Grow Your Portfolio the Intelligent Way

September 2006 Issue

By Richard C. Young

Smart Dust …

With the termination of Abu Musab al-Zarqawi, the al Qaeda-Iraq (AQI) Baghdad infrastructure has been severely compromised. AQI’s leadership,
down to its lowest levels, has been ripped apart. Up to 90% of the car bombers that raise havoc in Baghdad are non-Iraqis who must be brought in from
the outside. With AQI’s planning and organizational systems in shambles, it will be harder to coordinate these attacks.

The U.S. media have told you about the 17 or so planned post-Zarqawi raids, but have not reported much about the perhaps 450 additional raids that followed
Zarqawi’s death. These raids were executed based on intelligence from Zarqawi’s safe house. So not only has the chaos delivered to the AQI
been far greater than generally portrayed in the U.S. media, but a lot of ancillary benefits have accrued to U.S. forces and the Iraqi people. I think
conditions have improved for the coalition forces, but don’t look for wide recognition of the solid improvement until the end of the summer.

Thanks to King Abdullah II

Among the ancillary benefits: (1) A stronger relationship with King Abdullah II of Jordan. Intelligence provided by Jordan resulted in the killing of
Zarqawi. (2) Zarqawi came from Zarqa, Jordan, and had actively sought the demise of King Abdullah. Jordan’s push to take out Zarqawi resulted in
the capture of dozens of al Qaeda agents. Zarqawi had a fanatical hatred of Shiites. Traditionally, Iraq’s Sunnis (unlike most Arab Sunnis outside
Iraq) have not held such strong anti-Shiite views. It is hoped that Zarqawi’s death will help move Iraq’s Sunnis and Shiites back toward
some common ground.

Task Force 145

Anecdotal evidence indicates that Zarqawi was eliminated through the ongoing efforts of Task Force 145, an eclectic amalgamation of coalition forces,
including spec ops forces, SEAL Team 6, Delta Force, Army Rangers, and the U.K.’s Special Air Service “saber squadron.” Apparently,
an insider was able to sprinkle Smart Dust (magic dust) on Zarqawi’s clothing, lighting him up for detection like a Christmas tree and
virtually sealing the bloodthirsty murderer’s demise.

A Little Magic

Smart Dust is miniaturized electronic devices (see www.youngresearch.com for a display of Smart Dust overlaid on a penny). Think EZ Passes or
RFIDs. Smart Dust can literally be disguised as dirt that you might pick up on your shoes. Each speck of Smart Dust can be given its own serial number.
Ground troops or aircraft can track the dust with an interrogation signal.

Task Force 145 has been effective for many reasons, not the least of which has been its ability to mix in with civilians and potential enemy of all
types. Dressed in civilian clothes, often with beards and long hair, the special forces operatives can move in and out of harm’s way with relative
ease.

A side benefit to taking Zarqawi out with Smart Dust is that Task Force 145 has promoted the magic
factor to the relatively naive Iraqi folk. Iraqis have a well-known tendency to exaggerate the abilities of American forces, and a little magic tossed
in helps promote and deepen the fear factor and mystique.

A Clinton Travesty

The U.S. and Israel have endless technology capability, like Smart Dust, not shared by opposition forces. Unfortunately, due to a “Clinton Travesty,” valuable
technology that could have been in place today is not, as the Americans and Israelis are now finding.

Brilliant Pebbles

The Clinton administration stripped funding for the space-based interceptor program known as “Brilliant Pebbles.” Brilliant Pebbles was
conceived in the early 1980s at the Lawrence Livermore National Laboratory in California. Initially known as Smart Rocks, the technology involved deploying
thousands of tiny rocket-propelled canisters in orbit, each capable of ramming itself into an incoming ballistic missile.

