage such a discounted currency gives the Chinese exporters vs. the U.S. manufacturers.

Well, the party for Chinese exporters is slowly fading out and many factories there are going idle. China has been getting enormous pressure from the U.S. and other nations to allow their currency to float more freely and honestly against the buck and other world currencies. Plus they're probably going to accelerate the process by bumping interest rates to slow their red- hot economy (which will put more upward pressure on their currency as it increases its appeal to outsiders - check how the slope on the chart to 7.0 and below is accelerating). It's already happening.

This isn't typical of the high-powered, high profit potential trades I'll be giving you (you'll be getting more of those soon), but I did want to give you a head's up on this liquid, low-risk, high-yield place to park your idle money and let you share in my current observations.

Best wishes,
Jeff Manera
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net