Grow Your Portfolio the Intelligent Way

February 2008 Issue

By Richard C. Young

Commander in Chief…

A recent GfK Group survey conducted for The Wall Street Journal indicates that terrorism clearly ranks as Europeans’ #1 fear. Contemplating the survey, a French executive noted, "We have a poor and increasingly radical Islamic population in France." As time passes since the 9/11 disaster, Americans on balance have gone to sleep on the national threat of radical Islamic terrorism. With my 2008 Big Idea kickoff year now getting underway, the financial markets will begin to reflect the national security, monetary, economic, and political environment leading up to the presidential election.

The world is far more hostile and competitive than it was at the turn of this century. Gold, at over $860/oz, is sounding an alarm. As recently as year-end 2003, gold was below $350/oz, and oil was $31 per barrel. Oil has since tripled to $100/bbl. The Middle East is a boiling caldron. Nuclear-armed Pakistan is in disarray. Iran’s deranged leader has threatened the very existence of Israel. And through it all, Vladimir Putin, black belt and all, has consolidated his position in Russia, ramming lapdog Dmitry Medvedev down Russian gullets as the probable new Russian president. Mr. Putin tells us that he is ready to hunker down in a subservient role as prime minister. Right! Putin enjoys massive support with a positive rating of over 80%. The Wall Street Journal notes that according to Dmitry, "All this is Vladimir Putin’s strategy…I will be guided by this strategy."

Russia: A Powerhouse

Russia, an oil and gas exporting powerhouse, has massive foreign exchange reserves, both a trade and current account surplus, strong domestic demand, and Vladimir Putin, Time magazine’s Person of the Year, with his increasingly non-democratic hand firmly on the tiller of state.

China Explosion

As Foreign Policy notes, since 2001, Chinese cell phone use has jumped to 600 million from just 140 million. And since 2000, the number of Chinese Internet users has soared to 162 million from only 17 million. All of this is in position to allow the world an open window to the nasty protests that I expect to explode in the face of the China-hosted 2008 Olympics.

National Security #1

With these issues building overseas, national security will be front and center for the new U.S. president, along with the daunting and complex job of making the U.S. economically competitive in the new era. Americans today are getting a chance to register support for a potential next president. When Americans look at the current roster of candidates in terms of our next Commander in Chief, what are they thinking? I have grave concerns. The wrong presidential choice will prove to be a peril to us all. As I write, Americans in general would appear to be much more focused on soft social issues and not on the hardball twins of radical Islamic terrorism and worldwide U.S. competitiveness. This mindset had better change soon.

Recession-Flashing Breakdown

U.S. consumers are now getting the message. The housing slump, along with the sub-prime write-off mess, has nowhere near run its course. My charts on Young Research’s Moving the Goods Index and the Dow Jones Transports vs. the Dow Jones Industrials indicate a recession-flashing breakdown.

Manufacturing employment holds the key. If shop floors are busy, recession can be fended off. As an indicator of a still-cooking environment, I’d like to see the indicator for manufacturing hours worked per week hold above 40.7 hours. Last month, it fell by two ticks, to 41.1 from 41.3 hours. A decline below 40.7 hours to, say, 40.1 hours will usher in a broad-based U.S. recession.

Bright Spots

Notwithstanding my most jaundiced look at the U.S. presidential pack and the storm clouds advancing over the U.S. economy, I have sorted out a number of promising places for you to ride out the turbulence with comfort and a considerable promise for profit. Patience, rigorous objectivity, and a total lack of emotionalism will be required.

The China Bubble

China’s stock market is in a bubble as domestic capital is held hostage to a non-convertible and greatly overvalued renminbi. The closed loop is causing asset inflation. Oil is now pushing up against two standard deviations. Scope out Young Research’s oil price model in the Economic Analysis (Chart #36) to see this. And as Chart # 37 indicates, coal and, to a lesser degree, natural gas are the best bets for low-cost energy. One spot you want to avoid is the long bond market. We use Young Research’s 10-Year Treasury and Valuation Indicator to help gauge the attractiveness of long bonds (Chart #19 in the Economic Analysis). You’ll note that our valuation indicator (black line) is closing in on a major cyclical bottom, signaling a sell, never mind a buy.

