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Chinese officials announced yesterday they will be tripling taxes on stock profits. The Shanghai index proceeded to drop 6.4%, as speculators took to the exits.
The Shanghai index has been looking ripe for a fall for some time. Even the myopic Greenspan made waves when he noticed this publicly last week.
“The Chinese are trying to find some way of tempering this market exuberance without blowing up the bubble altogether,” commented our international investing guru Christopher Hancock. “Like everything they do, they like it done in a gradual manner.”
 On Feb. 26 of this year, Chinese stocks lost 9% the day after a record high close. The Dow lost 416 points in the next 24 hours, wiping out a total of $632 billion in U.S. investments.
“It’s not clear how an overinflated Chinese widget company trading in Shanghai affects the earnings of GE all that much,” Hancock continued. “It's not like the Chinese lost any fundamental spending power overnight. They still have just as much cash hoarded under the house. All that happened was the government implemented a reform that discouraged investors from massive, racetrack-like speculations.”
But such is the state of the global markets these days. Today, the Dow opened slightly lower.
 The dollar and U.S. Treasuries ticked up on the news from China. Many investors still see U.S. debt as a safe haven when the sky is falling.
 In fact, today, 80% of Treasuries due in 3 to 10 years are owned by foreigners -- a record high. “The media do a fine job letting us know what kind of dependence we have on foreign oil,” writes EverBank’s Chuck Butler “But they fail miserably at letting us know what kind of dependence we have on foreign financing.”
 What a load of financing that is, too. “Taxpayers are now on the hook for a record $59.1 trillion in liabilities,” reported USA Today yesterday.
That’s about $516,000 for every U.S. household. After doing the books the way all corporations are required to by law, USA Today found that the federal government lost $1.3 trillion last year -- far more than the “official” $248 billion deficit.
 The other instrument of American financing, the housing market, saw its first quarterly drop in prices since 1991, S&P said in a press release yesterday. Home prices fell 1.4% in the first quarter. "We still don't see anything that looks like a clear bottom," commented S&P chairman David Blitzer. "We're still headed down."
 Yet consumers remain unmoved. The Conference Board’s consumer index rose from 106 to 108 in May, despite analysts’ projections of a slight decline. This is the first month since November ’06 that the index has ticked up.
But why worry? We’re enjoying the steady erosion of the nation’s currency. We like paying more of our dollars for milk, beef, chicken and gasoline. We love our health care premiums and our home insurance bill. We get a kick out of the fact that property taxes are going through the roof, just at the moment our homes have begun to decline in “value.”
We especially appreciate the fact that the baby boomers are about to retire… with no savings… and that the approaching “demographic tsunami” could, as U.S. Comptroller General David Walker points out, “swamp the ship of state.”
Yay! Why don’t we all join hands, as former Dallas Fed governor Robert McTeer suggested, and buy an SUV?
Preferably a Navigator.
 South Africa's Chamber of Mines announced that the nation's gold production was down 7.6% in the first quarter. Gold dropped four bucks in trading yesterday.
 “Small soda looks like buyout bait,” says Greg "Gunner" Guenthner, with his eye on the bulletin boards and penny stocks.
Last week, Coca-Cola plunked down $4.2 billion for Glaceau, maker of Vitamin Water. “Even Coke executives are acknowledging a changing tide in the soft drink business,” says Gunner. “The company has admitted enhanced water and energy drinks will probably make up a large portion of the beverage industry’s growth in North America over the next several years.”
If you had invested in Hansen Natural (HANS: Nasdaq), for example, when it was a penny stock in January 2005, it would have shown you almost eight times your initial investment. Jones Soda Co. (JSDA: Nasdaq) has shot up more than 125% in the last six months.
“Keep an eye on many of these small beverage companies over the next several months,” advised Gunner. “Many could prove to be excellent buyout candidates for some of the larger soda companies out there looking to enhance their product portfolios.”
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 “I would like to know just what the antagonism toward Chavez is,” wrote a reader. “Is he wrong to recapture the American domination of Venezuela's resources, such as oil and electricity, for which they were being raped?
“You claim he is a nut job. I don't believe it. America places false flags in countries that don't bow to its whims and desires. The deal is that America's leaders portray to Americans that America is the world's savior and that these leaders are bad people doing bad things and we must protect them. I don't buy that line.”
We don’t buy it, either.
But nationalizing all of Venezuela’s industries, taking over the media and hard-balling the legislature into going along with his charade isn’t going to help the Venezuelan people any more than the imperialist Norte Americanos have.
 “Unless somebody zaps dictator Chavez fairly soon, we are going to have a much larger problem than Cuba on our southern shores,” suggests another reader. “He's emulating his hero Castro, and unless he is soon deposed, he'll form a Marxist alliance with Bolivia... stirring up the radical left throughout South America.”
 “I am a crop consultant in Southern California,” wrote a reader in response to our exposé of contaminated food coming from China. “Having worked in Mexico and Japan, and having seen fact-finding presentations on Chinese berry growers, I have had concerns for years about eating food from the Third World.
“It is important, as you say, to stress the importance of buying FRESH American foods… as opposed to organic. While I do work with organic growers as well, I do not see organic as the most important requirement. Mainly, because of low yields, and the fact that we spray organic fields about twice as many times with pesticides as we spray conventional fields.
“The modern pesticides we are now using are derived from the same process that we use for discovering new medicines. They are not poisons in the way that the old nerve poisons were. They are hormones, bacterial extracts and other complex tools, which are selected for their low toxicology and ability to break down rapidly. We now apply ounces per acre, instead of quarts per acre, because these tools are so precise in what pest they control. If these new pesticides can be extracted from a bacteria or fungi and processed without any synthetic chemicals (usually thinners or stabilizers), they are allowed to be registered as organic pesticides.
“That being said, I told my wife after the recent Chinese food scare that we should try to buy organic PROCESSED foods, since they are less likely to have ingredients from the Third World. What will not help is every Che groupie tripping over their soapbox in their Birkenstocks hurrying to proclaim that organic is the only solution.”
 And in a truly ironic act, China seized 118 tons of Evian bottled water today. Chinese officials claimed the posh water had unacceptable amounts of bacteria and sent it all back to France.
Cheers,
Addison Wiggin
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While working with Citigroup in Hong Kong,
