June 2006 Issue

Vanguard Precious Metals & Mining +37% YTD

How are you doing? Last year, you made over 43% with Vanguard’s Precious Metals & Mining fund. In 2006’s early going,
you are already ahead by another 37%. Look at my gold chart below as one clear guide to why you (along with me) have made so very much money. Gold is
a simple and dynamic story.
You may have read in various media that gold has not been a good investment, but my chart would lead any thinking person to conclude otherwise. It is
true that gold was not a good investment during the two-decade bull market in bonds. But there was no reason to be enthusiastic about gold while bonds
were running and inflation was falling. Over the centuries, however, gold has been a true store of value.

Dynamic Gold Market

Today’s environment is a lot different from the disinflationary environment of the 1980s and 1990s. As such, your view on gold must change. It’s
not just the end of the two-decade-long bull market in bonds and the lows in the inflation cycle that will guide gold’s price in the coming decade.
There’s a whole lot more.

There are many reasons to be positive on gold today. First is the weak sister, the US$. Next is purchasing power parity. PPP uses comparative export
prices country to country as a base guide to currency value. Balance of payment statistics always offer worthwhile intelligence. In the most basic terms,
a country with a current account surplus will have a strong currency unless purchasing power parity relationships are out of whack. A current account
surplus is a plus for a country and its currency.

U.S. Dead Last

How does the U.S. stand? Let’s see, what’s a good single word here? How about a disaster? Disaster is a pretty definitive term. I track
current account data for 45 countries, 17 of which have a current account deficit. In 16th place, with the second-worst current account balance, is Spain
with a deficit of $85 billion. Ranking dead last in 17th place stands the U.S. with a monster current account deficit of $800 billion. Not only is the
U.S. deficit at 6.7%—a horror in dollar terms—it’s mammoth in terms of percent of GDP. The US$ is a ticking time bomb. A collapse in
the dollar would lead to a powerful upside explosion in gold prices and an exports boom that would benefit Monster Master List names like Caterpillar
(NYSE: CAT) and General Electric (NYSE: GE). And remember, even with its great run of four years, gold is dirt cheap on almost any comparative test.

Charts are Your Guide

Check out my Charts #24, #29, #35, and #37. As they say, a picture is worth a thousand words. Hands down, charts are the most important part of
my strategy package for you each month. To my knowledge, there is no comparable chart package available to investors.

So what do my four gold charts tell you? Chart #24 calculates a theoretical price for gold based on total Central Bank currency reserves. Here I ask,
what would the price of gold need to be to back Central Bank currency reserves 100%? Central Bank reserve holdings are calculated in terms of special
drawing rights, or SDRs (an arcane term, to be sure). Today, 1 SDR = 1.46 US$. In order to get 100% gold coverage, gold would need to trade over 3,200
SDRs/oz, which at 1.46 equals over $4,600/oz. Is there any rationale to this hypothetical figure? Well, today the fully covered gold price (reserves)
is over 32 times what it was in the early 1970s and over 10 times what it was at gold’s peak in the early 1980s. This gives you a good idea of
how Central Bank currency reserves (fiat money) have exploded relative to Central Bank holdings of gold. To make matters worse, Central Banks have tended
to be sellers of gold. The way I look at it, the more paper out there, the greater the potential value of gold during times of currency crisis.

Gold Cheap Versus Copper

Chart #35 shows that gold, even after its nifty run, is flat on its back versus copper. The pattern tends to be cyclical. When the cycle turns, there
will be lots of upside running room for gold even if copper prices simply stall out in the years ahead.

Chart #29 shows the real or inflation-adjusted price for gold. Once again, even after a nice run, gold is dirt cheap in real terms.

Chart #37 shows the price of gold in relation to the price of oil. Gold prices are nearly at a four-decade low versus oil prices, which means (1) oil
prices eventually will cycle down hard, and (2) the price of gold will rise.

Anyone think that gold is not cheap? Going back to the balance of payments data, what is amazing to me is how little consideration these numbers get.
My response to anyone who says that gold has not been a good investment is, have you paid any attention to the price over the last five years? And second,
do you have any understanding of balance of payments data? To monitor the deadly buildup in the U.S. current account deficit and not conclude that gold
just might be a good place to be is simply not connecting the dots.

