Grow Your Portfolio the Intelligent Way

September 2005 Issue

By Richard C. Young

1948…

My family and I had moved to Cleveland Heights, Ohio. Bill Veeck’s Cleveland Indians with Lou Boudreau as player/manager, Dale Mitchell, Jim Hegan,
Bob Feller, Gene Bearden, and Satchell Paige had made it to the World Series against the Boston Braves of “Spahn and Sain and pray for rain”
fame. The “real” Ballantine ale was still America’s largest selling ale. And in 1948, the greatest jazz vocal group in history, the Four Freshmen
(Ross and Don Barbour, Bob Flanigan, and Hal Kratzsch), hit the road for the first time.

Four Freshmen Still Tops

Today, the Four Freshmen are still on the road, albeit with four new members. Since 1948, there have been 23 members of the Four Freshmen, with the
Barbour brothers, Flanigan, and Ken Albers the group most Freshmen mavens would point to as the core four. At www.FourFreshmen.com you can catch
up with this great group and even become a member, as I am, of the Four Freshmen Society. They put out a great quarterly newsletter and keep you up with
the Freshmen on the road.

Today’s Four Freshmen appear to be as strong a group as has ever carried the name. The group has remained a power for all these many decades, even though
it has undergone many transitions, primarily because the core musical beliefs–the Four Freshmen sound–have remained the same. The Four Freshmen were
the first jazz vocal group that emphasized harmony and overtones. And the group’s four-part harmony would in the early 1960s be the key to Brian Wilson
and the Beach Boys sound.

Third Avenue Funds #1

Whether harmony and overtones as in the case of the Four Freshmen or sound financial strength and a reasonable price as is the case with Third Avenue
funds, core beliefs hold up well over time. Along with the quality of the portfolios, another important reason to own Third Avenue funds is the insightful
quarterly letters from the group’s fund managers. Your investment acuity will jump sharply as you educate yourself to the principles of value investing.
I am not aware of another set of mutual fund industry reports of similar value. None has the compelling power of Third Avenue Fund letters.

I hope you did not miss the boat with the closing (at least temporary) of Third Avenue International Value (my #1 mutual fund choice worldwide)
and Third Avenue Real Estate Value (my #2 selection). Obviously the closing of my #1 and #2 favored funds puts a crimp in my game plan since my
followers can no longer open new accounts. I’m taking the attitude that most of you beat inertia and opened accounts for all family members. In
that case, you will all be able to continue to build your positions. And my advice is to do just that. These are the first two funds I want you to add
to in coming quarters. For those of you who sadly have missed the boat, it is possible that these two funds will reopen.

Take Action Now

Clearly you do not want the door slammed in your face by Third Avenue Value and Third Avenue Small-Cap Value (likely). As such, you want to open today
accounts for each member of your family (certainly to include grandchildren) in both of these funds. I want you to take action on at least one suggestion
in my letters each month. Maybe you’ll just log on to my websites at Younginvesting.com or Youngresearch.com to see what is new. Or maybe
you may simply renew your subscription or tell a friend about these valuable monthly reports. And, of course, you always want to consider a new name
or an old friend for your portfolio. I implore you to pick up the phone as soon as you finish your complete perusal of my letter and insightful inserts
and square yourself and your family away with Third Avenue funds. You will thank me for the rest of your life, as will your kids and grandkids. You will
own a priceless grouping of carefully handcrafted investment jewels–the type of jewels that the mutual fund industry at large does not have the ability
to bring to you.

So the Four Freshmen and Third Avenue bring to the fortunate timeless principles that never go out of style and deliver a level of pleasure and comfort
virtually unmatched by alternatives.

Your Economic Supplement

And just as there are no practical alternatives to the group harmony sounds of the Four Freshmen and the balance sheet analytical skills of the Third
Avenue team, there is no worthy alternative for you to my monthly Economic Supplement global chart pack. My 56-chart panorama allows you to broaden your
perspective on the global economic, monetary and investment landscape. Your knowledge base, your level of skill, your consistency of thought, and your
level of comfort as an investor are vital to me. It is my absolute mission to make you a winner. My goal is to help you become the best investor you
can possibly be. With knowledge comes consistency and a highly developed approach to investing that cannot help but place you and your family many steps
beyond your immediate circle of friends and associates.

