August 2005 Issue

By Richard C. Young

Grand Illusions…

Oil at almost $60/bbl, and yet the GDP was just revised up to an annual growth rate of 3.8% for the first quarter. One reason the economy has done so
well is the Fed’s longtime reluctance to raise interest rates to proper levels. Cheap money has fueled unprecedented housing speculation that is
going to come to a bad end.

Residential fixed investment makes up only 5% of our GDP, but a first-quarter 2005 explosion of nearly 12% added over 0.6% to GDP growth. As you can
see, housing is a high-powered and leveraged engine for growth. Later in this report, I’ll lay out the sorry case for some real estate.

The Energy Sham

First, I want to set you right on the hand-wringing over oil. As I outlined last month, the world is not running out of oil. Let me share with you some
facts from BP’s insightful 40-page Statistical Review of World Energy, June 2005. Over the last decade, total world consumption of oil is up 18%
at a compounded growth rate of 1.7%/year. And over the last decade, total world proved reserves increased by 56% at a compound growth rate of 4.6%. Proved
reserves have outrun consumption by a lot. It’s possible that 50 years from now, the world will be low on oil, but oil depletion is not an immediate
concern.

Worldwide Recession Risk

Over the short term, however, demand for oil poses a worldwide recession threat. Young Research’s two charts on oil price durability show that,
in 2005, the indicator will hit levels not seen in two decades. The U.S. and China combined are expected to account for approximately 42% of this year’s
incremental oil consumption. Higher values are shown to increase the risk of recession and to contribute to a falloff in oil consumption. My scatter
chart shows that oil consumption growth is likely to fall to a level of approximately half of what the market is expecting.

Now turn to my Economic Supplement. Chart #38 clearly shows that the price of oil drops sharply when supply jumps above demand. Chart #39 is the quarterly
revised theoretical price for oil. Today, our target price, based on demand coverage, is $32/bbl.

Oil & Gas Overpriced

Chart #40 gives a startling look at the competitive position of oil versus gas, coal, and uranium. Oil and gas have run off crazily from coal and uranium.
Believe me, with such a gap, coal and uranium will take on a lot of newfound interest. That’s good news for my highly favored Cameco Corp. (NYSE:CCJ),
the world’s largest low-cost uranium producer, providing almost 20% of the world’s demand. Cameco is the #1 holding of my highly favored Canadian
General Investments, Ltd. (CGi.to), a Canadian closed-end fund trading at a substantial discount from net asset value. Cameco is the Saudi Arabia
of uranium.

Coal & Uranium Look Good

Chart #40 shows that, in the 1980s and 1990s, gas was often priced in line with coal and that even oil prices fell on occasion to be almost competitive
with coal. Now oil and gas have run wild versus coal and uranium. These spreads, in comparative Btu valuations, certainly will not last.

In Chart #43, I outline the real price of oil. Notice the new peak in real prices—well above two standard deviations. High real oil price
levels simply will not hold up.

Big-Time Energy Efficiencies

Now some more good news for energy consumers. Look at my chart below on energy consumption per unit of output. Over the long term, continued efficiencies
have allowed energy consumption per unit of output to steadily decline, which is certainly good news. This long-term trend helps to take some of the
bark out of the energy scare dogs. The net, net here is that oil prices have overshot and cannot be expected to stay at these high levels indefinitely
without bringing on one heck of a recession.

Global Warming Dissenters

The shares of major oil companies today are priced for lower energy prices. ExxonMobil (NYSE: XOM) is probably the most conservative
of the lot and easily my top long-term choice. CEO Lee Raymond and Exxon strongly dispute the idea that fossil fuels are the main cause of global warming.
Exxon, like the Bush administration, opposes the Kyoto Accord and the concept of capping global-warming emissions. The feeling here is that the costs
associated with caps are enormous and the potential rewards uncertain.

Lee Raymond is also no fan of the commercial value of alternative energy sources. In fact, it is L.R.’s oft-stated view that as far out as 2025
solar and wind combined will provide less than 1% of the world’s energy supply. Exxon’s 2025 energy model calls for oil to produce 36% of
the world’s energy. Gas comes in at 25%, coal at 22%, renewables at 12% (led by biomass at 9%), and nuclear at 5%.

