The 1998 fiscal year is still very young, and the government budget is off to a good start. The budget deficit in October was $35.6 billion, down 11 percent from 39.8 billion the previous October.

As we see it, the good news may not be long lasting as economic growth slows in 1998. While we expect the deficit to continue to stay low, we see an economic slowdown eroding tax revenue. We see little chance for the 1998 budget to improve over the 1997 deficit, the smallest in 23 years.

EQUITIES: After a strong run up last week, the stock market is now consolidating, as the Asian uncertainties continue to hit the market on a daily basis. We see the collapse of Japans fourth largest security firm, Yamaichi Securities. as a possible turnaround in the Asian crisis. We think the Japanese government will take serious action and prevent further downward pressure. We see the U.S. stock market benefiting from the latest events. We look for the U.S. stock market to stage a strong year-end rally, as investors focus on the strong fundamentals.

GOLD: We look for the price of gold to precipitously fall below $300 to the $275 range.

DOLLAR: The U.S. Dollar is looking increasingly vulnerable to the Deutschemark.

BONDS: No change, long-term rates to trade between 6 and 6 ¼ for the balance of the year.

November 26, 1997Peter Cardillo

Westfalia investments, Inc.

90 West Street, New York, New York

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