Here’s what I mean. Each month I give you four brand-new featured charts, each telling a story that I consider vital. These charts come together framing
an ever-changing kaleidoscope from the global investment landscape.

16 New Charts

I summarize the four featured charts and the month’s key perspectives in the Big Picture. Inside your 8-page complimentary Economic Supplement I now
give you 52 additional incisive, story-telling graphic displays, most with meaning spelled out for you. I would keep all your Economic Supplements in
a binder with my monthly letters in a separate binder. Remembering what I said earlier about continuity and comfort, it is important that you have these
binders and maintain all your reports. You will build a bible of economic, monetary and investment intelligence completely irreplaceable by any book
or even group of books.

Compare my monthly Economic Supplement/ chart pack with any other relevant materials you receive monthly and ask yourself where do you get better concise,
consistent direction and understanding of those basic principles that must be part of your business and investment thinking.

Now I want to focus on a select handful of events that you probably have given some thought to in recent days. Each will powerfully affect business
owners and investors.

Judge Roberts

With swing-voter Sandra Day O’Connor retiring from the Supreme Court, the court should move a step to the right. That, of course, is if D.C. Circuit
Court John G. Roberts, Jr. is confirmed, as is expected. I’ll much miss Justice O’Connor. She was a thorn in the side of the tort crowd. Justice O’Connor
labored diligently to bring punitive damage awards under constitutional due-process scrutiny. The WSJ outlined that Justice O’Connor has expressed
concern at the way demands for punitive damages can be “limited only by the ability of lawyers to string zeros together” and jury awards that
are “inexplicable on any basis but caprice or passion.”

And Justice O’Connor has gone after the slop of contingency fees. Walter Olson as above comments in the WSJ that “In a July 2001 talk before
Minnesota women lawyers she said the pocketing of ‘astronomical fees in injury cases’ even where liability is virtually assured should raise ethical
concerns.”

Slashing Punitive Damages

The WSJ reports that, in a 2003 State Farm Mutual case, Justice O’Connor joined a 6–3 majority in striking as excessive a $145 million punitive
award against the insurance company when the plaintiff was awarded just $1 million in compensatory damages. That ruling went further to suggest a one-to-one
ratio in punitive compensatory damages seemed more appropriate in most cases.

I would note with great concern that two of my favorite justices, Scalia and Thomas, dissented, viewing the court as having had no authority to limit
jury awards. President Bush is a strong supporter of both Justices Scalia and Thomas, as am I, and the president is theoretically strong on tort reform.
None of us really has any idea how any particular judicial nominee will work out, and the label conservative or liberal can often lead
an observer astray.

Conservative Justices

Jeffrey Rosen, in an excellent column in The New York Times, explains how at least five different types of judicial conservatives are represented
on the Supreme Court:

(1) Libertarian/Constitution-in-Exile Conservative. Clarence Thomas is the man here and this means a pro-individual anti-government stance that can
fly in the face of a strict reading of the constitution. Mr. Rosen mentions the name Janice Rogers as a favorite of judicial libertarians.

(2) Originalist Conservatives. Antonin Scalia, the leader here, champions the case that "the text of the constitution should be strictly interpreted
as it was originally understood by its framers and ratifiers." Most experts believe that Judge Michael McConnell would line up here with Justice
Scalia.

(3) Traditional Conservatives. T.C.s are reluctant to overturn judicial precedent.

(4) Pragmatic Conservatives. P.C.s hone in on empirical evidence rather than taking a doctrinaire approach to originalism. Each case is taken on its
own merit. I think Justice O’Connor and Chief Justice Rehnquist fit here. And Mr. Rosen includes Justice Stephen Breyer and also puts Attorney General
Alberto Gonzales in this camp.

(5) Deferential Conservatives. Here we are looking at justices who would rarely strike down laws by state legislatures. No single person comes to mind
today in this group.

It may be accurate to look at Judge Roberts as a pragmatist rather than an ideological type of justice. Judge Roberts has represented big business and
would bring a dimension to the Supreme Court now lacking. As Bill Kristol, editor of The Weekly Standard, has pointed out, Republicans now have
a chance to implement a judicial revolution that will match their economic and foreign policy achievements.