For example, a single tactical ballistic missile accounted for 20% of U.S. casualties in Desert Storm. The travesty is that we had the technology to
prevent such a disaster. Computer simulations have demonstrated that had Brilliant Pebbles been deployed during the Persian Gulf War, every Scud missile
launched by Saddam could have been taken out. Brilliant Pebbles remain among the most effective means of ballistic missile defense. Given what Iran and
North Korea are up to today, it is clear why the gutting of Brilliant Pebbles can rightfully be labeled a “Clinton Travesty.”

What may we now project regarding the course for Iraq and its meddlesome neighbor Iran? Let’s start with some focus points:

(1) Iraq has spent only eight decades as a modern state.

(2) Iraq is approximately 60% Shiite, 30% Sunni, and 10% independent and secular Kurds.

(3) Iran is 90% Shiite and is ruled by radical Islamic clerics; 85% to 90% of the Muslim world is Sunni.

(4) The difference between Shiites and Sunnis involves the question of the succession of the Prophet Muhammad, who died in 632 A.D. As National
Geographic notes, “Every schoolchild in Iraq can tell you the story of the schism between Shiites and Sunnis.” A young Shiite told National
Geographic: “It is written in our souls. It is a clear part of our identity.”

(5) Many of Iraq’s Shiites are secular (worldly, non-spiritual) and most are quite poor.

(6) Shiite fundamentalism, as practiced in Iran, is widely feared in other parts of the Arab world. These concerns kept George H.W. Bush from
supporting Iraq’s uprising against Saddam following the Gulf War. To this day, this lack of support is still held against the U.S.

(7) Two-million impoverished Shiites (about 40% of greater Baghdad) live in Sadr City, a Baghdad slum.

(8) The Baathists (Saddam’s crowd) were staunchly secular and distrusted fanatical Shiites, viewing them as Arab-hating Persians loyal
to Iran.

(9) It is generally thought that most Iraqi Shiites are moderate and not likely to take up with the likes of radical clerics, such as Muqtada
al-Sadr or the Iranian Islamic fundamentalist fanatics. Most Shiites have a strong national identity and do not want to be co-opted by Iran.

(10) Remember, Shiites fought against Shiites in the Iran-Iraq war.

(11) In the past, Shiites, unlike the Kurds, have not indicated a desire to form a separate state.

(12) The liberal U.S. media suggests that a civil war in Iraq is raging. This flies in the face of the historical attitudes of Iraq’s Shiites
and Sunnis. In the past, Shiites and Sunnis have co-existed.

(13) Al-Muthanna, a southernmost province bordering Saudi Arabia, is the first of Iraq’s 18 provinces to assume complete responsibility
for its law enforcement security. It is now independent of multi-international forces. A number of our best intelligence sources believe that half of
Iraq’s 18 provinces will join Al-Muthanna by year end. When you consider that only four provinces account for over 80% of all attacks, it’s
not hard to think that nine out of a total of 18 provinces could be independent of multi-international forces by year end.

(14) Despite all the disruption, Iraq is still one of the world’s largest oil producers (and has massive untapped resources, as I’ve
shown in the past), even now pumping perhaps 2% of daily global demand. Pre-war, Iraq was pumping about 2.5 million bbls/day. During the height of battle
production temporarily fell to about 250,000 bbl/day. Within three quarters, it was back up to 2.0 million bbls/day. Since then, gains have been only
modest, with a year-end 2006 production rate of 2.25 million bbls/day likely.

OK, so what’s the outlook? The Kurds, with Iraq’s best militia (probably 100,000 strong), are mean, experienced warriors. Neither Sunnis
nor Shiites, if valuing their hides, would want to get into it with the Kurds. The Russians tried and were dealt with harshly. The Kurds have plenty
of oil, and their provinces are already largely free of attacks. So let’s rule the Kurds out as part of the problem.

