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WESTFALIA INVESTMENTS
TECHNICAL COMMENTS
The Wild Card!
Oil prices are on the rise! Escalating tensions in the Middle East have pushed the price of oil in Europe above $20 and U.S. future prices above $22. Since the late nineteen seventies oil prices have been a wild card for the world economies. The rise and fall of energy prices have resulted in higher or lower inflation. As we see it, demand for crude is strong but, production from OPEC, and non-OPEC members, is equally high. We believe the present fundamentals of the oil market, do not suggest higher prices. We look for crude oil to work its way back under $20 as the seasonal and political factors abate.
STOCKS: An attempt by the Dow to reach its old highs was cut to short after more warnings from Mr. Greenspan. The Fed chief told the house budget committee that he was worried about the sustainability of the current, near-perfect economic conditions. In our opinion, the Fed chief did precisely what a central banker should do. It's not the first time that Mr. Greenspan has injected warnings while the financial markets approached their highs. We admit, the Fed chief may be laying the groundwork for a future rate hike. However, we still believe that monetary policy will remain unchanged for the balance of the year, since there is still little evidence of emerging inflation. We see the Greenspan warnings being short lived, and the stock market working its way higher as strong third quarter results are realized.
GOLD: A strong base is being built as gold trades near the upper end of the trading range. We continue to look for gold prices to trade between $325 and $340.
BONDS: L.T. yields are moving back up after Mr. Greenspan's warnings. The combination of the Fed chief and the hike in the German repurchase rate by 30 basis point is adding to the morose sentiment in the global bond markets. We look for rates to move a bit higher before moving back down to 6¼.
DOLLAR: No change. We continue to look for a weaker dollar against the Deutschemark.
October 9, 1997 Peter Cardillo, Director of Research
Westfalia Investments, Inc.
90 West Street, New York, New York
Copyright 1997, by Consensus Inc. All American and Pan American rights Reserved. editor@consensus-inc.com
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