I led off this issue with Grand Illusions. One Grand Illusion, as I’ve shown, is that stratospheric oil prices are here to stay. Another is the
oft-cited view that we are not really in a real estate bubble. We are not only in a mega real estate bubble, but one that I see deflating as I write.

Here Comes Payback

The WSJ reports, “Homes are collateral for about $7.7 trillion in mortgage and home-equity debt, whereas total margin debt in investors’ stock
brokerage accounts is only $194 billion…. Mortgages make up 40% of the assets of U.S. commercial banks, mortgage-backed securities an additional
16%—and stocks less than 1%.”

In its issue of 18 June 2005, The Economist editors rolled out a special report on the global housing boom. The Economist notes, “Never
before have real housing prices risen so fast, for so long, in so many countries…. The housing market has played such a big role in propping up
the American economy that a sharp slowdown in house prices is likely to have severe consequences. Over the past four years, consumer spending and residential
construction have together accounted for 90% of the total growth in GDP. And over two-fifths of all private sector jobs created since 2001 have been
in housing-related sectors, such as construction, real estate, and mortgage broking.”

Japan Down 40%

According to The Economist, cracks in the international boom are already visible. For example, in Britain, prices have fallen for 10 consecutive
months. And the cherry on the cake of the real estate bubble is the lesson from Japan. “Japan provides a nasty warning of what can happen when
boom turns to bust. Japanese property prices have dropped for 14 years in a row, by 40% from their peak in 1991.”

Check Out RiverTown

Great, what do you do now given my cheery outlook? Here’s the plan. If you are seeking a warm retirement spot, St. Joe will begin developing RiverTown
in 2006 on the St. Johns River southwest of Jacksonville. Early 2008 will be nice timing. The area is pretty safe from hurricanes. If you are looking
for a summer place or an “away from it all” four seasons place (and you don’t mind long winters), we just returned from a Harley trip
to the Blue Hill area in Maine. Even by Maine standards, the landscape, with its intermingling of land and water, is extraordinary.

I expect condominium, town houses, and golf course communities in hot markets to get hit hard. You do not want to be speculating in these markets.

If you are looking in Florida, you want what I call Young’s XDH positioning. An X zone designation means you are in a non-flood zone. My D designation
means your new house must be built to Dade County hurricane specs (150-mph wind tolerance with hurricane glass windows and doors). My H designation puts
you in an historic district, where values always hold up best. Stay clear of older condos on the water. They will be blown to kingdom come by category
4 hurricanes. And you won’t live long enough to get a consensus from your fellow condoees as to how to go about the nightmare of collecting from
your insurance company and rebuilding.

Sniffing the Hedge Fund Glue Tube

Do you remember Long-Term Capital Management? This Greenwich, Connecticut, hedge fund had as founders two Nobel Prize-winning economists Myron Scholes
and Robert C. Merton, who, among other things, developed, along with the late Fischer Black, the Black, Scholes formula for options pricing. LTCM also
included David Mullins, a former vice chairman of the Board of Governors of the Federal Reserve System. LTCM’s strategy was to look for arbitrage
opportunities using computers, massive databases, and the insights of top-level theorists. By creating hedged portfolios, risk theoretically could be
reduced to low levels.

Liquidation

In August 1998, Russia defaulted on its debt. The financial markets became unglued. Merton’s model short-circuited. The Fed Reserve Bank of N.Y.
had to sponsor a bailout of LTCM. In 2000, LTCM was liquidated.

One of LTCM’s many pitfalls was its massive use of leverage (borrowing) at a ratio reportedly as high as 30 to 1. Supreme arrogance, heavy duty
leverage, and the short-circuiting of a backward-looking model doomed LTCM and its investors.

Wiped Out in Palm Beach

You most likely have read recently about the high-profile shutdown of KL Financial Group. Palm Beach’s richest took it in the neck with this hedge
fund debacle. Recently, Fortune ran a full-page feature titled “Tech’s Erstwhile Hedge Fund King Closes Up Shop.” When asked
what he had learned, the principal answered, “I learned that volatility is just a euphemism for losing money.”