General Thabit and Colonel Steele

What we have is the twin menace of (1) al Qaeda and (2) Iran’s funding and arming of hostile militias. Task Force 145 already has al Qaeda on
the ropes. In the past, I’ve written about the activities of General Adnan Thabit and American U.S. Army Colonel James Steele. General Adnan, in
fact, is a Sunni. He leads a fearsome counterinsurgency force called the Special Police Commandos (about 5,000 strong). Colonel Steele is a battle-hardened
veteran and former leader of a U.S. military advisory group in El Salvador. From 1984 through 1986, Colonel Steele’s group attacked El Salvador
insurgent leadership, their supporters, sources of supplies, and base camps. The El Salvadorian operatives gained, what might be called to some, a troubling
reputation. And Colonel Steele’s presence in Iraq has caused certain American U.S. reps, including Dennis Kucinich (talk about troubling), some
concerns. In order to stabilize Baghdad, the Special Police Commandos will need to step up their counterinsurgency efforts in and around Baghdad and
in the Sunni Triangle.

The Badr Organization

As things move forward in Iraq, the various well-organized militia groups, including General Thabit’s Special Police Commandos, will play significant
roles. The Badr organization, the Iranian-trained wing of the Supreme Council for the Islamic Revolution in Iraq, operates in Shiite-controlled southern
Iraq. Badr has been involved in many of the revenge killings of Sunni clerics. Wolf Brigade, one of the most feared commando units in Iraq, is made up
of a couple of thousand young and poor Shiites from Sadr City. It is an offshoot of the Badr organization and is linked to the Iraqi Interior Ministry.

The Mahdi Army

The Mahdi Army consists of followers of anti-U.S. Cleric Muqtada al-Sadr. The unit may have as many as 10,000 members, and they control much of the
2-million-population Sadr City slum.

A Federal System

With the preceding in place, here is how the Iraq mess will likely play out over the next few years. A three-province loose federal system (Kurd, Sunni,
Shiite) with a central national government with
specific duties can work. The new constitution provides for a federal system by allowing provinces to unite. Given what I’ve outlined above, one
of the main sticking points will be Baghdad with its mix of people and the huge Sadr City slum (about 40% of Baghdad’s total population).

The Power of the Kurds

Along with having the biggest and best militia, the Kurds have a claim to perhaps 40% of the country’s current oil production. The Kurds are strongly
independent. As far back as the 1920s, they were close to getting their own state. Iraqi Kurdistan borders Iran and Turkey. This region, which consists
of inaccessible mountains rising from the northwest to the southeast, has been called Kurdistan since the beginning of the 13th century. About 85% of
the Kurds are Sunni Muslims. There is no way the Kurds will allow themselves to be governed by the majority Shiites. An autonomous Kurdistan, operating
under the umbrella of a loose federal structure, is a workable model that, in large measure, is already in place.

One of the World’s Largest Oil Fields

Kirkuk (Arabized under Saddam) is a city of about 850,000. It includes Arabs and Turkmen, as well as Kurds. The Kurds, who are probably a clear majority,
hold most of the key political positions. Kirkuk is situated next to Iraq’s northern oil fields. The Turkmen are ethnic cousins of the Turks and
look to Turkey for support. The Turkmen have significant claims on Kirkuk, as the city is the center of the Turkmen population in Iraq. Kirkuk is for
the Kurds a touchstone of Kurdish identity. All of the players in Kirkuk realize, of course, that the city is the key to oil fields that represent perhaps
40% of Iraq’s proven oil reserves. It is these oil reserves that the Kurds feel provide the potential economic base for a Kurdish province. Clouding
the issue of Kirkuk is that Turkey has some claims to the area
(it was taken from Turkey via the 1923 Lausanne Treaty). When you consider that 20% of the population of Turkey is Kurdish, you get a sense of the sticky
nature of the Kirkuk situation. The Kurds will insist on having Kirkuk part of an autonomous Kurdish-managed region, which would be a little more Kurdish
strength than would make Turkey comfortable. In the past, Turkey has threatened to send in troops to prevent Iraq’s Kurds from claiming Kirkuk.
In that Turkey is zealously attempting to join the European Union today, a cross-border military scuffle over Kirkuk could put a huge black mark on Turkey’s
European Union resume. To date, the U.S. has held to the view that Arabs, along with the Turkmen and the Kurds, have rights in Kirkuk. The Iraqi constitution
mandates a citywide referendum on Kirkuk’s status by December 2007. Stay tuned. The issue of Kirkuk is a monster.