The structurally weak position of the US$ augurs well for gold. Gold is cheap (see my four benchmarks charted for you in my Economic Supplement). What’s
next? The emergence of China and India as full-scale consumer economies coupled with the long overdue economic rebound in Japan. Over the coming decades,
these three countries will generate a tidal wave of demand for gold as each country’s citizens gain wealth.

China’s $850 Trillion Hoard

The Shanghai Daily reports that, in a move to boost sales of gold, the Bank of China, the country’s biggest foreign currency lender, plans
to allow investors to buy and sell gold using US$ accounts. The Chinese have long considered gold a safe haven, as well as a symbol of good fortune.
China’s foreign exchange reserves, now at over $850 billion, have grown by over $240 billion, or 33%, just since year-end 2004. Pay attention
here.

Where to Hide?

And where does China go with its hundreds of billions of dollars? In terms of foreign exchange, the only deep markets are the euro, sterling, and yen.
Each offers options, but I don’t know if relationships between Japan and China would allow for much enthusiasm by the comrades for yen diversification.
Read The Rape of Nanking by Iris Chang to understand why the Chinese just might have an issue or two with Japan going forward. Some real deep
wounds here. The euro is basically the currency of a mature welfare state market—hardly a desirable option. And sterling is, well, British. Wonderful
folk and loads of history, but a growth story it is not.

In the end, not such great options for Chinese currency diversification. Were it not that the market is much too thin for the diversification the Chinese
require (not too thin for you, however), the Swiss franc would be the clear #1 choice. All of which wends its way back to gold. If gold works worldwide
for Central Banks as a reserve asset, there would be no reason for gold not to be an option for diversification for China’s massive pile of foreign
exchange reserves.

Gold Ranks “A”

China’s Central Bank has already announced that it will adjust the mix of its reserves to reflect global market conditions. In order of importance,
the bank will emphasize safety, liquidity, and profitability. Hard to think that gold doesn’t rank an “A” for both safety and liquidity.

One final item in the gold equation is supply. Gold production worldwide peaked at approximately 2,600 metric tons in 2001. Last year’s total
was below 2,500 tons. Even assuming investment capital and environmental approval is forthcoming, it would take a decade or more to open up much new
supply. As gold prices fell in the 1980s and 1990s, mining companies stopped bringing on new production. There is a lot of catch-up investing to do and
much time required.

In What’s Up & What’s Down in the Economic Supplement, I include American Century Global Gold (up 39% YTD), as well as StreetTracks
Gold Shares (up 29% YTD). Build your gold holdings in a 50/50 mix with these two funds. Continue to add to your Vanguard Precious Metals & Mining,
as I am doing. It is closed to new investors, but most of you should have been in long ago.

Vanguard Precious Metals & Mining

Vanguard’s Precious Metals & Mining’s top-four holdings are not even gold stocks: #1, #3 and #4 are the three biggest platinum producers
in the world, including Lonmin PLC (LONDON: LMI.L) (#1), a name on my Monster Master List. The #2 holding is cash, which is terrific. Precious metals
prices are volatile, and there will be opportunities ahead to deploy this cash hoard to advantage. I’m looking for a severe correction in copper
prices, and I’d love to see a pullback in nickel. Both would present significant opportunities for VPMM. Continue to add to your holdings through
thick and thin.

US$ Diversification

When you think about a structurally weak US$ and the potential for gold, you also must focus on alternatives to the dollar. For the individual investor,
opportunities are abundant. For maximum safety, stick with countries running a current account surplus. From a straight currency perspective,
some of my favorite countries for long-term investment unfortunately drop off your short list—Australia and New Zealand (each with a current account
deficit). That leaves the following for currency diversification: Canada, Japan, and Switzerland. For my money, I’d go 50/25/25 Swiss franc/Canadian
dollar/yen. If you are of substantial means, consider, as I’ve mentioned, a foreign banking relationship. My first choice is Switzerland, and you
must travel to Zurich or Geneva to do so. Establishing a banking relationship firsthand is not an e-mail or phone call type of thing. The U.S. is the
most litigious society in the world, and Swiss banks are unreceptive to American lawyers looking to chase Swiss bank clients and their assets.