I could go on and on as my file on hedge fund debacles is enormous. And in all fairness, like with everything, there are exceptions, Renaissance Technologies
Corp. being one. I liked PIMCO Chief Investment Officer Bill Gross’ recent reflection on hedge funds (as outlined in the WSJ): “The
hefty fees charged by hedge funds will make them a laughable option for investors in coming years.”

Here is some perspective as you set yourself for the second half of the year. To date in the new century, aggressive investors with a portfolio 50%
S&P 500 and 50% NASDAQ are down 34% (since end 1999). Not so good, is it? A conservative stock investor investing instead in a 50/50 mix of the DOW
utilities and transportation would be ahead by 24% since year-end 1999 for an average annual return of about 5%/year. Not bad in a real sloppy environment.

Lessons from Chaos Theory

I’ve written to you about Chaos Theory and why you do not to want to be in the predicting business. My strategy for you, as it is for me, is to
counterbalance and use patience to harness the awesome power of compound interest. Do not be a trader. Consolidate your assets at Vanguard or Fidelity.
Invest strictly in securities that pay you interest or dividends. For most of you, I like a fixed-income component of 30%. If you are retired or ultraconservative,
I have no problem with a 50/50 mix. In most years when stocks are down, bonds are up, as is the case in 2005 with the DOW down 4% and the 10-year Treasury
up 4%. For the record, gold is up 11% YTD, and the DJ-AIG commodity index is up 7%. Even with a crummy year for U.S. stocks, there have been places to
hide. I’ve had a surprisingly good year, and if you have invested along with me, you have, too.

I Love the 1982/84 Gold Pandas

On the subject of gold, I have some perhaps surprising insights for you as I look at the glowing stack of 1984 1/oz gold Pandas (.999) now piled on
my desk. I’ve carried an oil/gold price chart (#37) in my Economic Supplement for a long time. Today, as has been the case for a long time, gold
is dirt cheap versus oil. Copper is the benchmark commodity of our industrial world, so I am now including it in my greatly expanded Economic Supplement
a gold/copper relative chart (#35). As you can see, gold is cheaper versus copper than at most any point in the last 25 years.

The Rule of 72

Each month, I track world currency reserves and chart compound growth rates. I also plot world gold reserves. Since December 1960, currency reserves
have shown a compounded growth rate of nearly 9%. In the new century, the growth rate is nearly 12.7%. That’s a whole lot of liquidity sloshing
around the world. At 11%, the hoard of international monetary liquidity would double in just 5.6 years. To find out how any pile of assets will double
at a given growth rate simply divide your growth rate into 72—hence the Rule of 72.

Trading Gold for IOUs

Since 1960, central banks have traded monetary gold for paper IOUs and have spent the money on expansive and misguided state welfare schemes. Europe
is a heavy-duty social welfare community. Central bank holdings of gold have fallen to 894 million fine troy ounces from 1,083 ounces.

At a value of $3.85 trillion today, each ounce of monetary gold supports $4306 of world currency reserve IOUs. If over the next five and one-half years,
world currency reserves double and the gold holdings of central banks continue to decline, each ounce of central bank gold may be expected to support
$8,000 to $9,000 in world currency reserves. Money is an IOU, pure and simple, whose value is debased regularly by all governments. Gold, as it has been
for centuries, is an almost indestructible constant.

The Weimar Inflation Story

One of the most striking examples of the destruction of a currency came in Germany with the Weimar inflation of the early 1920s. In 1922, the mark fell
to 7,000 from 162 to the U.S. dollar. By July 1923, $1 equaled 160,000 DM; by October 1, $1 equaled 242,000,000 DM; and on November 20, $1 equaled 4,200,000,000,000
DM. Nice money management on the part of the Weimar Republic. Hyperinflation crushed the middle class. Germans of the era tended to be thrifty savers,
and, of course, savings placed in government bonds were wiped out. Government debt in the Weimar inflation soared to 2,630,000,000,000 marks by April
1923, from 335 billion marks in April 1921.