Florida’s "Castle Doctrine"

I write these strategy reports to business owners and conservative retired and soon-to-be-retired investors. As such, a Supreme Court featuring justices
who would take a hard line on the class-action circus that is destabilizing our business sector would be tops on my list, as would strong support for
the Second Amendment. For my money, the right to self-defense is the oldest of all civil rights. With a 39-to-0 vote in the Florida senate and a 94-to-20
vote in the Florida house behind him, Governor Jeb Bush recently signed the "Castle Doctrine" law. The signing establishes into law the presumption
that a criminal who forcibly enters or intrudes into your home or occupied vehicle is there to cause death or great bodily harm, therefore a person may
use any manner of force, including deadly force, against that person. The Castle Doctrine removes the "duty to retreat." You no longer have
to turn your back on a criminal.

Finally, the "Castle Doctrine" provides that persons using force authorized by law shall not be prosecuted for using such force. It also prohibits
criminals and their families from suing victims for injuring or killing criminals who have attacked them.

NRA President Sandra S. Froman writes in America’s 1st Freedom, "We must ensure that they (senators) vote for new justices who will uphold the
Second Amendment indeed our entire Constitution and Bill of Rights. We need justices on the Supreme Court like Justices Antonin Scalia and Clarence Thomas."

It would appear with the nomination of Justice Roberts, President Bush is on the right track to redesign the Supreme Court in a fashion that entrepreneurial
business owners and conservative investors will find to their liking.

Jeb Bush Tight with Latinos

And looking ahead to the 2008 presidential election, Florida Governor Jeb Bush now has taken a strong stance in support of Second Amendment rights and
conservative thought. And I wonder how many conservatives know that Jeb met his wife Columba while teaching English in Mexico in 1971. Columba was born
in Leon, Mexico. J.B. has a degree in Latin studies from the University of Texas and is fluent in Spanish. And Jeb is well known as a builder of the
Cuban Republican party in South Florida. Governor Bush enjoys strong support throughout the Florida Cuban community.

Offer a Gift

In the trips I’ve made to Hong Kong, I’ve learned a lot about Chinese protocol and their mindset. First, Chinese are big speculators. They love the
action. Second, when traveling to Hong Kong and China, be certain to have your name card in English and Chinese. And be gracious and thoughtful in offering
gifts to your hosts.

In recent fine WSJ editorial, Columbia Business School Dean R. Glenn Hubbard views,
I think correctly, the recent mini revaluation of the Chinese yuan as a form of ceremonial gift from the Chinese. The revaluation was baked into the
cake and, while modest in statue, has wide-ranging ramifications, the least of which is any cure for the jumbo U.S. trade deficit. The trade deficit
can be resolved in one of three ways or perhaps a combo of the three. The options are (1) a dramatic decline in U.S. consumption probably requiring
a kick ass recession. This is the most likely first order, (2) a blastoff in U.S. exports. It’s unclear to me where the fire is to come from for an
export boom. (3) a good old collapse in the U.S. dollar. Regardless of the final outcome, a much cheaper U.S. dollar versus Asian (not euro) currencies
is on the way.

China Revalues Currency

For many years in my Young’s World Money Forecast strategy reports, I analyzed currencies under the framework of purchasing power parity (ppp).
I calculated export price differentials over long periods as the basis for comparative value. I still like purchasing power parity as a starting point.
And I’m enthusiastic about a neat approach about which I’ve written to you in the past. Here I’m looking at the Economist’s Big Mac index, which notes
that the currencies of China, Hong Kong, Malaysia, Philippines, and Thailand are all about 50% undervalued versus the U.S. dollar. Singapore’s currency
is less undervalued at about a 30% discount. Interestingly how the group centers around a 50% discount. And I look for the discount to narrow sharply
in coming years. For now, Hong Kong is holding its fixed rate with the U.S. dollar.

The Butterfly Effect

I look at the mini yuan revaluation as a securely locked window against potential mischief now being unlocked. No end of mischief is now possible with
that one little unlocking. I’ve written over the years about Chaos Theory, a subject on which I have read extensively. Of the scads of neat books on
Chaos Theory on my shelf, I would send you first to Chaos–Making a New Science by James Gleick (author of the Life
& Science of Richard Feynman). In his prologue, Gleick tells us, "When the explorers of chaos began to think back on the genealogy of their
new science, they found many intellectual trails from the past. But one stood out clearly. For the young physicists and mathematicians leading the revolution,
a starting point was the butterfly effect."