That leaves the division of the rest of Iraq into Sunni and Shiite provinces, each with its own internal structure and military. Let’s remember
that the majority of the world’s Muslims are Sunnis. I have provided maps and displays on www.youngresearch.com that will help you better
understand Iraq and the Muslim world. With 85% to 90% of the world’s Muslims Sunnis, there should be intense pressure on Iraq’s Shiites to
deal equitably with the Sunnis. Under a federal structure, each of the three autonomous regions would be entitled to a representation proportion of Iraq’s
oil resources.

Sadr City Foul Ball

I would like to see the U.S. military pull out of Shiite and Sunni areas and maintain a modest deterrent force in Kurdistan. As soon as the Sunnis understand
that they would end up with an economically viable region, self-governed and with ample oil reserves, their desire to wreak havoc would begin to fade
naturally. After all, what’s to gain?
Do the Sunnis or, for that matter, the Kurds want anything to do with the 2 million Shiite-slum Sadr City? It’s doubtful.

85% to 90% Are Sunnis

There is ample room for optimism regarding Iraq, not that you would guess it from listening to the U.S. media or the misplaced cut-and-run rhetoric
of most of the Democratic leadership. The Kurds are already well on the road to a stable and prosperous Kurdistan region. Cool diplomatic heads must
convince the Shiite crowd that only an economically viable and autonomous (within the framework of a federal system) Sunni province supported by proportional
oil reserves makes sense. As mentioned earlier, most of the world’s Muslims are Sunnis, and you would think the message could be driven home to
Iraq’s Shiites. The truth is Iraq is a tremendously rich country in terms of oil reserves, and there should be plenty of prosperity for all.

I’ve devoted a lot of space this month to a single issue—Iraq. But with fall elections coming up and the jockeying for position for the
presidential election sweepstakes in 2008, Iraq is the foremost issue in the minds of most American voters. Given what is going on today in Israel/Lebanon,
Iran, and North Korea, as well as in Iraq, it is clear that Americans require a government that offers the utmost in anti-terrorism ability. There is,
of course, much to be said negatively about how the Bush administration has handled Iraq. And we all operate oh so much better with the benefit of hindsight.
But the negative case for the Bush administration is not as bad as the media paints. Most Americans do not have a clear picture of what is going on in
Iraq. I hope my outline improves on the general nighttime TV offering of bombings and explosions. As I have outlined, these bombings and explosions are
occurring in an increasingly small area of Iraq. Beyond these areas, there is significant progress being made.

Stock Market Optimism

The financial markets do not like international tension. My strategy would be to pull U.S. troops out of the line of fire, yet allow them to be a substantial
deterrent to a regrouping of al Qaeda. I expect 2007 to be a decent year for the U.S. stock market. A stabilized Iraq, under the umbrella of a federal
structure, would be the sort of backdrop U.S. financial markets would welcome.

Stocks Down This Century

For NASDAQ investors, it has been ugly going with the NASDAQ down 5% YTD. The S&P 500 is up, but just 2%. A 50/50 mix of the two would be down YTD.
Since year-end 1999, a 50/50 mix of the NASDAQ/S&P is down by 32%. Is that not shocking? I know you have had a good time of it this century if you
have stuck 100% to the holdings I have suggested for you in these monthly letters. Our internal Retirement Compounders was up 9.5% (unaudited) last year,
versus a 1.9% advance in the Dow. This year, the Retirement Compounders is ahead (unaudited) by 6.26%, versus the Dow’s gain of 3.16%. All of my
Monster Master List names come from Young Research’s Retirement Compounders.

