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WESTFALIA INVESTMENTS
TECHNICAL COMMENTS
The Federal Reserve left interest rates unchanged, even with the unemployment rate at its lowest level in 24 years. The Fed's decision to leave monetary policy unchanged was no surprise to us. The reason given for the Fed's decision to leave rates unchanged was attributed to the Asian crisis. As we see it, the U.S. economy was already declining due to lower U.S. exports, and a U.S. consumer loaded with debt. We see the Asian fallout exporting deflationary pressures and shaving a 1/2% point off the U.S. GDP in 1998. We continue to look for moderating growth with low inflation.
EQUITIES: The short-term outlook for the stock market remains negative. Market settlement is still tied to the Asian and South American markets. From a technical viewpoint, the market's failure to move above the 7700 level after its last run-up, indicates that the market may need to retest the October 27 lows. We repeat, the long-term outlook remains very positive, but, the uncertainties and nervousness about future earnings are adding to a negative sentiment in the short term. We continue to believe that the small to mid-cap stocks will outperform the rest of the market.
GOLD: Market may soon break the 300 level as the Asian uncertainties continue.
DOLLAR: No change, the stronger dollar versus the yen may help Japan but will have a very negative effect on the U.S. trade deficit. Should soon reverse!
BONDS: No change, long- term yields to stay low!
November 13, 1997Peter Cardillo, Director of Research
Westfalia Investments, Inc.
90 West Street, New York, New York
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