-5-
 
Conclusion
 
         It is our conclusion that, although there is a
distinct
probability of gradual long-term inflation in this country
and although we are currently experiencing another sharp
rise in the price and cost level, we should not ignore the
possibility that continued high production of civilian
goods may lead to surpluses of many of these goods and,
therefore, enhance the danger of a reduction in volume,
prices, and especially profits for the producing industries
within the next few years. In the interim, inventory
liquidations may occur at any time. So far as common stocks
are concerned, a decline of profits plus the impact of
sharply higher taxes, increasing credit restrictions or the
shock of surprise Russian moves, could make present equity
price levels
vulnerable to a substantial decline. Under these
circumstances, dependence on stocks for inflation
protection necessitates recognition of the likelihood that
their prices will fluctuate widely and remain below present
levels for considerable periods of time.
 
         In spite of recognition of the inflationary forces
at work
throughout the world, our clients have been advised to
reduce stock holdings by scale selling against higher
markets this year. While we recognize that the impetus
given to our armament program by the Korean situation may
serve to prolong the period of excellent business, we
believe present stock holdings give reasonable weight to
this and to the threat of further inflation when weighed
against the possible deflationary factors in the business
and investment outlook.
 
                                                    
SCUDDER, STEVENS & CLARK