High-Yielding Retirement Compounders

The Dow has done better than the S&P 500 and much better than the slumping NASDAQ. And our Retirement Compounders mix has been the leader by far.
One reason is that the yield on the Retirement Compounders is a healthy 3.1%. Young Research includes only dividend-paying stocks in its Retirement Compounders
master list. The yield for the list in total is usually a good deal higher than for the Dow, the lower-yielding S&P 500, or the miniscule-yielding
NASDAQ.

I advise you regularly to invest only for dividends or interest. I want you to insist on getting paid, as I do. If you want to speculate with a portion
of your capital, that’s fine, but do not mess with your primary stash of cash. When you retire, your earning years are over. Kaput. You earn no
more. Therefore, every dollar you have the day you retire must be treated with the deepest reverence. Treat each dollar as you would a family member.
Would you wave good-bye for good to even an extended family member? Well, I guess there might be one or two exceptions, but on balance you would not.
The same goes for each one of your retirement dollars. When you spend your money, it can no longer work for you for the rest of your life. Were I advising
professional sports athletes with their huge initial contracts, my first advice would be to invest every upfront bonus dollar in 90-day U.S. T-bills
and roll over the T-bills until such time that a suitable conservative, professional registered investment advisor had been selected. I would advise
these athletes to not spend one dime of that bonus. No new Cadillac Escalade. Every bonus dollar from day #1 would be sequestered so as to earn dividends
or interest for a lifetime. A sports career passes in a flash. And no offense here, but who attended class in college?

The Past is the Past—Period

Well, the same holds true as you retire. Do not blow your high-powered retirement money. And do not invest based upon historical performance information.
By example, a broker or insurance salesman may give you a pitch that features returns over the last two decades. Nifty four-color, floor-to-ceiling charts
will be pulled out to show you how well a portfolio of long bonds, for example, has done. Well, these charts are worthless. The 20-year bond bull market
is over—not to be repeated in our lifetime. As such, charts that include the last 20 years of performance data are of no value. The past is the
past—period. Do not project the future based on the past. In fact, do not project the future period.

Slash Expenses & Trading

Take an obtuse approach, and you will be shocked at just how well you can do. You know from my continuous harping that your returns will be inversely
related to your transaction activity. You also know that expenses are a killer. Look at my chart. Assume a 50/50 stocks/bonds mix. I include three separate
asset managers in this chart and assume that one charges you a reasonable 0.8%, and the other two charge 1.5% and 3% fees. And do you know what? 1.5%
and 3% are just the fees unaware investors are being charged by some major Wall Street brokerage firms. Do investors ever look at the management contracts
they sign? A lot do not, and the carnage is jaw dropping.

Putting A Match to Your $$$

As my three-line chart on the right shows, when you invest $100,000 for 15 years under three management fee assumptions, you literally put a match to
$70,000 by agreeing to pay a 3% management fee annually rather than 0.8%.

Your Wakeup Call

Here’s how to calculate the potential average annual total return for a portfolio weighted 50/50. Average the current Vanguard GNMA Fund yield
with a potential stock market total return indicated by adding the current Dow yield to the inverse of the current Dow P/E (the earnings yield). The
current Dow yield plus the inverse of the P/E allows a conservative 7.3% average annual return projection for stocks. When matched with Vanguard GNMA
Fund yield, you can assume an average 50/50 stocks/bonds portfolio yield of a little more than 6% (before investment management fees). Clearly such gross
returns cannot tolerate a 1.5% to 3.0% wrap account fee. Your average annual net return would drop to 3% to 4.5%.