Faced with spiraling budget deficits, the Weimar Republic government issued more and more paper money. Money supply increased by over 50% in 1921, by
about 1,000% in 1922, and by 25,000,000,000,000% in 1923. That’s running the printing press.

Obviously, no developed country in the world today faces such money madness, but history of the Weimar inflation and the destruction of a currency are
useful when considering gold’s long-term place as the money of last resort. No government can print gold.

Sniffing the Hedge Fund Glue Tube

Liquidation

Wiped Out in Palm Beach

Lessons from Chaos Theory

I Love the 1982/84 Gold Pandas

The Rule of 72

Trading Gold for IOUs

The Weimar Inflation Story

The Bond/Gold Trade-Off

With the two-decade bull market in bonds over, gold, for the first time in memory, offers some intriguing counterbalancing prospects. Last month, I
gave you the annual mint runs for the 1/oz gold Panda. The total mintage number for the 1984 Panda was only 23,330 coins. At $650 per coin, that’s
a worldwide circulation value of only $15 million. Assume that perhaps half the mintage, for a variety of reasons, is lost from circulation. That leaves
a total circulation value of only $7.5 million. Just one wealthy investor could easily cream the regular circulation number of 1984 Pandas off the table,
making this coin rare and expensive, perhaps prohibitively so. Those desiring to accumulate a complete set of 1/oz gold Pandas would be shut out. The
1982 Panda had a mint run of only 15,815 (the smallest mint run of any Panda). At today’s price of about $1,950, we’re looking at a worldwide
circulation value of only $30 million.

The 1982 and 1984 1/oz gold Pandas are my #1 way to get some gold in portfolios. I much enjoyed my years dealing with Manfra, Tordella & Brookes
as my wholesale supplier. Today, I have found Kitty Quan’s firm PandaAmerica great to work with as a retail customer. You’ll find them on
the web at PandaAmerica.com. MTB and PandaAmerica were the two firms originally selected by China as Panda distributors.

Around the World

Although I see plenty of dislocation possibilities ahead in oil, real estate, the hedge fund arena, and the US$, coupled with a world economy that is
already slowing, there is much about which to be enthusiastic. My graphic on page 5 gives you GDP/ capita readings for a number of countries. Three of
the big four emerging economies—India, China, and Brazil—rank dead last, second from last, and third from last, respectively. Only Russia’s
position, just ahead of Kaz and racially torn South Africa, prevents the big four from holding down the bottom four slots. Can you imagine the
promise ahead if these four can find a way to move forward as part of the world community and economy without making any military blunder?

It is hard to calculate how much wealth will increase in China as 200+ million farm families obtain the rights to the land they farm. Rural land reform
is in the air in China. We are no doubt talking hundreds of billions of incubating dollars in newfound wealth for 200 million Chinese farm families.
That’s a lot of consumer buying power.

ChevronTexaco (NYSE: CVX) has agreed to buy Unocal Cap. for a cash-and-stock package valued at $16.8 billion, the largest oil sector
deal in years. China National Offshore Oil Corp. (CNOOC or “See-Nook”) is now in the hunt for Unocal. I see no special problem with this.
CNOOC is probably the most Westernized of China’s oil companies. Its CEO is U.S. educated. CNOOC, China’s third-largest oil company, has
offered $18.5 billion (all cash) for Unocal.

In the end, ChevronTexaco should be the winner in what may be viewed as a top-of-the-market acquisition—hardly an ExxonMobil-like move. It would
appear that ChevronTexaco management is basing the acquisition on what if figures to be a $30/bbl average price for oil over the 14-year life of Unocal’s
existing oil and natural gas reserves.

Chinese Ga-Ga over Cars

At year-end 2004, China doubled its highway network, just since 2000. And plans are in place for another doubling. In 2003, demand for cars in China
increased by 75%. China now has a Formula One racetrack, an American-style drive-in, and all the glossy car mags you could ask for. And China now imports
half its oil, one-third of which is used in cars. The automobile economy has come of age with a whoosh in China.