Switzerland #1

OK then, Switzerland is your clear choice for offshore banking. The cheapest way to protect your assets is a simple Swiss bank account. It would be
an expensive, lengthy, and most difficult process for an American court to have much sway in Switzerland. And a special note here: I’m no fan of
those quasi-popular complex trusts.

Be sure you report your Swiss banking relationship to the IRS. You will have no issues as long as you do not attempt to hide your activities from the
tax man. Remember here, your goal is not to avoid U.S. laws and taxes. Your goal is to erect a formidable barrier against those who would come after
your life savings.

Nary a Rebel in the Fjords

I mention Zurich and Geneva as two ideal stops on your Swiss banking tour. Consulting group Mercer has recently published its worldwide Quality of Living
Survey for all major cities. Zurich comes in #1, Geneva #2, and Berne #9. The Economist‘s Quality of Life Index in terms of countries ranks
Switzerland #2 after Ireland (#1), and just ahead of Norway (#3). Wired recently came up with an index that ranked countries by evaluating their
political systems, resources, and levels of crime, corruption, and civil unrest. About Norway, Wired said, “With oil wealth, barely any
crime and corruption, and nary a rebel in the fjords, Norway can attend to the needs of its citizens like few other countries.” Obviously, Norway
would be a good candidate to join Switzerland, but the weather is just too hostile for all but the heartiest of us.

What banks might you visit in Switzerland? The biggies are Credit Suisse and UBS. You might also wish to visit with Julius Baer, Vontobel, and Banque
Privée Edmond de Rothschild. All are substantial, well-known, and highly respected. A number of smaller Swiss banks also offer an ideal option.
More in the future.

Presidential Cycle First

By now the charts I’ve provided in recent issues should have galvanized for you the dominant part politics plays in the financial markets. The
four-year presidential cycle is the benchmark. As I’ve shown, the year before a presidential election has been an up year in every year since I
graduated from Shaker Heights High in 1959. No exceptions. All but two of the presidential election years have been up as well. The other two years in
the presidential cycle (2005 and 2006 for this cycle) have been a 50/50 mixed bag. Well, next year (2007) is the big year in the cycle. And unless there
is a disturbance not currently on the radar, expect a good stock market in 2007. If you have been investing right along with me, you have had a truly
great year in 2006, as well as in 2005 and, well, just about every year. For many investors, however, the results have been unpleasant. Among the 15
major world stock market indices I watch each month, the U.S. stock market ranks dead last in 2006. Last! I have been strongly emphasizing international
investing for the wide variety of reasons I’ve outlined for you.

Clinton Puts Them to Sleep

With the 2008 presidential election now drawing attention from potential candidates for the office, some interesting commentary has been forthcoming.
Larry Kudlow, writing for National Review Online, had the following to say about waking up to Hillary’s big-government nightmare. Potential
presidential candidate Clinton, for some reason, decided it would be a good idea to address the Chicago Economic Club. As Kudlow described, “The
eyelids grew heavy as she droned on and on. Sleep, it seems, was the best option to suffering through this odd and curious presentation… She called
for big-government investment in infrastructure and heavy spending on health care and education… So what we have here is a strong plea for a government-directed
economy.”

Kemp Gets it Right

In comparison, Forbes recently ran a piece from Jack Kemp, honorary co-chairman of the Free Enterprise Fund. “Liberals and moderate Republicans
love workers but hate the formation of capital that allows businesses to create the jobs that employ workers. Liberals love unionized manufacturing jobs
that raise factory workers into the middle class, but they hate the capital that buys the machines that make those high-value jobs possible. Liberals
decry conspicuous consumption but excoriate anyone with substantial income to save and invest. Liberals lament our low savings rate but seek to redistribute
every available surplus dollar of disposable income in the name of fairness.”

Democrats = Income Redistribution

The raison d’etre of the Democratic Party is income (yours) redistribution, pure and simple. The difference between the industrial welfare
state proposed by the hopelessly out-of-touch Clinton and the course exposed by Jack Kemp, as well as, for example, Steve Forbes, Newt Gingrich, John
Shadeg, and Mike Pence, is gargantuan. Do you know that just the top 25% of American taxpayers already contribute over 83% of the Fed income tax burden?