Prevent Catastrophes

I believe most investors (investing less than $350,000) should rely on mutual funds, not individual common stocks. This is not because I think your
performance will be better; rather I think it will be easier for you to operate and will allow less potential for a catastrophe. I have been looking
into starting a mutual fund on and off for 30 years. Every time I get close I end up deferring the move. I’m disappointed to have to tell you,
that is once again the case.

This time around, it was all the new regulations and the associated costs that made me finally say no way at least for today. For example, the regulators
want me to have an outside board chairman and 75% of my total directors outside. Given today’s rules, I’d have to put up at least $250,000
to get a fund started. The legal community would have me write a check for $100,000 to do a prospectus that we could do in-house over the weekend for
almost nothing. I won’t pay such a fee. Nor do I want any part of the garbage prospectus that would end up being provided to me by the legal folk.
Let me be clear here. Most mutual fund prospectuses are written to protect the hind ends of the offering management company and to satisfy the endless
and often trivial requirements of the regulators. In the end, J.Q. Public is delivered a hefty and largely unreadable mish-mash that 99% of the time
is dropped into the trash compactor.

Individual investors will not wade through this crap. What is required is an easy-to-read, user-friendly worthwhile guide—a guide that will actually
be read by investors.

Today, I’m left with an increasingly small number of funds to advise, as one niche fund after another closes. This is not an easy business, and
many investors unfortunately are now left out in the cold. The majority of funds are not suitable due to brutish expenses, over-management, and vicious
portfolio turnover.

So where do you put new money today? In terms of full disclosure, I have written that my most recent commitment was to American Century Global Gold.
I want you to own this gold shares fund 50/50 with your position in streetTRACKS Gold Shares (a bullion fund).

Think Blue & Gold

My focus as I write to you is on the need to get up to max on (1) gold holdings, (2) big dividend-paying blue chips that will increase international
earnings as the U.S. dollar falls, (3) Canadian shares. An unstable world is a world that grows to love gold. A currency undermined by the largest balance
of payments deficit in the world is a structurally weak currency. Do you know that the current account deficit of the U.S. is over 15 times the current
account deficit of the second worst offender, Great Britain? It’s just hard to work up much enthusiasm for the US$ in such a setting. A structurally
weak dollar no doubt means an uptrend in gold prices. It also means strength in a basket of flight currencies. I like the Swiss franc and the Canadian
dollar as my one-two choices. And I think the yen, buttressed by Japan’s world-leading current account surplus, makes sense.

Two Canadian Fund Buys

The potential for a long-term trend increase in the C$ augers well for Canadian investments. I like a one-two mix of Canadian General Investments
Ltd. and Fidelity Canada. The two don’t have a lot of overlap in key holdings and as such make a nice mix-and-match pair. I’d
want 5% of my equities position in a mix of these two. And I’d want at least 5% of your total investment portfolio in gold.

Love Dow Diamonds

My third immediate focus area is dividend-paying, big blue chips. I’d like to see 5% to 20% of your total equities holdings in Dow Diamonds
Trust. A fall in the US$ would mean that U.S. goods would be cheap to buy for foreigners. This exchange-traded fund invests strictly in the 30
stocks in the DJIA, many of which are in my Monster Master List and have recently been carried for you in my Top 10 Countdown.

Add BlackRock High Yielders

Finally on the mutual fund front, I want you to buy in your IRA the high-yielding BlackRock Enhanced Dividend Achievers Trust and BlackRock
Global Opportunities Equities Trust. Both enhance yield by boosting income by writing covered calls. If you are retired or soon to be, these two
funds should individually account for 5% to 10% of your equities holdings and perhaps even more where the current yield is the main goal. Make your
calls. Be certain each of these fine selections has a home in your portfolio.

Buy What I Buy

You know I do not buy a name that is not on my Monster Master List, so, of course, I would want you to stick to my lists. The more positions you own
from my Monster Master List, the more I can do for you over the years. Were there any need to go beyond the names on my Monster Master List, I would
add the new names for you. There is no need, so stick exclusively with my Monster Master List names. Make it your point this summer to recast your list
to include strictly Monster Master List names. Get organized!