A Serious Drought

China is in the midst of a frightening drought, causing never-high water supplies to fall to crisis levels. Safe drinking water is becoming an ever-growing
daily problem. Many of China’s smelters rely on hydropower as an energy source, and less water is putting power supplies in question. Companies
positioned to export water and grain to China must fare well in coming years. Who has the fresh water? In terms of fresh water resources per person,
World Bank data show that Norway and New Zealand (two of my favorite counterbalancing countries) lead the way.

China’s Military Buildup

We have new intelligence reports indicating that China’s new type 094 ballistic missile sub will be equipped with 16 JK-2 missiles that, in short
order, can attack 48 targets with a nuclear warhead. There are plans to build a small fleet of the type 094s. Not all the intelligence out of China is
so favorable, is it?

Japan Deploying Patriot 3s

We have also learned that Japan is now deploying Patriot 3 missiles in the Tokyo metro area to intercept any “off course” ballistic missiles
unleashed by North Korea. It is our understanding that the Patriot 3s would have only seconds to knock out incoming North Korean missiles. The above
is an unpleasant development as Japan’s economy now appears to be awakening from a long nap. Japan is the world’s second-largest national
economy. In the current cycle, domestic Japanese consumption, rather than exports, is leading the way.

Bet on Third Avenue Value

Martin Whitman at Third Avenue has most adroitly navigated the treacherous Japanese waters in recent quarters, and his Japanese holdings are just one
reason you want to own Third Avenue Value Fund. Call today. Take action, fight inertia, and establish a new position or add to your
current position in one of my two foundation funds (along with Vanguard Equity Income) for all investors.

Hong Kong Is Booming

After a long dry spell brought about by the Asian financial crisis of 1997–1998, the dot.com bust of 2000, and, of course, the 2003 SARS outbreak,
Hong Kong is hot. Today, investors and speculators (the Chinese are unreal speculators) are scoring big in real estate, and tourists are swarming in.
To get some Hong Kong flavor in you portfolio, buy T. Rowe Price New Era Fund and add to your Third Avenue International Value
Fund. Both have some intriguing Hong Kong representation.

The Singapore Strategy

Singapore is setting itself up to become an important financial center for Middle East companies and wealthy private international investors of all
stripes. Like Hong Kong, you can get some Singapore flavor with the two funds I’ve noted above. And we are looking to add a few high-yielding Singapore-
based REITs and banks to the Monster Master List. One especially interesting name is Overseas-China Bank. Singapore has now signed a free-trade pact
with India, along with its similar signings with the U.S., Australia, and Japan. Singapore is already India’s largest trading partner among Association
of Southeast Asian Nations. It’s a good story.

Best in the World

The Skytrax 2005 World Airport Awards have now been made. Hong Kong and Singapore rank #1 and #2.

Quality of Life Awards

The Economist intelligence unit has just published its ratings for 111 countries as to quality of life. Considered, among other things, were
political stability, security, family and community life, health, freedom, and unemployment. I’ve cherry-picked countries of interest from the
list: #1 Ireland, #2 Switzerland, #3 Norway, #6 Australia, #11 Singapore, #13 U.S.A., #14 Canada, #15 New Zealand, #18 Hong Kong, #60 China, #105 Russia,
and last, at #111—thanks a lot Robert Mugabe—Zimbabwe.

Third Avenue Funds Close the Door

OK, it has happened, and I’m real sorry for those of you who let the inertia ogre beat you back and out of Third Avenue Real Estate Value
Fund and Third Avenue International Value Fund. I’ve done everything but draw blood to get you, your spouse, your kids,
and your grandkids into these funds. You know I’m loaded to the gills with both. And like those of you action-oriented folk who followed my pleadings,
I will be adding more money to both. YTD, the DOW is down 4.7% and the stinking NASDAQ is down even more at 5.4%. In general, it has been a foul year
for stocks. Yet Third Avenue International is up 6.0%, and Third Avenue Real Estate is up by 9.7%, led by its largest holding St. Joe (NYSE:
JOE) (over $200 million). In the 1990s, my most strongly advised stock was Harley-Davidson (NYSE: HDI), which produced spectacular
returns and is once again back on my list. This century, my lead name has been St. Joe. In the case of both companies, I conduct personal “on
the ground” research. Over the past 12 months, you have logged a gain of 104% in St. Joe. And over the last complete 60 months, your average
annual gain has been over 32%.