Your Questions, My Answers

Q. I expect, like myself, that many of your subscribers who invest for dividends have positions in Enerplus Resources (NYSE: ERF), Penn West Energy (NYSE: PWE), and Fording Canadian Coal (NYSE: FDG). Do you have thoughts to share on Canadian income trusts in light of proposed Canadian tax changes and subsequent effects on these trusts?

I advised selling Enerplus Resources and Penn West Energy in October 2006, when the Canadian government announced the tax ruling on Canadian income trusts. I kept Fording Canadian Coal on my Monster Master List because I viewed (and still view) the company as a takeover target. I no longer follow Enerplus and Penn West or any other Canadian income trust since Canada’s tax ruling on income trusts. If you own Fording, continue to hold your shares.

Q. In the past, you have said that the future for airlines and aircraft manufacturers is the Very Light Jet (VLJ) market. How do you reconcile your high recommendations for Boeing (NYSE: BA) stock with your VLJ market prediction? To my knowledge, Boeing does not manufacture VLJs. So if your prediction is correct, won’t Boeing take a hit at some point?

A few points here: First, VLJs will expand the market for air travel by taking passengers to remote locations. The runways at these airports and airfields are too short for commercial aircraft to service. Secondly, Boeing is a huge exporter of aircraft. Demand for air travel from emerging economies will be met through commercial aircraft, not through VLJs. The growth in countries such as China and India are astounding, but the income of the average individual in these countries is still only a fraction of the income earned by low-income Americans. In the foreseeable future, price will prevent most individuals in developing economies from purchasing a VLJ. Lastly, if VLJs begin to take market share from commercial aircraft manufacturers, Boeing will enter the market, most likely through an acquisition.

Q. As long as I have been a subscriber, you have talked about the presidential cycle and how the market usually goes up in an election year. How do you think the current mortgage meltdown and financial debacle will affect the presidential cycle?

The best year of the presidential election cycle is the year before an election. The second best year of the cycle is the election year. My chart on election year returns on the S&P 500 shows that since 1960, stocks have only declined twice in an election year. Stocks perform well before and during an election because politicians do everything in their power to get elected. Outlandish campaign promises and chatter about economic stimuli are common tactics used by presidential hopefuls and their allies in government. When viewed in the context of the presidential election cycle, the mortgage meltdown is easy bait for candidates. If the meltdown worsens, the call for a full-blown bailout of irresponsible borrowers will grow louder. Stocks will likely perform well in this environment.

Q. If, due to the credit crisis and other factors, the U.S. economy goes into recession, will the global economy follow?

Probably. The idea that economies of foreign countries have decoupled from the U.S. economy in a world where globalization has increased does not add up. As globalization increases, international trade grows, capital flows between countries increase, and economic growth among world economies becomes more interdependent–not less so. If there is a U.S. recession, some economies should stay strong; but, most should slow along with the U.S.

Q. Does St. Joe (NYSE: JOE) have a chance of rebounding? I bought shares at around $57, $41, and $27. I know real estate is in a funk for various reasons, but Joe is still on your Monster Master List. What are the chances of a rebound?

The chances of a rebound at St. Joe are high, but the timing is uncertain. The stock is very cheap at these levels. If you have patience and a long-time horizon, now is the time to buy JOE. St. Joe eliminated its dividend recently, so the stock should only be purchased by aggressive investors. See my Top 10 Common Stock Countdown this month for additional comments on St. Joe.

Q. About two years ago, you recommended China Panda 1 oz coins as a good investment. You said that gold would likely continue going up and that several of the older-issued coins had significant appreciation possibilities. I bought a complete set of those coins, plus a few of the 5 oz coins with a mintage of only 1000. You and I both failed to do our homework–there appears to be no market for these coins. I checked with American Panda and they offered me very low prices for the coins; in some cases, they offered less than I paid for them two years ago—and the price of gold has gone up about 80%. I have not been able to locate a market. Based on American Panda’s current price list, the coins have appreciated dramatically. Since you hold some of these coins, do you know of a market for them?

