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WESTFALIA INVESTMENTS
TECHNICAL COMMENTS
The U.S. deficit widened in August to $10.4 billion. The red ink continued to pile up as imports rose 6/10 of 1 percent, a record! Exports rose up 2/10 of 1 percent. The wider deficit was driven substantially by a record imbalance with China.
As we see it, the effects of a strong dollar is clearly beginning to impact the economy. In our opinion. we see the decline in resulting in lower economic activity.
EQUITIES: It was less than a week ago when the stock market was faced with the memories of the 1987 crash. The media went out of its way to remind investors that Wall Street is not a one-way street. Indeed, investors have once again regained confidence, as third quarter earnings prove stronger than we anticipated. Since October 17, the market has moved up some 200 points, erasing almost all of the previous week's loss. From a technical viewpoint, the move back over 8000 level signals renewed strength. However, the direction of interest rates still looms over the market place. We suspect the uncertainties regarding the direction of rates will soon ease. We look for the labor cost index, to be reported next week, to show modest labor cost increases. We continue to look for the market to reach new highs, as the fundamentals remain strong.
GOLD: Lower lease prices in Europe and a spreading of the Asian crisis is doing little to lift the price of gold. While we do not expect the price of gold to go much lower, some pressure may develop from Asia as higher interest rates in the region may force some selling!
BONDS: A flight to quality could send long-term yields back down towards the lower end of the trading range. Next week's employment cost index may lift the cloud overhanging the market.
DOLLAR: No change.
October 23, 1997Peter Cardillo, Director of Research
Westfalia Investments, Inc.
90 West Street, New York, New York
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