Today, read an article about iron ore contract price negotiation between Australia and China. This article tries to predict outcome of the current negotiation after Rio Tinto settled iron ore price with Japanese mill at 33% discount off last year’s contract price. Chinese is insisting a 40% cut from last year’s price. With spot price offering a 10%+ discount of the new contract price, Chinese is buying iron ore from spot market. With ample supply it is a buyer’s market. I would think this negotiation is biased on the Chinese side. Surely the outcome will be greater than the 33% discount achieved by Japanese mills. However one analyst from Macquarie Bank commented that he reckoned that the Chinese would eventually accept the Japanese price. His explanation is that mining companies will pull out shipment from Chinese market once the other markets recovery. Hence Chinese would end up with nothing to buy if they do not sign the deal. Such a childish comment!!! He didn’t even consider the time factor. Yes, eventually all the markets will recover. But when?! In my opinion it is at least five years away. Where will the mining companies stockpile all the ore in the five years, I can’t think of a place other than China.

I reckon it might settle at least 40% discount to last year’s price. Let’s wait and see.

There is a sudden contraction of world trade. Japanese economy recorded a 10% plus GDP contraction. All G8 countries are in recession.

It is quite clear now. This recession is not a ‘V’ shape. The downward trend is partially restrained by the first worldwide coordinated stimulus economical package.   60% of the economy is dependant on consumer spending. With unemployment rate going up at an unstoppable trend and people starting to save, the economy does not have a driving force behind it. With government spending alone, it might change the downward trend, but it is not enough to pull the economy back.

Though lucky enough, Australia economy is not as bad as UK and USA, Partly because its financial market is not as advanced as USA, recovery is still out of sight. Judging from past, it at least needs three years to recover. A ‘U' shape recovery is certain now.

Look back into the last ten years, I made eleven major predictions about future trend in financial market. Among them, five predictions led to final investment initiatives and put into execution. Only two initiatives bore fruit at last. In sum, final investment return excluding interest and dividend is negative 15 percent.

In current environment, it is hard to judge what is the next move: holding on cash, buying rental properties, investing in shares. Is inflation or deflation going to play a major role in the next several years? How to preserve value of money against possible inflation? Has the share market bottomed? How long it will take for the share market to recover?

My last bet on a short lived financial crisis has failed splendidly, net a 90 percent loss. In order to find a bearing in this situation, I decide to make a complete review of investment strategy and explore alternatives in this series.

In Part 2, we are going to discuss how bad is this crisis, when can we see light at the end of tunnel.

Entree:

1. spring roll
2. battered fish
3. red beam soup
4. corn chip with dipping sauce (french onion)
5. garlic bread with shredded cheddar cheese

Main:

1. chicken with pesto sauce
2. beef with Korea BBQ sauce
3. sea food kebab with THAI sauce

Desert:

1. pastry case with custard infill and fruit topping
2. coconut slice