Richard Feynman (groundbreaking research for the atom bomb, a Nobel prize for this theory of quantum electrodynamics, and his shocking expose regarding
the Challenger space shuttle disaster) once said physicists like to think that all you have to do is say, these are the conditions, now what happens
next?

Errors & Uncertainty

Gleick writes, "By the seventies and eighties, economic forecasting by computer bore a real resemblance to global weather forecasting. The models
would churn through complicated, somewhat arbitrary webs of equations, meant to turn measurements of initial conditions (i.e., a yuan revaluation) atmospheric
pressure or money supply–into a simulation of future trends. The programmers hoped the results were not too distorted by the many unavoidable simplifying
assumptions. If a model did anything too obviously bizarre–flooded the Sahara or tripled interest rates–the programmer would revise the equations to
bring output back in line with expectations. In practice, econometric models proved dismally blind to what the future would bring, but many people who
should have known better acted as though they believed in the results…. Computer modeling had indeed succeeded in changing the weather business from
art to science…but beyond two or three days the world’s best forecasts were speculative and beyond six or seven they were worthless…the butterfly effect
was the reason. For small pieces of weather–and to a global forecaster, small can mean thunderstorms and blizzards–any prediction deteriorates rapidly.
Errors and uncertainties multiply, cascading upward through a chain of turbulent features, from dust devils and squalls up to continent size eddies that
only satellites can see."

Gleick offers perspective that helps clarify a number of issues for us. (1) "A butterfly stirring the air today in Peking (now Beijing) can transform
storm systems next month in New York." Think of China’s mini yuan revaluation as the butterfly flapping its wings, and contemplate the future with
considerable reservation. (2) Ponder the head faking of today’s complex hedge funds, and ask yourself how the butterfly effect may be the logic behind
the explosion of multitudes of these highly leveraged time bombs.

Thicket of Thorny Issues

OK, so the currency window has been pried open, releasing the butterfly effect. The comrades are waist deep in a thicket of thorny issues: an insolvent
banking system larded with foul nonperforming loans; Stone Age mortgage, insurance, and consumer finance infrastructure; inefficient over-invested infrastructure;
government corruption from top to bottom; shortsighted saber-rattling regarding Taiwan; and the torrent of domestic protests in China combine for a sticky
stew.

Indonesia Population–214 Million

What is certain is that we are looking at the dawn of a new era in the Far East theater. A tidal wave of consumer-driven demand lies ahead. I’ve assembled
some info to give you a little perspective on the landscape. China has a population of 1.3 billion and a population density of 348 persons/sq mile. In
terms of religion, nearly 60% of Chinese refer to themselves as non religious, and the literacy rate in China is 84%. Indonesia is a country of 214 million
(shocking, isn’t it?), population density at 289/ppsm is less dense than in China, but not terribly different. Indonesians are largely Muslim, and the
literacy rate is a little ahead of China at 87%. The Philippines have a pop of 77 million and at 666/ppsm are a cozy group. The country is 83% Roman
Catholic, and the literacy rate is high at 95%. Thailand is a country of 64 million folk and has a pop density of 322/ppsm, equal to China’s. Thais are
Buddhists. And the literacy rate is high at 96%. Malaysia has 23 million residents and a pop density of only 178/ppsm. Over half of Malaysians call themselves
Muslims, and the literacy rate is 88%. For comparison, India is a country of one billion and is squeezed with a pop density of 790/ppsm. Indians are
Hindus. The literacy rate is shockingly low at only 57%.

As you can see, we’re looking at a mammoth market in terms of pop and potential consumer demand. We’re looking at countries of widely different religious
faiths and literacy rates, all of which is going to make for an interesting commercial landscape loaded with opportunity for skillful geopolitical navigators.

My Picks & Shovels Strategy

In terms of China itself, I’m employing my Picks &
Shovels strategy to investments by investing outside of China. Internal discord is not a climate in which I feel comfortable with direct investments.
What do I mean by internal discord? Here is some intelligence from Beijing based political economist Laurence Brahm, a well-traveled expert on most
things Chinese.