Zeros Take Center Stage

On the fixed-income side, high-yielding investment-grade blue-chip preferreds provide the type of cash flow ideal for retirement cash generation or
conservative IRA compounding. I’d make preferreds a major component of your fixed-income equation along with low-fee Vanguard fixed-income funds
and full-faith-and-credit U.S. Treasury securities. I especially like zero-coupon Treasuries (ideal in IRAs) at the current stage of the interest rate
cycle. In fact, within the next 12 months it is possible that you’ll have a shot at some longer zeros on a relatively short-term holding basis.
With just a single point drop in, for example, 20-year rates, a 20-year zero gains 20% in price.

Blue-Chip Preferreds

On the preferreds front, I’ve unearthed a nice new preferred issue for you. Buy Bank of America Capital Trust X11 (rating Aa3/A/A+) non-callable
for 5 years. Yield in the 6.8% to 7.0% range, and as a new issue. No symbol yet. Young Research scans the new issue market daily in search for quality
offerings for you. Most of what hits the market is not of a pedigree that I approve. And the big brokerage houses flog such lower-grade merchandise to
the unwary with the hook of “you pay no commission.” Beware!

Big Gold News

On the gold front, I have exciting news to share with you. The exciting news comes to you from a pretty odd source—the United States Mint. The
Mint is offering a brand-new line of 24 karat (.9999 fine) American Buffalo gold coins. I have put detailed information on the Mint’s new American
Buffalo gold coins up at our website. I’ll be writing regularly about the brand-new American Buffalo 24-karat gold coins and am a buyer myself.
These gold pieces will be a nice compliment to my much-liked, advised and owned Chinese gold Pandas. Be sure you scan my gold charts in your enclosed
Economic Analysis to keep up to speed on gold’s relative value at today’s cheap prices.

Monster Master List Stocks

Harley-Davidson (NYSE: HDI). Breaking news (expanded for you at our website) from my #1 favored company in the world. To the surprise of attendees
at Harley’s recent summer dealer show, the motor company introduced a brand-new Twin Cam 96-cubic-inch, 6-speed engine for 2007. The new engine,
found in all Touring, Softtail and Dyna models, boosts torque by approximately 17%. Even better, for about $700 (versus approximately $3,000 previously),
a bolt-on 103-cubic-inch Big Bore kit is available. My biggest concern for Harley has been the possibility that the new EPA noise guidelines would in
effect kill off the great Harley rumble. Well, there are more than 700 new parts in the new Twin Cam 96 motor. Engine noise has been reduced for quieter
EPA-friendly operation substantially due to, among other things, the use of helical-cat teeth in second through fourth gears. Muffler tuning has been
changed to both improve exhaust flow for increased performance and to improve the sound quality of the exhaust. Low frequencies have been enhanced to
give the Twin Cam 96 a new, commanding EPA-friendly exhaust tone that preserves the legendary Harley-Davidson sound. Believe me, these new 2007s
are a big deal as well as a great surprise. I added Harley back to my buy list at our website at $53.35 on 7/18. You can once again add my #1 favored
company in the world to your personal stock list. For now, the dust has cleared.

Inco (NYSE: N) has dropped its bid for Falconbridge (NYSE: FAL), clearing the way for Xstrata (LONDON: XTS.L). I look for Inco
to now merge with Phelps Dodge (NYSE: PD), but Teck Cominco (TORONTO: TEK-SVB.TO) has an offer on the table for Inco, which it might improve.
I love all these companies long term. I’m waiting to put Phelps Dodge back on my Monster Master List and have advised that you hold at a ½ position
on the others waiting for a pullback.