Panda America is your best bet to sell your Gold Pandas, but I did not recommend these coins as a short-term holding. I have owned Gold Pandas since 1982 and I have never sold a single coin, nor will I ever. My Gold Panda collection is an anchor in my estate. You should view your coins as a permanent long-term holding to pass on to future generations. Trading Gold Pandas is a strategy that I do not recommend. If you are looking to trade gold, consider buying streetTRACKS Gold Shares (GLD) or a gold futures contract–the liquidity is much better.

Q. Should I wait to transfer money out of a fund until after it has paid December capital gains?

If you are planning to sell a fund that you have owned for more than a year and the fund is going to make a capital gains distribution, you first want to determine how that gain will be qualified for tax purposes. Most mutual fund companies release estimated capital gains distributions on their websites in late October or early November. In the release, look for the amount of the distribution that will be paid as long-term capital gains and short-term capital gains. You also want to locate the record date of the distribution (if you hold a fund on the record date, you will receive a distribution even if you sell the fund before the distribution is paid). You can also call your mutual fund company for this information. If the entire capital gain to be distributed from your fund will be taxed at the long-term capital gains rate, you will owe the same amount in taxes if you sell before or after the record date of the distribution. If a significant portion of the capital gain will be taxed at the short-term capital gains rate, which is your personal income tax rate, you may want to consider selling the fund before the distribution record date to avoid the short-term capital gain.

Q. Because of the taxes caused by bond fund interest in our non-retirement trust account, our CPA has encouraged us to invest in tax-exempt municipal bonds and bond funds to reduce our income taxes. As a result, we sold off the bond funds you always recommend, such as the Vanguard GNMA (VFIIX) and Vanguard Short-Term Investment Grade (VFSTX), etc., in our regular account and purchased them for our retirement account. I have subscribed to your service for many years now, but I don’t ever remember you focusing on tax-free bond recommendations, nor even differentiating on which bonds are best for regular vs. retirement accounts. You always say that you are investing in various bonds for yourself, but you never say which are for your retirement account versus your non-retirement account.

In general, you want to hold assets that are the least tax-efficient in a tax-deferred account and assets that are the most tax-efficient in a taxable account. Taxable bonds should be held in a tax-deferred account, if possible. I do not write much about municipal bonds because the decision to own these bonds is specific to each investor. There are many factors to contend with, including your personal income tax rate, your state of residence, whether or not you are subject to the alternative minimum tax, and the current ratio of the yield of municipal bonds to taxable bonds. If you determine on your own or with your tax advisor that municipal bonds are right for you, I recommend the Vanguard municipal bond funds on my Monster Master List or AAA-rated individual municipal bonds.

Q. Dick, where do you see gold going? Is it too late in the cycle to buy gold now? I listen to you and Richard Russell about buying gold but never hear about selling. Do you ever sell?

There may come a time when I will sell gold, but that time is not now. Gold is a guardian of wealth. The metal performs well during periods of geopolitical upheaval, inflation, and U.S. dollar depreciation. If you did not buy gold on my original recommendation, you missed out on big gains—triple-digit gains in fact—but there is still time to buy. There are many reasons for gold to move higher. streetTRACKS Gold Shares is my favored gold investment today.

Q. You (and Warren Buffett) are big fans of Coca-Cola (NYSE: KO), but the stock price does nothing. If you plot the stock versus the S&P 500, the plot shows that KO goes less than nowhere. Why do you keep this on your Monster Master List?

Coke is an outstanding business, with one of the most valuable brands in the world. My total return relative-strength chart shows that if you include dividends on Coke and on the S&P 500, Coke has kept pace with the market since year-end 1999. And in 2007, Coke was up 30% including dividends versus a return of only 5.5% on the S&P 500.

