WESTFALIA INVESTMENTS TECHNICAL COMMENTS
(May 18, 2000) The Federal Reserve stepped up its campaign to slow economic activity, as the U.S. economy continues to display strong growth. Industrial production rose a strong 0.9%, with the nation's capacity utilization rising 0.4%, to 81.1%. Inflation at the producer level showed its first drop in more than a year, falling by 0.3%. At the consumer level, inflation remained unchanged. As we see it, the decision to raise short-term rates by 50 basis points does not indicate an overly aggressive Fed in the coming months. We are of the opinion that the U.S. economy is in a slowing process. We also think, that with short-term rates nearly 2-1/2 points above the real rate of inflation, that the Fed is nearing the end of tightening cycle.
EQUITIES: The decision by the Fed to raise short-term rates by 50 basis points was no surprise to the stock market. The well-publicized 50 basis point move was well received by the market, since the market had already discounted the move. Remember, the market never likes surprises! In our opinion, we see little chance for the market to break out of its present trading range, as investors continue to discount the Fed's next move. However, we believe the present conditions are setting the stage for a strong summer rally.
BONDS; Our call for a 1/4% increase was proven wrong. However, as we said in our opening comments, we believe that the Fed is nearing the end of its tightening cycle, and, we look for the bond market to see a strong rally.
GOLD: The price of gold continues to trade near a six week low, as oil prices near the higher end of the trading range. Low volume and total breakdown of confidence are contributing to trend less market.
DOLLAR: No change. The Fed's decision to raise rates continues to support a strong dollar versus the Euro.
May 18, 2000 Peter Cardillo, Director of Research Westfalia Investments, Inc. 546 5th Avenue, New York, New York 212-425-8585
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