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WESTFALIA INVESTMENTS
TECHNICAL COMMENTS
The third quarter labor cost index rose a modest 0.8%, the rise was the same in the second quarter. The Federal Reserve Beige Book showed the economy continues to grow at a strong to modest pace. As we see it, the labor cost index is another reason to believe that inflation is not accelerating at all levels of the economy. We continue to look for weaker economic growth with modest inflation.
EQUITIES: The Asian crisis, and the uncertainties over interest rates, sent the stock market in a near nine-percent decline. Investors were again reminded that the stock market can get over-extended. We suspect that the discussion of what caused the event will continue for some time. However, one thing is for certain, the fundamentals of the economy remain sound; which means the short-term decline will be short-lived. We think the market will need some time to consolidate before moving higher. We look for increasing volatility as the market begins to stabilize. We recommend long-term investors to ride out the storm.
GOLD: The price of gold is trying to stabilize after reaching a 12-year low last week. We suspect the worst of the decline is nearing an end. However, the uncertainties surrounding the Asian economies could force some Asian investors selling.
BONDS: We have been calling for the Federal Reserve to hold monetary policy unchanged for the balance of the year. We suspect after the Fed chief's testimony before Congress, the markets are now convinced of a steady monetary policy. We look for L.T. rates to trade between 6-6<$E3/8>%.
DOLLAR: Stay short the dollar versus the German Mark. We look for further dollar weakness against the German Mark.
October 30, 1997Peter Cardillo, Director of Research
Westfalia Investments, Inc.
90 West Street, New York, New York
Technical Corner Index
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