Instructions
Grab the first red balloon at the beginning of the race, which is located just to the right of the arched rock. This will provide you with a single rocket that you can fire at Bubbler the Octopus.
Maneuver behind Bubbler the Octopus and press the "Z" button to fire your rocket at him. He will look stunned momentarily and slow down if you successfully hit him.
Grab the second red balloon in the tunnel with all the bubbles and quickly fire it at Bubbler the Octopus.
Grab the third and fourth balloons next to the palm trees just before completing the lap. Grabbing both of these will result in getting a homing rocket. You can fire this rocket without aiming your shot, as it will automatically seek out and hit Bubbler the Octopus.
Continue accelerating if you happen to pass Bubbler the Octopus until you finish the race. You can still grab the red balloons; however, do not use the rockets against Bubbler the Octopus unless he passes you. This is an effective way to keep your lead.