I’ve spoken with Michael Winer, manager of Third Avenue Real Estate Value, and he tells me that the two closed funds, his and International Value,
were finding it impossible to invest incoming cash properly. If the funds find suitable investments that will allow them to reduce excess cash balances,
they would likely reopen to new investors.

Hitting on All Eight

Another of my most strongly advised funds that has had a great record for quite a while is Vanguard’s well-managed Precious Metals & Mining
Fund. I hope you have not missed the boat here. YTD, PM&M is ahead a solid 5.6% versus a 5.4% decline in the NASDAQ. And over the last
three years, you have scored big with average annual three-year total returns of almost 23%. It’s easy to look at the fund with the view that
it is gold that calls the shots. Well, this is not the case. That is unless you call Impala Platinum, BHP Billiton, Rio Tinto, Cameco, WMC, and Peabody
Energy gold stocks. The fund is well-diversified both in terms of assets and geography. And with the end of the bull market in bonds, Precious Metals & Mining
is a great portfolio counterbalancer.

A Mutual Series Departure

Franklin Mutual Series Chief Investment Officer David Winters recently beat a hasty retreat out of town. My own largest position is Mutual Shares.
I’ve owned it pre Winters, pre Michael Price, all the way back to the Max Heine era. The strategy for Mutual Shares, Qualified & Beacon is
basically built around investing in undervalued equities, distressed debt, and arbitrage situations. As long as the basic philosophy remains the same,
I don’t have any real concerns. Peter Langerman, a capable Price-era guy, has recently returned to the Franklin Mutual Series fold. He will help
maintain status quo, so, for now, stick with what you own.

David Winters is a capable fellow. D.W. will shortly open the no-load Wintergreen Fund. I plan to be one of the fund’s first shareholders and
advise you to join me. I’ll keep you updated.

New for You

We are buying the Fiduciary/Claymore MLP Opportunity Fund. The fund invests at least 80% of its assets in master limited partnerships
(like Alliance Resource Partners, NASDAQ: ARLP). A substantial group of these MLPs will be found in the energy, natural resources, and
real estate sectors, three of my long-term favorites. The fund is NYSE listed. It has a current distribution rate of 6.48% and sells at a 2.23% discount
to net asset value. The fund is suitable in tax-deferred accounts.

The Road Ahead

We just got back from a Harley road trip to Raceweek in Laconia, N.H., as well as to Vermont and the coast of Maine and New Brunswick. Fun and informative,
the trip provided lots of intelligence. Number one on the list is pretty solid confirmation of a significant announcement from Harley at the summer dealers
meeting. Wall Street has not priced this intelligence into the current share price. Continue to buy Harley here at $49.50/share.

America’s Fifth-Largest Network

You may not be familiar with Univision, America’s fifth-largest TV network. In over 20 nights this season, Univision grabbed the #1 spot in the
coveted 18-to-34 demographics. This Spanish language network is really connecting. And it is a substantial holding of Janus Fund. Despite
its blowups of recent years, Janus still knows how to run a growth fund. While I am not a growth fund fan, I know many of you are.

MBNA (NYSE: KRB) is to be acquired by Bank of America. The deal values MBNA at $27.50/share, a 31% premium over the recent closing
price of $21.07. Sell your MBNA here in the $24–$25/share range.

Topps (NASDAQ: TOPP). Let’s depart. The recent go around with Pembridge Capital Management has left a bad taste in my mouth.
Management may well get something great going down the line. I wish them the best, but we are out of here at about $10.25/share. Sell!