China’s Discord

L.B. tells us in a recent column for the South China Morning Post titled, "The Return to the Bad Old Days," "The bad old days
are back in full force…. The roots of the problem lie partly in the central government’s decision to decentralize some powers to villages–including the
right to hold direct local elections. Village votes can be bought or leveraged with promises or threats. Once ‘elected,’ corrupt officials appoint relatives
and thugs to key positions…. Thus, the party can no longer exert disciplinary authority at the village level. So democracy plus cheap capital in China’s
villages spells mafiaism with Chinese characteristics. This leaves the party in much the same position where it found the Kuomintang, over half a century
ago–locked into cities without the administrative ability to enforce law beyond narrow urban centers. From bitter experience, the party knows just how
unstable this situation can become."

China to Buy MG Rover

Get what I mean by potential disorder? Are you aware that the Chinese are buying the revered British car maker MG Rover? Yup, Nanjing Automotive Group
is to buy MG Rover Group. Quite a shock, isn’t it? And did you know that China has made a deal with the Russians to collaborate on training and coaching
to ensure that the U.S. does not win the 2008 Beijing medals count?

Backing Our Olympians

At Young Research, we will once again be supporting the efforts of a U.S. Olympian. And we are leading a movement to encourage all American entrepreneurs
to each get behind one of our athletes in support. I draw your attention to the Sports Illustrated 4 July 2005 for added info on what the comrades
are cooking up for 2008.

New Asia Fund a Must

My specific Far East investment strategy has been to invest in T. Rowe Price New Asia Fund and Third Avenue International Value (now closed). New Asia
holds a significant position in India, a country in many ways positioned a whole lot better than is China. For one thing, the U.S. appears to be championing
India as a global power. This is not the case with China. And with the recent curious Chinese yak about Taiwan and talk of using nuclear power against
the U.S., it’s not hard to see why. India has developed transparent and mature capital markets. China, well…. India benefits greatly with its advantage
of a British old-school education system. China is not close to being on the same page. Japan is voting with its pocketbook, spending freely on aid to
India while drawing back in China.

India Geared to Compete

Short and intermediate term, it’s easy to see China continuing to impact the world market place strongly at the bottom end of the food chain with simple
mass-produced stuff (i.e., the fodder for Wal-Mart shelves). India, on the other hand, is geared to compete much higher up the ladder, including key
financial and accounting functions. China has a lot of engineers (160,000 according to a Fortune report), but India is right there with 130,000.
Both are far behind the U.S. at 540,000 (surprising, isn’t it, given all the bad press on our competitive position). And the real edge for India is its
English-speaking populace and democratic government.

I like the expertise at the T. Rowe Price New Asia Fund. And I’ve owned the fund myself for a long, long time. You get a big position in India, as well
as nice representation in Hong Kong, Singapore, Malaysia, South Korea, and Taiwan. The fund does not invest in Japan and holds only a token (6% position)
in China. The fund’s position in Taiwan (11%) is nearly twice as large. YTD, New Asia Fund is up by nearly 14%, and over the last three years you’ve
averaged over 21%/year on your Pacific Rim investment. The fund with $1+ billion in assets is not yet big enough to be threatened by closure, but in
that it seems to have oddly fallen into the cracks, some unwanted (by me) national recognition could really send the money flowing in. When you are finished
with this month’s compelling issue of my report, I’d give Vanguard or Fidelity a call and get New Asia accounts opened for all family members. I don’t
see any direct competition for New Asia. Load up!

Vanguard Precious Metals & Mining

Last on the mutual fund list this month is another strong push for the Vanguard Precious Metals & Mining Fund. I could easily see this fund closing
again. What a shining star it has been to any but the blind. Just this year, you have made over 13% on your money. And over the last full three years,
you have now averaged close to 30% per year. And I own this fund strictly as a counterbalancer, not as a lead horse. I’ve read some less-than-rigorous
accounts refer to the fund as gold based. This is not the case.

The top-10 names total about 50% of the fund. Three of the top four names are platinum companies. #3 is Rio Tinto (NYSE: RTP), #6 is BHP Billiton (NYSE:
BHP). Two names are coal stocks, and one is a diamond play. And gold? Two gold names make the top-10, with one barely creeping in at #10. And Vanguard
Precious Metals & Mining is a gold-based fund? Right. I know there is a $10,000 minimum, but the minimum has correctly been placed by Vanguard to
keep out the bait fish and uneducated. In that you are not bait or uneducated, you’re good to go so add Vanguard Precious Metals
& Mining before you can’t.

