The U.S. economy continues to move along with low rate of inflation and showing little signs of overheating. The July Producer Price Index declined .01% as did the core rate. Retail sales for July posted a modest gain of .06% the “not too hot, not too cold” economy continues to move along; the global economy contributes heavily in keeping inflation from moving higher. We continue to look for modest growth with inflation under control. We do not look for a rate hike at the August FOMC meeting.

EQUITIES: The stock market has retreated some 3½% from its record high close of July 8. The Dow is now some 300 points lower as unfounded fears of inflation resurface. The UPS strike and headlines that read “Home buyers find bidding wars are back” are increasing the “fear index.” We have been saying that the stock market had reached high levels and was vulnerable to a decline. We also said a sharp reversal of the U.S. Dollar could trigger a 10% decline in the stock market. On August 8 the U.S. Dollar reversed and proved our concern correct as stocks and bonds fell sharply. As we see it, there is no need to shift our bullish posture since fundamentals remain very positive. An unorderly correction in the dollar could shave another 7 to 8 percent in the Dow. In the short term, we look for the market to stabilize soon around the 7900 level, and we recommend investors to buy on dips.

GOLD: Look for October gold market contract to move back over 355, as dollar correction helps the yellow metal!

BONDS: Short-term uncertainties, no change!

DOLLAR: Long overdue correction underway, dollar could fall to 178 against Deutschemark in the short term.

August 14, 1997Peter Cardillo, Director of Research

Westfalia Investments, Inc.

90 West Street, New York, New York

Consensus National Futures and Financial On Line Index
Technical Corner Index

Added to the WWW 08-15-97
Last updated on 08-15-97

Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com

wmeubank@ocp.kcmo.com