The upcoming off-year elections, as well as the 2008 presidential election, will give us all a chance to demand change. A complete makeover and overhaul
of the U.S. legal system and system of taxation, along with hardliners on defense and terrorism, is required. Who will represent us in achieving these
mandates? Certainly not the likes of Hillary Clinton. But does the American voter have the backbone to vote to keep the U.S. safe and competitive? If
not, loads of wealthy and informed American conservatives will be looking to countries like Switzerland, Norway, and Canada to avoid the unpleasant realities
of a continuation of current policies. It’s time to send our politicians the message that they need to wake up. America needs change and fast.

Last month, I explained my thesis on Presidents & Hurricanes, as both affect the stock market. My view on presidents is embodied in the four-year
presidential cycle. As to hurricanes, it is far more normal for the stock market to do well out of hurricane season than in. The historical record is
telling. Over the four-year presidential cycle, you make most of your money in the non-hurricane season of the year before a presidential election and
in the presidential election year.

Your Stock Market Goal

How much do you think you should be making from your stock portfolio? One back-of-the-matchbook calculation I like combines the yield on the Dow with
the Dow’s earnings yield (the inverse of the P/E). Today, the Dow yields a scant 2.22%, and the P/E is well above average at 20.54 (inverse = 4.87%);
thus your projected average annual total return for stocks is 7.09% (2.22 + 4.87). If you are anticipating more or are operating on the premise
that you need more, I’d curb your enthusiasm.

What should you expect for a return from a well-diversified portfolio? First, what is a well-diversified portfolio? If you are retired or soon to be,
a 50/50 mix of fixed income and stocks should keep you out of trouble. You want low volatility and satisfactory returns that allow a 4% average annual
portfolio draw—the max I advise. Use the Vanguard GNMA 30-day SEC yield as your conservative proxy for a return on fixed income. Today, the number
is 5.04%. Combine this number with your back-of-the-matchbook 7.09% from stocks and you target, on average, an annual portfolio total return of 6%. You
can draw 4% here and leave something behind to inflation-adjust your portfolio’s purchasing power.

Your Fixed-Income Needs

Let’s turn to some more specific investments ideal for an investor saving for a secure retirement or already in retirement. First, the fixed-income
side. Chart B in my featured charts shows the indisputable value of fixed-income as a counterbalancer to stocks, as indicated by the circled bars. Now
turn to Chart #51. It shows that the balanced Vanguard Wellington fund has been up since the early 1950s in 82% of years, with only two bad years in
the lot. You will note a big percentage of 10%+ years and a number of 20%+ years. That’s a great record for a conservative balanced fund.

50/50 Works

Chart #52 shows what a 50/50 stock/bond mix has done in terms of Wellesley and Dodge & Cox. Since 1975, there has been only one down year and a
mini one at that. If you are a conservative investor investing for retirement or are already retired, you would be well advised to consider the powerful
counterbalancing properties of a 50/50 portfolio.

You Want Blue-Chip Preferreds

I write regularly about blue-chip, investment-grade preferreds. Preferreds are all about a flow of cash to compound in a tax-deferred portfolio or to
spend at your local Whole Foods or Harley shop. Preferreds are not the province of the capital gains seeker. Preferreds trade like long bonds and are
volatile. Pay no attention to volatility in values on your brokerage statement. When rates go up, preferred values fall. It’s that simple. You
just don’t care. You’re on board until your issue is called. Do not be pressured by your broker to spin your preferreds.

Your preferreds will swing up and down in terms of value. What does not change is your flow of cash, which is fixed and has no bearing whatsoever
on changing asset values. In recent years, worthwhile new preferreds have become scarce.

Now I have some welcome news. In April, we were able to get four nice new issues. Add each to your preferreds portfolio with impunity: (1) USB Capital
(AA3/AA+): 6.5% yield; (2) Lincoln National Preferred (Baa1/A-): 6.75 yield; (3) Barclay’s Bank (AA3/A+): 6.625% yield; (4) Public Storage Inc.
(Baa2/BBB+): 7.25% yield. As a group, the four give you an average yield of about 6.75%, which is a great base for compounding in a tax-deferred account
or to provide a steady stream of cash for your shopping trips to Whole Foods.

