Forget Greece, China's "Red Flags" Are a Bigger ProblemForget Greece, China's "Red Flags" Are a Bigger Problem

The world is intensely focused on Europe these days but don't forget about China, say Wall St. Cheat Sheet co-founders Damien and Derek Hoffman.

A number of "red flags" have emerged in China recently, the Brothers Hoffman tell Henry in the accompanying clip, including:

* -- Rising inflation and a brewing real estate bubble: Chinese real estate rose 12.8% in the past year, the highest since 2005.
* -- Government efforts to quell said bubble: Money supply has been shrinking in China, which Damien Hoffman says is a sign the government "concerned growth is overheated."
* -- Falling exports and rising imports: Amid a slowdown in industrial manufacturing, China reported a trade deficit in March for the first time since 2004. "It looks like the Chinese might be learning some of our bad habits," Damien says.

Because the global market are "so fragile," right now, the Hoffman Brothers worry what will happen if more investors get a sense the world's "engine of growth" is starting to sputter.

"If China has [more] problems in upcoming data points, we think smart money hedge funds are going to sell first and ask questions later," Damien says.

Given the obvious concerns about Europe and the "under the radar" issues in China, the Hoffman Brothers are big believers in gold right now. Even if gold is a bubble, as Henry suggests, it could have much further to inflate if confidence in paper currencies continues to erode, they say.

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