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China Bubble To Burst In 2010?

First there was tech, then real estate. Is China the next big bubble about to burst?

It’s entirely possible, at least according to BofA Merrill Lynch Research.

In an interview with Bloomberg, David Cui, the China Strategist at BofA said, “Next year could be the year we see a full-blown asset bubble (in China). We’re likely to see massive savings migration as we head into real negative interest-rate territory.”

What's the culprit?

Inflation!

Essentially Cui is saying that interest on bank savings accounts may fall below the rate of inflation next year. And if inflation is 3% for example, and a bank account pays 2.25%, fewer people in China will put money in the bank -- hence the savings migration.)

Instead people will “save less, spend more and invest more,” Cui said.

And that cultural shift could create such massive ripples that it leads to a complete unwind on the Shanghai Composite and in the property market.

On the thesis, the analyst recommended investors buy stocks of asset-heavy companies. These include property developers, insurers and resources producers.

And if you’re looking for a short play, Cui said he also expects manufacturers to be “squeezed” by higher costs and overcapacity.

The Fast Money traders have some plays of their own. They follow:

I'd get long coal for electricity demand out of China, said Pete Najarian.

I'm also bullish coal, added Steve Grasso.

I think the trade is shortAustralia's dollar, said Steve Cortes. The Aussie dollar has under-performed and I think it's because of China!



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Trader disclosure: On Dec. 28th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders

For Steve Grasso:
Grasso owns (AAPL)
Grasso Owns (BAC)
Grasso Owns (C)
Grasso Owns (CSCO)
Grasso Owns (PFE)
Grasso Owns (WMT)
Grasso Owns (V)
Stuart Frankel is Short (QQQQ)

For Steve Cortes:
Cortes Owns (GD)
Cortes Is Short (TOL)
Cortes Is Short (PHM)
Cortes Owns (SPX)
Cortes Owns US Dollar
Cortes Is Short Gold

For Pete Najarian:
Najarian Owns (LLTC) calls
Najarian Owns (MS) & Short (MS) Calls
Najarian Owns (PFE)
Najarian Owns (STEC) Call Spread

For Joe Terranova:
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.

For Jeff Harte:
Sandler O'Neill Has Received Compensation from (C)
(C) Is A Client Of Sandler O'Neill

For Steve Levenson
Stifel, Nicolaus & Company, Inc. makes a market in the securities of (ALOG)
Stifel, Nicolaus & Company, Inc. expects to receive or intends to seek
compensation from (ALOG)
Stifel, Nicolaus & Company, Inc. makes a market in the securities of (ASEI)
Stifel, Nicolaus & Company, Inc. expects to receive or intends to seek
compensation from (ASEI)

For Tom Lydon
Lydon's Clients Own Shares of (TIP)
Lydon's Clients Owns Shares of (VWO)
Lydon's Clients Own Shares of (EEM)
Lydon's Clients Owns Shares of (GLD)

For Heath Terry
FBRCM acts as a market maker in (ATVI)
FBRCM acts as a market maker in (ERTS)
FBRCM acts as a market maker in (THQI)
FBRCM acts as a market maker in (TTWO)



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