Love Vanguard GNMA

My own largest fixed-income position (and it should be yours) is Vanguard GNMA. I’ve listed below the annual total return, as well as the capital
appreciation and dividends, for the last 15 years. Over the last three years, capital appreciation has actually been a negative contributor as interest
rates have been rising. When the cycle is complete on the upside (probably within a year), these negative numbers will be replaced by positive numbers.
At the same time, the relatively low dividend yield of the last three years will be replaced by a much higher yield in the 5% to 6% range. The net/net
of this positive one-two reversal is a total return from 2007 onwards that will look a lot better than the modest total returns of the last three years.

Why would I own GNMAs over the last three years when returns have been so modest? I maintain, as should you, a counterbalanced portfolio. I expect that
various sectors of my mix will struggle as other sectors rotate in and take the lead with good results. Due to counterbalancing, I rarely have an unsatisfactory
year with my portfolio. By investing for the long term, I have the luxury of ignoring the weaker performers in my mix, with the exception of adding to
them at proper points in the cycle.

Full-Faith-&-Credit Treasuries

Along with Vanguard GNMA, Short-Term Investment-Grade, and your high-yielding blue-chip preferreds, you want intermediate-term Treasuries and zeros.
I like a mix of maturities from a few months to five years. For best results, spread your maturities around. As your shorter positions mature in the
second half of 2006, replace them with higher-yielding positions. Your Treasuries represent your portfolio’s safest building block. You, of course,
receive no current income with zeros, which are best placed in your IRA.

The End of an Era

More and more funds are closing to new investors. Fidelity has closed its largest and most popular fund, Fidelity Contrafund. The minimum for Vanguard
Wellington and Windsor II has been raised to $10,000 from $3,000. Shareholders are now limited to $25,000 annual purchases per fund. Next up will be
the closing of Wellington and Windsor II. If you are retired or soon to be and do not have a position in Wellington, I would put down this letter and
call Vanguard right now to open your position.

A Closed Club

Investing increasingly is going to become a closed club where latecomers will be out in the cold. I can envision a day before too long where most of
the niche mutual funds I’ve followed and written about for so many years will be closed to new investors. This phenomenon has brutish ramifications
for investors. With most, if not all, of the really great niche fund options closing, it is going to be harder than ever for the individual investor.
It will mean assembling individual stock portfolios, which, due to the capital required for a diversified portfolio (minimum $350,000) and the investment
acuity and research resources required, is well beyond the scope of most individuals. Research requires self-initiative, a lot of training and background,
and a lot of time and money—an impossible task but for a gifted few. All of which means that many investors will be left subject to the financial
predators from the insurance companies hawking savagely loaded and larded investment products. Bring on Dr. Kevorkian.

URGENCY

About your only hope is to see to it that you own every mutual fund on my Monster Master List that appears to fit your needs—NOW! At least then
you will have an oar in the water. My hope is that, among your broad list, you will own a handful of funds that will allow you to continue to add all
the money you want year in and year out.

Last Chance

The only Third Avenue fund still open is Third Avenue Value. Make your call today. Were T. Rowe Price to close New Era, it would be a
disaster. Be sure you add New Era pronto. And
certainly be sure you have your Vanguard Wellington and Wellesley positions opened.

A Real Shocker

The chart below pertains to the Dow Jones 30 industrials. I wanted to answer this question: Which has the most impact on your portfolio, avoiding the
big losers or missing the big winners? Most investors would quickly answer avoiding the big losers. Well as my charts show, this is not the case. Losers
can only go to zero, but winners can multiply exponentially. No investor wants a portfolio name to drop to zero, but in a well-diversified list of 32
stocks, your weak names should be overwhelmed by your winners. You can avoid a portfolio zero by selling a name that falls by more than two standard
deviations. Rarely does any normalized data series experience swings above or below two standard deviations. If a name you own breaks the downside barrier,
there is reasonable risk that things could get a lot worse. Next month, I’ll show you how the math of two S.D.s works.

