$2,000 Gold And 10 More Surprising Predictions From Credit Suisse

You're not going to make money betting on the consensus. So if you're looking for contrarian investments, Credit Suisse's Andrew Garthwaite has picked out 11 economic events that are more likely than anyone thinks.

Surprise scenarios include $2,000 gold by year-end. Several factors support this "surprise" including:

• Gold goes up when real Fed fund rates are negative -- and they are

• Excess leverage leads to money printing or default

• China and Japan haven't started buying gold yet

• Gold does not display characteristics of a bubble

• The inflation-adjusted gold price is still well-below peak

Credit Suisse is keeping an official target of $1,500 for gold, but it admits that these factors could drive a major surprise to the upside.

Garthwaite also names a booming U.S. economy as a viable scenario. Here are the rest of the surprises:

China Moves to Strengthen Grip Over Supply of Rare-Earth Metals

China is building strategic reserves in rare-earth metals, an effort that could give Beijing increased power to influence global prices and supplies in a sector it already dominates.

Details of the stockpiling plans haven't been made public. But the outlines of the effort have emerged in recent statements from Chinese government agencies, state-controlled companies and reports in government-run media. The reports say storage facilities built in recent months in the Chinese province of Inner Mongolia can hold more than the 39,813 metric tons China exported last year.

China controls more than 90% of current global supply of rare-earth metals—a group usually classified as 17 elements and sometimes are called "21st Century gold" for their importance in such high-tech applications as laser-guided weapons and hybrid-car batteries. Beijing has been tightening its exports with a quota policy.

Mining companies around the world have responded by taking steps to increase production. Many rare-earth minerals aren't actually rare, and China doesn't have a monopoly on deposits of any particular rare-earth elements. The U.S. Geological Survey recently estimated that China has about half the world's 110 million metric tons of rare-earth deposits, however. Mining in the U.S. and elsewhere fell off several years ago, in part because of environmental concerns. Australia's Lynas Corp. U.S.-based Molycorp Inc. and other companies are ramping up operations. But a new mine can take a decade to develop, and processing of rare-earth elements will remain concentrated in China for years. (more)

Joe Saluzzi on High-Frequency Trading: The Equity Market Is Now Controlled By The Machines

Joe Saluzzi, co-founder of Themis Trading LLC and outspoken exchange expert, is concerned with how high-frequency trading has brought the capital markets into uncharted - and dangerous - territory.

"Things have changed," he cautions. With 50-70% of all trades being conducted by algorithms at micro-second time intervals, real human traders are increasingly challenged to understand how our markets actually work. "No longer do the technical patterns - that have lasted for years and years, and are written about all over - work anymore."

In the following interview, Joe and Chris plunge into "dark pools" and other poorly-understood elements of our now-machine-dominated financial exchanges. The current system is fraught with risks of further "flash crash"-like disruptions, and at a fundmental level, feels a lot like sanctioned theft by the deep-pocketed institutions who can outspend on technology and speed. This is an important interview for anyone involved in trading (professionally or personally), as well as investors who want to know how today's markets truly operate.

Click the play button below to listen to Chris' interview with Joe Saluzzi:

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In this podcast, Joe sheds light on why:

• The flash crash happened and why our vulnerability to future crashes is even higher now.
• How the majority of trades that happen on a daily basis are now conducted by machines that have no underlying concern or understanding for the companies who's securities they trade. The market has become volume for the sake of volume - which is not healthy.
• How the complexity and pace of the current technology driving trades has become so complex that it has effectively evolved beyond our ability to fully understand its risks.
• Why the government agencies responsible for understanding and overseeing exchanges are woefully under-resourced and unprepared to be effective in this new era.
• How the average trader is destined to lose in today's market, while the big banks & HFT firms who can afford to win the arms race are making essentially-guaranteed profits.

As with our recent interviews with Jim Rogers, Marc Faber and Bill Fleckenstein, Jim ends the interview with his specific advice for the average trader/investor.

Underground world hints at China's coming crisis

To understand how far ordinary Chinese have been priced out of their country's property market, you need to look not upwards at the Beijing's shimmering high-rise skyline, but down, far below the bustling streets where nearly 20m people live and work.

There, in the city's vast network of unused air defence bunkers, as many as a million people live in small, windowless rooms that rent for £30 to £50 a month, which is as much as many of the city's army of migrant labourers can afford.

In a Beijing suburb, beneath one of the thousands of faceless residential tower blocks that have carpeted the city's peripheries in a decade-long building frenzy, one of Beijing's "bomb shelter hoteliers", as they are known, agrees to show us his wares.

Passing under a green sign proclaiming "Air Defence Basement", Mr Zhao leads us down two flights of stairs to the network of corridors and rooms that were designed to offer sanctuary in the event of war or disaster.

"We have two sizes of room," he says, stepping past heaps of clutter belonging to residents, most of whom work in the nearby cloth wholesale market. "The small ones [6ft by 9ft] are 300 yuan [£30] the big ones [15ft by 6ft] are 500 yuan."

Beijing is estimated to have 30 square miles of tunnels and basements, some constructed after the Sino-Soviet split of 1969, when Mao's China feared a Soviet missile strike, and many more constructed since to act as more modern emergency refuges. (more)

More confident consumers break out credit cards

Americans are putting more money on their credit cards after more than two years of cutting back, a sign that they are gaining confidence in the economy.

The first increase in credit-card debt since the financial crisis hit helped to boost overall consumer borrowing 3 percent in December, to a seasonally adjusted annual rate of $2.41 trillion, the Federal Reserve said Monday. It was the third straight monthly gain.

Borrowing in the category that includes credit cards rose 3.5 percent, the first rise since August 2008. Borrowing on auto loans increased 2.8 percent.

Mark Zandi, chief economist at Moody's Analytics, viewed the gain as an encouraging sign that households are becoming more confidence about the economy and jobs. He also said banks are loosening some lending restrictions put in place after the financial crisis.

"The credit spigot is opening," said Mark Zandi,

Even with the December gains, consumer borrowing is just 0.7 percent higher than the more than three-year low hit in September. It is 6.6 percent below the high set in July 2008. But analysts predicted further credit gains in coming months. (more)

Stocks advance on M&A with further gains seen

Merger activity drove the Dow and S&P to two-and-a-half-year highs on Monday in the latest in a series of mileposts that point to more gains ahead.

Buying accelerated after the S&P 500 broke through the 1,313 mark, taking the index further into levels that prevailed before the financial crisis. More than two stocks rose for every one that fell on both the New York Stock Exchange and Nasdaq, but the day's rise came on lighter-than-average volume.

Diversified industrial company Danaher Corp (NYSE:DHR - News) agreed to buy medical diagnostics company Beckman Coulter Inc (NYSE:BEC - News) for about $6.8 billion. Oil driller EnsCo Plc (NYSE:ESV - News) said it would buy Pride International Inc (NYSE:PDE - News) for about $7.3 billion.

"The size of these deals is an indication that the buyers feel comfortable putting that cash to work while the companies being bought are undervalued," said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia, which oversees $105 billion.

"The level of the broader market is reasonable, but there are these individual situations that deserve a higher premium than the market is getting over all." (more)

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