Caterpillar (NYSE: CAT) recently rose to $102.20/share, a record closing high. CAT is one of my favorites in the DOW. The board just
approved a 2-for-1 stock split and an increase in the dividend to its highest level in history. CAT is the world’s largest maker of construction
and mining equipment, diesel and natural gas engines, and industrial-gas turbines. Anyone think there will be any need for any of this stuff in China,
India, and Russia over the coming decades? CAT products rank either #1 or #2 on every continent. CAT, a Sigma 6 company, is a worldwide powerhouse in
global mining, oil, gas, coal, and infrastructure development and distributed electric power. These industries were characterized by significant underinvestment
in the post-Asian crisis of 1998–2002. Russia’s major oil and gas companies rely on CAT. CAT is big in Dubai, ranked the best airport in
the Middle East and home to the Burj Dubai Tower, the world’s tallest building.

The world’s #1 excavator salesperson is none other than Madame Zhang Li Ju of CAT dealer Shing Hong Machinery. Madame Zhang says, “My long-term
objective is to see CAT equipment on every job site in China.” And just how many job sites might there be in China in the coming decades? Remember,
China plans to double its highway network in fast order. What do you bet Madame Zhang will have them seeing yellow all over the China landscape? And
a needy landscape it is. Did you know that more than 40% of India’s population is expected to live in urban areas by 2020? That’s going to
dislocate a lot of cows. And CAT machines will make over India’s cities. Think yellow. Buy CAT.

ConAgra (NYSE: CAG). Lower profits, job cuts, crappy packaged-meat ops, nasty lawsuits, allegedly fictitious sales, misreported earnings
at United Agri Products (supposedly), and, the cherry on the cake of ConAgra’s day, a new 52-week low of $23.99/share. Sounds like a buy to me.
I’ve been patiently waiting (now less so) for these gentlemen to turn the company around. Even with the missteps, the stock, over the past 60 months,
has given you an average annual total return of nearly 7%. Now the shares are at rock bottom (let’s hope) and yield 4.5%. Buy ConAgra.

Prologis (NYSE: PLD), a solid real estate company, is to acquire Catellus, also a solid real estate company. Over the last 36 months,
you have logged an average annual total return of 25% and, in the last 12 months, a 32% total return. Continue to buy this classy REIT.

BHP Billiton (NYSE: BHP), the world’s largest miner, has won control of Australia’s WMC Resources (NYSE:
WMC). With WMC, BHP Billiton moves up a notch to become the world’s third-biggest nickel producer, behind Russia’s Norilsk, and solidifies
its #2 ranking in copper, behind Chile’s Codelco. China needs millions of tons of raw materials for road, home, and office building. And Australia/BHP
Billiton, with its resource base and proximity advantage, versus South American competitors, is in the catbird’s seat. WMC also gives BHP Billiton
exposure to uranium via the giant Olympic Dam mine in South Australia, which geological green-eye shaders believe holds over one-third of the world’s
known uranium reserves. BHP Billiton and WMC are sure not found in the S&P 500 index funds, but they are both found in the top 10 of the intuitive,
impressive Vanguard Precious Metals & Mining Fund. BHP Billiton is a two-decade core global portfolio holding.

Noranda (NYSE: NRD) and Falconbridge (TORONTO: FL.TO) have both been on my Monster List. Now you get two for one as
the two will merge into Falconbridge, Ltd. You will own a share in one of North America’s largest base metals companies, with concentration in
nickel and copper. Buy the “new” Falconbridge.