Q. Does Anglo American (OTC:AAUK) have the platinum element to rival Vanguard Precious Metals & Mining Fund (VGPMX)?

Anglo American is the world’s largest platinum producer, but Anglo is also one of the world’s largest diversified mining companies. Platinum accounts for 30% of its operating income, so a big divergence between platinum prices and the prices of other resources that Anglo produces could result in a divergence between Anglo stock and the price of platinum. My chart on Anglo American versus platinum futures shows that historically over long periods Anglo American and platinum have moved in tandem.

Q. Dick, do you think your investment strategy adequately ensures against the possibility of double-digit inflation, which sure looks like a possibility with the current expansion of the money supply?

Yes. To insulate your portfolio for the potential negative effects of double-digit inflation, you want to own streetTRACKS Gold Shares, you want exposure to natural resources, including real estate, and you want exposure to the Swiss franc. If inflation accelerates into double-digit territory, look for gold to increase by a factor of 2X to 3X the current price. Natural resources should also jump in price, both because more dollars will be chasing the same amount of resources, and because the dollar will likely plummet if inflation accelerates. And a falling U.S. dollar due to double-digit inflation should lead to big profits on a position in Swiss francs.

Top 10 Common Stock Countdown

(1) Xstrata (LONDON: XTA.L): A second wave of consolidation in the mining industry is well under way, and Xstrata is a willing target. The company recently announced that it has held preliminary talks with industry participants about possible mergers. Xstrata increased its allure earlier in the month by announcing a world-class mineral resource at the Tampakan Copper-Gold Project in the Philippines. The mine contains at least 4.4 million tons of copper and 5.6 million ounces of gold. My relative-strength chart shows consistent power versus the S&P 500. Buy.

(2) United Technologies (NYSE: UTX): The Pentagon has awarded UTX with contracts worth more than $13 billion to supply the U.S. with H-60 helicopters. Variants of the H-60 serve in every military branch and in the militaries of key U.S. allies. The Black Hawk is the most common form of H-60 and is used in roles as varied as combat, drug interdiction, and missile targeting. My chart shows relentless relative strength in UTX shares versus the S&P 500. Buy.

(3) Unilever (NYSE: UL): Unilever is the number-one seller in the world of spreads, teas, dressings, ice cream, meal replacements, skin care products, and deodorants. Top that off with Unilever’s number-two spots in daily hair care and laundry, and you have a company that did over $52 billion worth of business in 2006. Leading positions in markets are built by having great brands. Unilever owns Dove, Lipton, Hellmann’s, Knorr, and other brands that lead in their industries. UL sells its brands in over 100 countries around the world, with over 40% of sales coming from developing and emerging markets. My price chart shows Unilever continuing to make the new 52-week high list. Buy.

(4) PepsiCo (NYSE: PEP): Did you know that sales of hummus in the U.S. have doubled over the last four years? Me neither, until PepsiCo bought a 50% stake in Sabra, the fastest-growing hummus seller in the U.S. PepsiCo will help Sabra expand the brand beyond its stronghold in the Northeast. Hummus will add a nice complement to PepsiCo’s salty snack portfolio. Hummus and a bag of blue corn Tostitos make a tasty snack—and a much healthier alternative to the oil- and sodium-packed Lay’s potato chips. Even after a strong 21% return in 2007, PepsiCo still trades at a discount to trend. Buy.

(5) Royal Dutch Petroleum (NYSE: RDS.A): Shell has invested in an odd source of energy. The plan is to create algae biofuel. A facility is being built in Hawaii to grow algae, harvest its vegetable oil, and turn that into biofuel. Algae grows much faster than other feedstocks used for biofuel, like palm or jatropha. While RDS fiddles with sludge ponds, its new responsibility for the Ormen Lange gas field and its other traditional projects will remain Shell’s bread and butter. The Ormen Lange will supply up to 20% of Britain’s gas consumption for around 40 years. That just might be enough time to turn green slime into a profitable industry. My price chart shows RDS’s powerful upward trend. Buy.