Nuclear

Is nuclear a good alternative to oil, gas, and coal? Today, 440 nuclear plants generate only 15% of the world’s electric power. France leads the way,
with a near 80% contribution from nuclear. China now has 30 new nuclear reactors on the drawing boards at a projected cost of over $50 billion. If all
are in place by 2030, China might be able to satisfy 5% of its electricity needs from nuclear. Big deal! Nuclear is cheap, no doubt about it. It’s a
little cheaper than coal and 30% the cost of gas in KW terms. The U.S. gets about 20% of its electricity from nuclear. No nuclear plant has been built
in the U.S. since 1979. We still do not have an agreement on how to deal with our 50,000 tons of radioactive waste. Michael Mariotte, exec director of
Nuclear Info & Resource Service, notes in a USA Today editorial, "If we started today, that would be one every two months for the next
50 years at a cost of hundreds of billions of dollars increased risk of meltdown and the need for several new Yucca Mountain-size radioactive waste sites." M.M.
was responding to the view that to make even a modest difference in greenhouse gas emissions the U.S. would need to construct 300 new reactors. And at
that perhaps a 20% reduction in emissions would be achieved. M.M. notes that nuclear is "already the most heavily subsidized energy industry in
the last 50 years." And The Economist outlines the views a MIT/Royal Institute of International Affairs study concluding that "New
plants (nuclear) built by the private sector with investors bearing the full brunt of risks, are not economic without subsidy." Fortune notes
that three utilities have applied for permits, but that it will be 2015 before any impact is felt.

Those enthusiasts looking for nuclear to make much more than a ripple over the next decade are much too optimistic. I’m far more interested in the high-technology
recovery prospects in the oil industry. Silicon Graphics now builds some pretty neat supercomputers for oil-field simulations. Fossil fuels will be front
and center for as far as the eye can see. I like T. Rowe Price New Era Fund as one of your core ways to diversify with energy. And I am a sizable
holder for my own account. If you do not own any New Era, I would add this long-standing friend of mine to your portfolio now. You’re up 17% YTD and
you have averaged over 29%/year over the last three complete years with this one of my most strongly and consistently advised funds.

My Big Idea & 2008

2008 is the year 76 million Americans will start retiring in earnest. The first babyboomers born in 1946 will hit 62 years in 2008 and have their first
shot at Social Security checks. By 2008, I expect real broadband to be in place in the U.S. making even the remotest villages attractive for not only
retirement but for running a business. And by 2008, very light jets (VLJs) will proliferate, changing the way affluent Americans fly and enabling takeoffs
from thousands of airports too small to accommodate commercial travel. 2008 is also the year for the Beijing China-hosted Olympics and will act as China’s
coming-out party and its virtual window to the world. And finally, 2008 is the year for the next U.S. presidential election.

On our recent Harley trip, I opened the Rutland Daily Herald (VT) to read two most interesting articles relating to my Big Idea. The Bennington
County Regional Commission had requested a study to extend the local airport’s 3,704-foot runway to 4,000 feet and perhaps even 5,000 feet. The new VLJs
could land at Bennington with ease. The same issue of the Herald profiled a woman who had started up a call-center business. Technology advances
have cut the cost by 50% in just a couple of years. I look for states with no state income tax or estate tax, like Florida, to be the prime beneficiaries
of my Big Idea. As I wrote last month, wherever possible in Florida stick with Young’s XDH code which calls for a X zone (non-flood zone) designation,
a Dade County building code mandate, and an historic neighborhood designation.

Common Stocks

This month I’ve added Placer Dome (NYSE: PDG), a takeover candidate, and Sturm Ruger (NYSE: RGR) (an old friend) that will benefit from the recent Senate
vote to shield gun makers from negligence lawsuits. I’ve also added Whole Foods (NASDAQ: WFMI) and Costco (NASDAQ: COST). I’d need to be drugged to go
into a Wal-Mart, but I’d go out of my way to hit a Costco or Whole Foods. I’ve eliminated N.Y. Community Bancorp (NYSE: NYB) from the Monster Master
List due to my dissatisfaction with management’s reluctance to quit trying to forecast interest rates. I’m not a fan of leveraging the balance sheet
with interest rate bets. The bank’s great lending strategy with concentration on rent-stabilized properties has been overshadowed by questionable interest
rate bets. It’s time to move on. Sell.