Meanwhile, look at the top line in my chart. Here we have the performance of the best 27 stocks in the Dow. The bottom thick dotted line omits the three
best names and gives you results of the remaining 27 Dow names, including, of course, the worst three names. In other words, I’ve simply slid the
mix of 30 stocks by three names in each direction. It’s only tinkering, yet look at the results. An investment of $10,000 in the top 27 names grows
to well over $250,000. Using the bottom 27 names, which includes the worst three names, has an end value of only $50,000. Food for thought.

Energy Fast Facts

From Discover: “Using nuclear energy to boil water is akin to firing a cannon at someone’s front door to ring the doorbell.”

Also from Discover: “The thermal conversion process can take material more plentiful and troublesome than straw—slaughterhouse waste,
municipal sewage, old tires, mixed plastics, virtually all the wretched detritus of modern life—and make it something the world needs much more
than gold: high-quality oil.” The first commercial bio-refinery in the world that can make oil from waste is run by Changing World Technologies
and is located 100 yards from ConAgra Foods’ Butterball plant in Carthage, Missouri.

The hydrogen fuel cell will change the entire political/economic structure of the world. Meanwhile, Florida Power is already using over 1,000 huge wind
turbines to generate electricity in the northwest hills of Texas, writes the Monitor Group’s Glenn Kautt in Investment Advisor.

Due to violence, Royal Dutch is pulling hundreds of contractors out of oil-rich Nigeria. An embargo against Iran is a decent prospect. If so, Iran would
most likely attempt to plug the Strait of Hormuz, potentially stranding 20% of global oil supplies. Over the short term, high oil prices will the order
of the day.

Monster Master List Stocks

All the common stock ideas I give you come from Young Research & Publishing’s Retirement Compounders research. Last year, YR&P’s
in-house Retirement Compounders list registered a 9.56% total return (unaudited) versus the Dow’s 1.72%. YTD, the Retirement Compounders are ahead
by 10.6% versus the Dow’s 6.6%. YR&P’s list includes dividend payers only and is internationally diversified and conservative in makeup.

My Top 10 Countdown on the last page of the Economic Supplement gives a worthy short list of names for you from Young Research’s ongoing efforts.
For the second consecutive month, Time Warner (NYSE: TWX) and General Electric (NYSE: GE) are on the list. PepsiCo (NYSE: PEP),
a frequent top-10 name, is again back. Be certain each of these names is on your 16- or 32-stock list.

Time Warner will sell 50% higher within three years and has little in the way of downside risk. Buy it now.

General Electric has reported that its cash flow from operations doubled in the most recent quarter. And the company is buying back billions of dollars
of stock. Plus, you get a 3% yield while you wait. An absolute foundation holding. Buy now.

Microsoft (NASDAQ: MSFT)—Here’s a tale! Wall Street Mavens projected Microsoft would generate $11.04 billion in revenues last quarter
and would earn $0.33/share. So here comes Microsoft with its quarterly report. Revenues came in at $10.9 billion, and Microsoft earned $0.29/share (ex
some legal expenses, the number would have been $0.31/share). And for the fiscal year 2007, the
company now projects revenues of $49.5 billion to $50.5 billion versus a $49.5 billion projection from the Street. And for fiscal 2007, earnings are
projected at $1.36 to $1.41 per share. All in all, a little below what the Street had been looking for. No big deal, right? Well, not exactly. Following
the Microsoft meeting, Street analysts burned rubber getting to the phones to cry sell to portfolio management central. And sell the managers
did, whacking the stock down by 11% in a single day. Well, that’s a $32 billion haircut in one day. Chairman Bill took a $3 billion one-day personal
hit on Microsoft’s worst day in the market in five years. Microsoft told the Street that it was going to boot up spending to fight Google. Sounds
like a smart move to me. Google is troublesome for sure and eating a lot of people’s lunches.