(6) Southwest Water Company (NYSE: SWWC): In December, Southwest increased its dividend for the 12th consecutive year. SWWC produces and supplies water to its customers, and retrieves and processes sewage—thankfully, the two businesses are kept separate. The long-term supply-demand balance for water points toward long-term strength. The world’s population continues to increase, but the amount of available fresh water is relatively fixed. Companies with the ability to clean and deliver water provide an essential service with high barriers to entry and regional monopolies. My relative-strength chart shows Southwest flat on its back against the S&P 500. Buy.

(7) St. Joe (NYSE: JOE): The long-term outlook for St. Joe is outstanding. The company owns over 800,000 acres of prime coastal property in Florida. The first wave of baby boomers will begin to retire in 2008 and head south to tax-friendly states with warmer climates. Florida’s panhandle will be at the top of the list for many retirees. You can buy St. Joe today for less than $4,000 an acre—the cheapest the land has sold for since 2003. My price chart on Joe shows the stock bouncing off of a probable low and on the verge of breaking out of a 2.5-year downtrend. Buy.

(8) Sysco (NYSE: SYY): Sysco is the global leader in selling, marketing, and distributing food products to restaurants, healthcare and educational facilities, lodging establishments, and other customers that prepare meals away from home. Sysco boasts an industry-leading 15% of the highly-fragmented $225 billion foodservice and hotel amenity market. My long-term trend chart shows Sysco trading at a deep discount to trend. Buy.

(9) General Electric (NYSE: GE): GE made its first foray into offshore drilling with a $54 million investment in a drillship named the Peregrine I. The ship will be used to drill for oil off the coast of Brazil to a depth of up to 25,000 feet in up to 5,200 feet of water. The Peregrine is currently under contract with Brazil’s state-owned oil company, Petrobras. Brazil’s deepwater ocean became a focal point for exploration in November when Petrobras announced what is believed to be the second-largest oil and gas find in 20 years! The new offshore field, named the Tupi Field, will produce an estimated 500,000 barrels of oil a day at full capacity. My long-term trend chart shows GE below trend. Buy.

(10) Newmont Mining (NYSE: NEM): Over the summer Newmont closed out its hedge book, allowing the company to fully participate in the rise in gold prices. The decision to close out the hedge book was well-timed. Gold is up 30% since the end of August and approaching a new all-time high. My price chart on Newmont shows a powerful surge of 28% in the stock since the end of August. With Newmont’s hedge book closed, Newmont shares will follow gold more closely. Buy.

What’s Up & What’s Down

My 2008 choice for fund of the year is the newly reopened Third Avenue International Value (TAVIX). Last year, TAVIX was up by 3.4%. But not to worry. Last year was not a great year for value, as seen by Vanguard Value Index’s (VIVAX) 0.1% gain versus Vanguard Growth Index’s (VIGIX) 12.6% gain. I will be adding to my TAVIX holding, as should you. In 2007, Young Research’s Retirement Compounders was ahead by 8.1% (unaudited) fueled by our rigorous concentration on dividends.

If you invested along with me in 2007, you had another good year despite a rocky market in the second half of 2007. The return of volatility and uncertainty in the stock market once again highlighted the benefits of taking a balanced approach. I added recently to my already jumbo position in Vanguard GNMA (VFIIX), as should you. The low-risk fund was up a most appealing 7% in 2007. I have also added recently to my sizable holding in Vanguard Wellesley Income (VWINX). Last year, Wellesley was ahead by 5.6%. Its structure of quality dividends and interest rarely give a stomach-turner of a year. This approach makes me comfortable for myself and for discerning comfort seekers, like you and your family. Over the last decade, the stogy dividend- and interest-seeking Wellesley Fund has given you and me a 7.2% average annual total return. This is versus the 7.9% for the super-aggressive, high-risk Legg Mason Value Trust. Quite a shocker, don’t you think?

Counterbalancing is the key to Vanguard Wellesley’s consistent performance. When stocks decline in value, fixed income securities usually rise in value. And 2007 was no exception. U.S. Treasury STRIPS were up 9.2% last year, and Dodge & Cox Income (DODIX) gained a respectable 4.7%. High-quality corporate bonds such as those in the Dodge & Cox Income Fund look especially attractive today.