Comings & Goings

After jamming through the ill-advised “outsider as mutual fund chairman” ruling, William Donaldson is thankfully out at the SEC. Coming
in is Christopher Cox, an anti-class-action-suit, business-friendly gentleman I strongly favor. Out goes swing voter Sandra Day O’Connor at the
Supreme Court. I admire Justice O’Connor, who recently, in a dissent to a 5–4 ruling that let local governments take personal property to
build malls, wrote, “Nothing is to prevent the state from replacing…any home with a shopping mall, or farm with a factory.” The land
grab, federal power five for this unwise ruling were Kennedy, Stevens, Souter, Ginsburg and Breyer. It would be nice to see a young woman with similar
leanings as Justice O’Connor replace her. If not, I like what I know about 51-year-old Fourth Circuit Judge J. Michael Luttig. And there is much
to like about Attorney General Gonzales, who recently called for requiring federal judges to adhere to guidelines that set mandatory minimum prison
sentences. Finally, Fed Chairman Alan Greenspan will depart the scene in January 2006. Three names have solid appeal to me—Martin S. Feldstein
(the logical pick and president of the National Bureau of Economic Research). But why M.S.F. would leave his comfy slots at Harvard and NBER is uncertain.
R. Glen Hubbard, dean of Columbia’s business school, would be a great choice. R.G.H. would remove taxes on dividend capital gains and interest,
thus greatly improving the living standards of all my retired and soon-to-be loyalists. But in the end, by a mini margin, I would vote for Fed Reserve
Governor Ben S. Bernanke. B.S.B.’s specialty is monetary policy and econometrics, and he is an authority on the thinking of Milton Friedman, my
all-time #1 guy on all things of a monetary nature.

OK, it’s time to act. Load up on my top-10 high-yield timber counterbalancer Plum Creek (NYSE: PCL). Beat “the announcement” with
Harley-Davidson. Sign on with Madame Zhang and Caterpillar. Add yield to your tax-deferred account with Fiduciary/Claymore MLP Opportunity Fund. Make
it a good month.

Tropical Hurricane Season Thought—If you have a low tolerance for the summer hurricane season, I have no problem with you temporarily selling
your St. Joe (NYSE: JOE) and returning in the fall.

Warm regards,

Richard Young signature

Richard C. Young

P.S. Fed prosecutors are investigating Milberg, Weiss, Bershad, and Schulman, an aggressive class-action law firm. I guess there are some questions
as to why one fellow and family members were plaintiffs (according to the WSJ) in more than 50 MWB&S securities cases and, oh yes, supposedly
received over $2 million in secret payments for helping out. No future Supreme Court justices at MWB&S, would you say? I’m death on class-action
suits.

P.P.S. I’ve added three more essential R&B CDs to my website at YoungResearch.com. Among the group are five of my top 100 ’50s
and ’60s jukebox R&B tunes.

P.P.P.S. 2008 is the next U.S. presidential election year, the Chinese window to the world Olympics, and the kickoff date for the retirement rush of
76 million Americans. And 2008 is the benchmark year for the convergence of factors that will combine for my Big Idea of retirement relocation, broadband
explosion to even the remotest places and the emergence of very light aircraft (VLJs) as virtual air taxis to thousands of remote and small airports.
Key updates for you next month, so stick around.

Richard C. Young’s Intelligence Report® (ISSN 0884-3031) is published monthly by Phillips Investment Resources, LLC, 9420 Key West Ave., Rockville, MD 20850. Please write or call if you have any questions. Phone: 301/424-3700 or 800/301-8968. E-mail: service@intelligencereport.com. Web address: . Editor: Richard C. Young; Group Publisher: Michael Bell; Chairman: Thomas L. Phillips; Associate Editor: Deborah L. Young; Marketing Manager: Jim Brinkhoff; President: John J. Coyle; Research Director: Jeremy Jones, CFA; Sr. Managing Editor: Shannon Miller; Business Manager: Thomas C. Burne; Research Associate: Rebecca L. Young; Editorial Assistant: Danielle Hart; Sr. Vice President: Christopher Marett; Subscriptions: $249 per year. © 2006 by Phillips Investment Resources, LLC, Founding Member of the Newsletter Publishers Association of America. Photocopying, reproduction or quotation strictly prohibited without the written permission of the publisher. While the information provided is based upon sources believed to be reliable, its accuracy cannot be guaranteed, nor can the publication be considered liable for the investment performance of any securities or strategies mentioned. Subscribers should review the full disclaimer and securities holdings disclosure policy at /disclosure.php or call 800/219-8592 for a mailed copy. Periodicals postage rates paid at Rockville, MD, and at additional mailing offices. Postmaster: Send address changes to Richard C. Young’s Intelligence Report, Phillips Investment Resources, LLC, 2420A Gehman Lane, Lancaster, PA 17602.

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