Check My Top-10 Countdown

Go to my Top 10 Countdown for your names to buy first this month. Two utilities are on the list, along with three long-favored real estate REITs—Archstone-Smith (NYSE:
ASN), Vornado (NYSE: VNO), and Equity Residential (NYSE: EQR). International benefactors PepsiCo (NYSE: PEP) and Coca-Cola (NYSE:
KO) are on my list, as is southern favorite Delta & Pine Land (NYSE: DLP), conservative Piedmont Natural Gas (NYSE: PNY), and beaten-to-death Polaris
Industries (NYSE: PII)(a steal).

Yankee Candle (YCC) has been whacked around of late, but to me, the company has the look of a takeover candidate. I’d buy it here.

New Names Coming Next

On my short list for potential inclusion in my Monster Master List are Cleveland Cliffs (NYSE: CLF) (return), Phelps Dodge (return), Northrop Grumman (NYSE:
NOC), Pentair (NYSE: PNR), DuPont (NYSE: DD), Florida Rock (NYSE: FRK), Trinity Industries (NYSE: TRN), and Peabody Energy (NYSE:
BTU).

On the distress list of late are Aber Diamond (NASDAQ: ABER), Alcoa (NYSE: AA), Alexander & Baldwin (NASDAQ: ALEX), Alpha
Natural Resources (NYSE: ANR), ConAgra Foods (NYSE: CAG), Deltic Timber (NYSE: DEL), Federated Investors (NYSE: FII), Fording
Canadian Coal (NYSE: FDG), Illinois Tool Works (NYSE: ITW), Marvel Enterprises (NYSE: MVL), Norfolk Southern (NYSE: NSC), Sysco (NYSE:
SYY), St. Joe (NYSE: JOE) (I’m out during hurricane season), and the above-mentioned Yankee Candle. I like all long term and would sell
none at current prices. I have previously advised sale of St. Joe. My family management company sold the stock at $84 and has not re-bought. The stock
market in general has been soggy all year (see What’s Up), and it’s no surprise that a group of names from my Monster Master List would
be in a temporary corrective phase. Better days lie ahead.

The housing market is in the tank. Check my chart #6 inside. In the four markets of which I’m most familiar, there are a near-record number of
homes for sale and virtually no buyers. In one market where I personally have a home for sale, there have been zero transactions in my price range in
recent weeks. Foreclosures in Massachusetts, for example, are up 66%. More bad news lies ahead.

Where to Start First

Buy Canada, buy gold (including the new 24-karat .9999 American Buffalo gold coin), buy dividend-paying blue chips (like the Dow Diamonds ETF) that
will benefit from a fall in the US$, add the new high-yielding Bank of America Capital to your preferreds list, load up on my high-yielding BlackRock
closed-end funds, and add any of my Top 10 Countdown names to your list (especially the dirt-cheap Polaris). Finally, of course, is the re-emergence
to my buy list, after a brief rest, of my #1 favored company in the world, Harley-Davidson.

In memoriam: Johnny Grande (age 76) played piano on “Rock Around the Clock” and was the legendary Bill Haley’s last surviving original
business partner. RIP.

Make it a good month.

Warm regards,

Richard Young signature

Richard C. Young

P.S. Coming next month, intelligence on the major new oil reserves potential in Saudi Arabia. Israel could today be taking out Hezbollah’s Katyusha
rockets with a laser system that the Clinton administration killed along with so many other needed defense systems. I’ll have detailed info.

P.P.S. The Digital Revolution is in full swing as fiber-optic
lines today offer speeds up to 50 times faster than standard service. Complete update coming. Say good-bye to your computer hard drive? Indeed possible
with next month’s Digital Revolution feature. A preemptive strike on N. Korea by Japan now looks possible.
I’ll cover this breaking news next month. I’ll also detail the certification of the first very light jet (VLJs) and give you the initial
airport postings.

P.P.P.S. My favorite country inn is profiled for you this month at www.youngresearch.com, along with my latest essential music, including a great
CD from the long forgotten Tom Rush. Enjoy.

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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