Revenues at MSN were down to $561 million from $581 million, but no shock here. MSN has been a dog from the first yelp. The Street mavens sniffed at
results from Microsoft’s lead horse on the growth front. The division that supplies software for large corporate computers—the server-and-tools
division—reported revenues up 16% at $2.85 billion (almost 6X MSN revenues). And the group’s operating income surged by 30% to $1.07 billion—a
gangbusters quarter. It was the 15th consecutive quarter of double-digit growth. We have a company here generating a torrent of free cash, a company
with over $34 billion in cash and equivalents on hand, and a company with zero debt. And we have Steve and Bill, two better-than-average guys, to run
our deal. The stock, with a stake driven into its heart, now trades at a cyclical P/E of 17. I can see why a fund manager might want to get Microsoft
off the books if he had acquired a position at the all-time high of $59 or in the $40s or maybe in the $30s, but in the $20s? Sounds like the standard
buy high, sell low practice by so many quarter-to-quarter earnings followers on Wall Street. These folk are paid a fortune to crank out earnings forecasts.
Their record is so consistently abysmal that at my family’s investment management company, we do not allow contact with any Wall Street research
analyst. Nor do we receive or read any outside research. And as you know, we do not make quarterly or annual EPS forecasts. Nor do we care about the
reported numbers with the exception of a case like this where we can buy a decent stock for a fair price after it has been clobbered by a negative miscue
by the Wall Street earnings mavens. You’ll find Microsoft #1 on this month’s Top 10 Countdown.

PepsiCo is increasing revenues across all divisions. Non-carbonated beverage growth is at a rate of 18%. Superior management allows this salty snack
dynamo to plow forward through thick and thin. A must-own. Buy now.

Coca-Cola (NYSE: KO) has eliminated pay for its directors (a sad crowd) unless the company hits financial targets. Hooray. Buy Coke now and pray
someone can slap this crowd awake.

Caterpillar (NYSE: CAT) is up nearly 30% a year over the last 60 months. Massive worldwide demand for commodities and the potential for a US$
collapse means more huge yellow Cat machines. Buy now.

#1 with George Bush

Thanks largely to the Bush tax cuts, the U.S. economy roared ahead by a phenomenal 4.8% last quarter. Business investment jumped by over 14%. And new
house sales surged by nearly 14% in March, from February. We now project that the U.S. economy led by George Bush will rank #1 in 2006 among the 15 major
industrial countries we track. And we project that only Australia will come in ahead of the U.S. in 2007. Am I out of touch or would you guess this from
taking your lead from network TV, The New York Times, the Hollywood crowd, or Rolling Stone? When will voters wake up? Turn off the TV
and toss out the left-wing periodicals. Simply look at the handful of key benchmarks that matter each month. I think that we can all agree GDP growth
ranks top of the list as a measure of whether our president is or is not getting the job done on the U.S. economy. No president could possibly have done
better in terms of economic growth.

Make your calls, and, as always, make it a good month.

Warm regards,

Richard C. Young

P.S. Canada has more lakes than the rest of the world combined and a new conservative government.
It is the Saudi Arabia of tar sands and is loaded with raw materials. (1) Canadian General Investments (+31% yield) and (2) Fidelity Canada fund
(+13% YTD) are your one-two punch. It’s surprising how much shelf space in the eye-care aisle at CVS Alcon Inc. (NYSE: ACL) takes up. It’s
a relatively unknown Swiss company that I am looking to add to my M.M.L. The new iShares Silver Trust ETF has started trading at $130/share. I’ll
be adding this also to my M.M.L.

P.P.S. A University of Delaware professor believes that within the next five or 10 years, bundled carbon nanotubes (tiny bombs) could reduce cancer
treatments to a single outpatient procedure, an aspirin, and a nap, writes Erin Biba in Wired. Also on the cancer front, Beckman Coulter has apparently
developed a desk-size machine that looks to be useful in more accurately diagnosing potentially cancerous prostate tumors.

P.P.P.S. In line with my Big Idea and the impending retirement wave of 76 million Americans in 2008, BusinessWeek has started a new Executive
Life section. The first feature on collecting was “Rock ‘n’ Roll Is Here to Stay.” Internet auction sites like rrauction.com are
red-hot. Go to www.youngresearch.com for my complete Rock & Roll and Jazz essential music listings, including my top 100 R&B ’50s
and ’60s jukebox list. Also, you’ll find my latest on Mayor Ray, New Orleans Jazz Fest, and Keith Richards. Next month, I’ll
update you on my highly favored high-yield oil trusts and clarify the tax situation for you.

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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