Placer Dome (NYSE PDG). My favored Teck Cominco (TORONTO: TEK-SVB.TO ) has filed a U.S. $1 billion prospectus. It would not surprise me
if Teck went after mismanaged Placer Dome. If not Teck, there will be other suitors. Buy Placer Dome as a takeover candidate.

Yankee Candle‘s (NYSE: YCC) quarterly earnings report came in about as expected and the stock fell 9%. Along with earnings the board announced
a $150 million share repurchase program. I look for 10% sales growth and 12% to 15% earnings growth this year. Stay with Yankee.

Harley-Davidson (NYSE: HDI) is now up nearly 9 points on my recent buy advice. I’ve been pointing to a summer announcement and Harley did not
disappoint me. At the recent Denver dealers meeting an awesome new group of Harleys was unveiled. I’ve had an early firsthand look at the lineup and
Harley has hit a homerun. We’re talking brand-new 6-speed transmissions, gigantic 200-mm rear tires on some models, a completely re-engineered Dyna family
lineup. Wait till high-end market buyers get a look at the blue/silver yellow (with neat hand-painted red pinstripe) Screaming Eagle Fat Boy. The bike
comes stock with Harley’s high performance 103-cubic-inch Screaming Eagle engine, a monster 200-mm rear tire, and a blinding array of neat chrome extras.
Simply core out the nice looking stock mufflers and you’re on the road, albeit perhaps $35,000 poorer. These great bikes will command a premium. Much
more next month, including info on Harley’s blistering new 9-second quarter-mile dragster. There’s lots to tell. Stay with your recently acquired Harley
position. You’re looking good.

Polaris Industries (NYSE: PII) is off 23% from its 52-week high. You have a great chance to add or buy the stock in the face of the company’s
announcement of a 24% stake in Austria’s KTM Power Sports AG. You may not be familiar with KTM, but these are really neat off-road bikes. One of my Harley
dealer friends races KTMs exclusively. Buy Polaris Industries here at $56/share. Much more next month.

Perspective

My new Perspective box shows you the gains in commodity prices in 2005, the current level of mortgage rates, and my projected 6% annual return going
forward for a conservative portfolio invested 50/50 DOW 30 stocks and 10-year T-Notes. If double-digit portfolio gains are on your personal radar screen,
I’d advise caution.

Best Bet Vanguard GNMA

I have not gotten into fixed-income this issue but my #1 pick for you is easily Vanguard GNMA a with a 30-day SEC yield of 4.5% and a short duration
of 2.2 years. On the equity mutual fund front, I’ve given you a short list of funds to buy now before you get closed out. On the common stock front,
go to my top-10 countdown. You can buy any of the 10 names. Aggressive investors will hit Placer Dome, Sturm Ruger, Polaris Industries, and Century Bancorp.
Conservatives will gravitate first toward Plum Creek, Rayonier, Am States Water, and ConAgra. Finally, download from the WSJ an editorial by my
favorite to become the next Fed Chairman, Ben S. Bernanke,
"The Goldilocks Economy." BSB concludes, reduce the government deficit, keep taxes low, curb frivolous lawsuits, and ease burdensome regulations.
Anything not to like from this list? Make it a good month.

Warm regards,

Richard Young signature

Richard C. Young

P.S. A big hand for Texas Judge Janis Graham Jack whose 249-page decision on Silicosis claims fraud has brought out a N.Y. federal grand jury to investigate
the latest tort scam Silicosis.

P.P.S. Go to Young Research.com for my latest musical additions. Mosaic’s 9-CD boxed set "The Complete Capital Four Freshmen Fifties Sessions" is
a limited-edition 3500-set ($144) (I own #416). It is the definitive work on the group (203-327-7111 or MosaicRecords.com). Easier on your pocketbook
would be two great Capitol Records single CD compilations The Four Freshmen Collectors Series and Spotlight on the Four Freshmen.

P.P.P.S. Next month, you’ll get my big, end-of-summer "Mostly Stocks" issue where I’ll cram in as much intelligence as I can on as many names
on my Monster Master List as possible. Plus intelligence on how we can easily and cheaply dissipate hurricanes harmlessly thus protecting the southern
U.S.; intelligence on the neatest article I’ve ever read in the WSJ (a fabulous Internet success story); and intelligence on a brand-new fuel-cell-powered
motorbike that is completely silent, emits no exhaust fumes and can do zero to 30 in five seconds.

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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