The international funds on my list had another strong year in 2007. T. Rowe Price Japan (PRJPX) was an obvious source of weakness, but the stock market is cheap, and the currency is cheap. Patience is necessary here. Investors will eventually come around to this market. Natural resources once again made big gains with T. Rowe Price–New Era (PRNEX) up 40%, and Vanguard Precious Metals & Mining (VGPMX), up 36%. Consistent gains of 30 to 40% are not sustainable. You should lower your return expectations for natural resources investments moving forward.

  
2005
% Change
2006
% Change
2007 YTD
% Change
Dow Jones 30 Ind. 1.7 19 8.9
Dow Jones 15 Ut. 25.1 16.6 20.1
Dow Jones Trans. 11.6 9.8 1.4
S&P 500 Index 4.3 15.1 5.5
NASDAQ Comp.      2.2 10.3 10.5
Value Line 2 11 -3.8
Dodge & Cox Bal. 6.6 13.9 1.7
Vanguard Bal. Index 4.7 11 6.2
Wellesley Income 3.5 11.3 5.6
Wellington 6.8 15 8.3
Dow Diamonds Trust, Series 1 2.5 18.9 8.8
Mutual Shares (Z-Shares) 10.4 18.4 3.3
Vanguard 500 Index  4.8 15.6 5.4
Vanguard Growth Index 5.1 9 12.6
Vanguard Value Index 7.1 22.2 0.1
Vanguard Equity Income 4.4 20.6 4.9
Third Ave. New Value 16.5 14.7 5.8
Third Avenue Small-Cap Value 11.1 11.4 1.4
Dodge & Cox International 16.8 28 11.7
Fidelity Canada Fund 27.9 15 35
iShares Australia 16.7 30.8 28.3
iShares Hong Kong 7.3 29.3 39.4
iShares Singapore 14.3 45.8 27.9
iShares Switzerland 13 30 5.5
T. Rowe Price Japan 40 -5.7 -5.5
T. Rowe Price Em Eur & Mediterranean 59 34.7 27.9
iShares Sweden 10.3 43.7 -1.3
iShares Malaysia -0.6 36.4 44.6
Third Avenue International 18 17.1 3.4
Fidelity International Real Estate 14.9 42.9 -8.3
T. Rowe Price Real Estate 14.5 36.8 -18.8
Third Ave. Real Estate Value 14.4 30.2 -8.4
Vanguard REIT Index 11.9 35.1 -16.5
American Century Global Gold 28.9 26.8 14.8
iShares Goldman Sachs Natural Resources 36 16.4 33.5
streetTracks Gold Shares 17.8 22 31.1
Fidelity Natural Gas 45.9 5.3 23.2
T. Rowe Price New Era 29.9 17 40.7
Jennison Natural Resources 54.6 21.7 46.5
Vanguard Precious Metals & Mining 43.8 34.3 36.1
Vanguard Inflation-Protected Securities 2.6 0.4 11.6
Amer. Century 2025 (US Treasury STRIPS)   14.2 -1.6 9.2
Dodge & Cox Income 2 5.3 4.7
Vanguard GNMA 3.3 4.3 7
Vanguard High-Yield Corp. 2.8 8.2 2.1

The Mighty Fidelity Army

Below the radar, the mighty Fidelity mutual fund army advances. Forward momentum is quietly building, but Fidelity’s rivals seem strangely unaware. Consider the gains of Fidelity’s Magellan Fund (closed to new accounts) versus, for example, the widely hyped Legg Mason Value Trust: (1) Over last year, Magellan +19%; Value Trust -6% (that’s minus!). (2) Over the last three years, Magellan +10.7%; Value Trust +1.3%. (3) Over the last five years, Magellan +12.7%; Value Trust +10.8%. In each case, the advantage is Fidelity’s. Personally, I have substantial holdings in a broad number of super Fidelity funds, including Fidelity Nordic (FNORX), Fidelity Canada (FICDX), Fidelity International Real Estate (FIREX), and Fidelity Select Natural Gas (FSNGX). Each of these is ideal for me and should be for you. Buy all four.

Turning Over Rocks

So what’s cheap? Which rocks do you turn over first? The U.S. dollar is deservedly in the tank. And while it will fall hard over time versus China’s renminbi, the dollar will jump versus the cyclically overvalued euro. The Middle East oil crowd is whacko to think that currency diversification into the euro makes a lick of sense here. Russian ruble, fixed income, the yen, the Swedish krona, the Singapore dollar—thin, yes. The Swiss franc and gold–always. But not the euro. The cheap U.S. dollar versus the overvalued euro makes it happy hunting season for euro-based companies shopping for distressed merchandise in the land of the U.S. dollar. On my shopping list for the euro crowd and your fine self are cheap and solid small U.S. community banks like the Bank of Florida (NASDAQ: BOFL). U.S. companies with substantial land holdings, such as St. Joe., Alico (NASDAQ: ALCO), and Plum Creek Timber (NYSE: PCL), offer outstanding long-term value for euro folk as well as for you. U.S. gold mining companies are also an attractive group, as are small coal and natural gas stocks covered in my Monster Master List. I like the entire natural resources sector for consolidation, takeovers, and excellent long-term value. My Top 10 Common Stock Countdown turns the laser light on Xstrata (LONDON: XTA.L) and Newmont Mining (NYSE: NEM). Longtime favorites Alcoa (NYSE: AA), Anglo American, BHP Billiton (NYSE: BHP), Cameco (NYSE: CCJ), Harry Winston Diamond Co. (NYSE: HWD), Lonmin (LONDON: LMI.L), Russia’s Norilsk Nickel (OTC: NILSY), Peabody Energy (NYSE: BTU), Rio Tinto (NYSE: RTP), and Teck Cominco (TORONTO: TEK-SVB.TO) are all on my Monster Master List and all familiar to you. U.S. REITS are beginning to look cheap. I’ll keep you up as to timing. I love the rails, and Norfolk Southern (NYSE: NSC) is a timely addition to your list. You just can’t build new rail beds to compete. Timber is always a headliner for me, and I hope it is for you as well. Along with my long-favored Plum Creek, you’ll want Rayonier (NYSE: RYN) and TimberWest Forest Corp. (TORONTO: TWF.UN). Powerhouse brand families like my favored Unilever (NYSE: UL), PepsiCo (NYSE: PEP), General Electric (NYSE: GE), Pepsi Bottling (NYSE: PBG), Procter & Gamble (NYSE: PG), T. Rowe Price Group (NASDAQ: TROW), United Parcel Service (NYSE: UPS), and W.M. Wrigley (NYSE: WWY) are all-weather comfort providers that should act as foundation building blocks in a 32-stock retirement portfolio. You have lots of really great stocks from which to choose.

My long-running blue (as in chips) and gold theme continues to point you on a course to profits. A nice mix of big dividend-paying, blue-chip exporters, as listed in my Monster Master List, and gold, via streetTRACKS Gold Shares, will keep you on course in 2008 and well beyond. Make it a good month.

Warm regards,


Richard C. Young

P.S. Next month, I’ll give you all of my own significant investments in the early going of 2008 along with my winter Harley-Davidson update. And I’ve added high-yielding AT&T, Inc. (NYSE: T) to the Monster Master List this month. I love my Blackberry Curve, which is linked to AT&T’s worldwide network for coverage across 190 countries.

P.P.S. RIP jazz piano legend Oscar Peterson. Go to www.youngresearch.com for links to (1) a super Fact & Comment feature by Steve Forbes that I want you to read; (2) my latest essential music featuring Oscar Peterson; (3) my check list of vital questions to distinguish fish from fowl among the U.S. presidential candidates; (4) a Key West insider update; and (5) the omega 6/omega 3 ratio that could save your life.

P.P.P.S. General Motor’s sales in December were down 4.4%, and its stock has collapsed. GM is now down to $23.95/share from over $40/share as recently as October. Air is coming out of the economic tires fast. More interest rate cuts are coming up.

Richard C. Young’s Intelligence Report® (ISSN 0884-3031) is published monthly by InvestorPlace Media, 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.
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