Grow Your Portfolio the Intelligent Way

November 2006 Issue

By Richard C. Young

Wipe Israel off the Map…

Iran’s President Mahmoud Ahmadinejad refers to Israel as a “disgraceful stain in the Islamic world.” In April 2006, Mahmoud gave the
opening address to the “Third International Qods Conference supporting the rights of the Palestinian people.” In the speech, M.A. reiterated
his argument that “Palestinians should not suffer to compensate Jews for the Holocaust.”

Hard-Liner Netanyahu

Former Israeli Prime Minister Benjamin Netanyahu is an ex-officer of an elite antiterrorism unit in the Israel Defense Forces. He served as Israel’s
ambassador to the U.N., where he led the effort that opened the U.N. Nazi War Crimes Archives in 1987. Mr. Netanyahu has a Masters of Science in Management
Studies from MIT and studied political science at MIT and Harvard. Netanyahu was defeated in the 1999 Israeli election as Israel moved to the left—a
decision that, as events since have clearly indicated, was a decisive error in judgment.

Not Since Hitler

In a recent address to the Knesset, Mr. Netanyahu said, “Today I say: We stand before a grave danger, a new conflagration that threatens to consume
our people. This is a threat not only to our soldiers, our citizens and our economy. It is a threat to our very existence… Not since Hitler has
there risen such an archenemy of our people like Iran’s President Ahmadinejad, who openly declares his intention to annihilate us, and who is developing
nuclear weapons for this evil purpose.” As speculation builds that Israel is preparing for possible military activity against Ahmadinejad’s
nuclear facilities, Israel has appointed a top general to oversee a war against Iran.

Israel has loyal and dedicated allies within the Bush administration and can count on powerful support. In May 2004, President Bush spoke at the American
Israel Public Affairs Committee (AIPAC), which, along with the NRA, is the one-two punch of American lobbyist groups. AIPAC describes itself as America’s
pro-Israel lobby. AIPAC is specifically charged with the responsibility of stopping Iran from acquiring nuclear weapons, fighting terrorism, and achieving
peace. Among AIPAC’s most consistent critics has been U.S. Rep. Dave Obey of Wisconsin—a Nancy Pelosi ally—who contends that AIPAC
primarily reflects the right-wing Likud (Mr. Netanyahu’s party) position, rather than those of more left-wing Israel political parties.

AIPAC and the Religious Right—United

The Economist magazine claims that AIPAC’s political power is one of the main reasons for America’s support of Israel. “Why
is America so much more pro-Israel than Europe is? The most obvious answer lies in the power of two very visible political forces: the Israel lobby (AIPAC)
and the religious right.”

Economists Rate Terrorism #1 Risk

Israel, along with the U.S., is front and center on the world terrorism radar. Last month, I wrote about a biannual survey of nearly 200 National Association
for Business Economists that rated terrorism as the most important fear and risk to economic growth over the short term. I am in this group, but would
emphasize that my view extends to the longer term as well.

The Global Salafi Jihad

In Insurgents, Terrorists and Militias, authors Shultz and Dew share the views of radical Islam authority Marc Sageman. According to Mr. Sageman, “The
global Salafi jihad is a worldwide religious revivalist movement with the goal of re-establishing past Muslim glory in a great Islamist state.” Salafi,
the Arabic word for “ancient one,” is used by the movement to signal its goal of restoring “authentic Islam” through “a
strategy of violent jihad resulting in an explosion of terror.”

Fears of Terrorism

James K. Glassman, a resident fellow at the American Enterprise Institute, contributed an excellent editorial piece in the Ahead column of the
October 2006 Kiplinger’s. In Mr. Glassman’s “The Price of Terrorism,” he asks, “What’s wrong with the stock
market?” His answer: “A legacy of fear—9/11 lives on.” In other words, investor concern about terrorism is a dominator in the
financial marketplace. Mr. Glassman also presents research from Prudential strategist Ed Keon, who maintains, “The fear of conflict has historically
been worse for stock prices than conflict itself… Although the stock market fell in calendar years 1939, 1940 and 1941, as Pearl Harbor approached,
the period between the attack and 1945 was the best ever until the 1990s.” Here again, history clearly portrays the fear of terrorism as a dominator
for the financial markets.

Frightening or Laughable?

In “Democrats Offer a New Direction” (The WSJ), Democratic National Chairman Howard Dean maintains, “We need a Democrat Congress
to fight the war on terror.” I don’t want to put ideas in Mr. Dean’s head, but it must be presumed that the chairman is also laying
the groundwork for the Democratic presidential candidate in 2008. But I’m uncertain who Mr. Dean would include here as “we.” Certainly
not Dick Young. Certainly not the Christian Right family-values crowd. And, for darn sure, not the Second Amendment/Bill of Rights-oriented NRA. I’m
also quite certain that “we” would not include the majority of conservative-thinking Jewish Americans, who if not increasingly concerned
about Israel’s plight, soon will be. I have no idea who the Democrats will select as a presidential candidate in 2008, but to insightfully address
Chairman Dean’s “we need a Democrat” pronouncement, let’s simply do a quick check on the “War on Terror” credentials
of the last Democrat president, Bill Clinton, as well as the party’s last presidential candidate, John Kerry.

Clinton Period of Despair

Defense spending is a decent proxy for a president’s concern regarding terrorism. What top-down factor could be more indicative? Last month, I
included a chart on the Clinton/ Democrat defense-gutting dark days. It’s pretty appalling.

Clinton Failures

To laser-focus on the Clinton era, it’s worthwhile to read a first-hand account from a distinguished military officer who was live on the scene.
Lieutenant Col. Robert “Buzz” Patterson (Air Force, retired) was the Senior Military Aide to President Clinton from 1996 to 1998. During
that time, Buzz was responsible for the President’s Emergency Satchel, otherwise known as the “Nuclear Football,”—the black bag
with the nation’s nuclear capability that accompanies the president at all times. Lt. Col. Patterson, who received the Defense Department’s
Superior Service Medal for accomplishments while at the White House, wrote Dereliction of Duty: The Eyewitness Account of How Bill Clinton Endangered
America’s Long-Term National Security. Dereliction of Duty is not a personal attack on President Clinton or a commentary on his various
scandals; rather, it is a frank indictment of his failure—obvious to an eyewitness—to lead our country with responsibility and honor.

Clintonian Disrespect for the Military

Lt. Col. Patterson offers a damning list of anecdotes and charges against the president, including how Clinton lost the nuclear codes and shrugged it
off; how he stalled and lost the opportunity to launch a direct strike on Osama bin Laden at a confirmed location; how the president and the First
Lady and much of their staff consistently treated members of the military with disrespect and disdain. OK then, all set on the Clinton defense-gutting
dark days?

NATO Forces Pulverize Taliban

The Democrat’s last presidential candidate recently contributed “Losing Afghanistan” to The WSJ. John Kerry’s
headline casts a current-events pall over the logic of his entire piece. Here’s why. In “Operation Medusa” (September. 23–24,
2006), The WSJ notes, “In the war on terror, few battles are as clear and decisive as the one fought these last few weeks in southern
Afghanistan. Six thousand Canadian, British, Americans, and other NATO troops trounced resurgent Taliban fighters who dared to fight in the open (RCY
comment: I’m astounded the Taliban chose to fight out in the open. That’s not the Taliban’s style.) Operation Medusa dislodged insurgents
from trenches and tunnels near Kandahar, killing a thousand or more.”

This striking NATO victory in southern Afghanistan is darn well not a sign, as Senator Kerry would have it, that Afghanistan has been lost. Senator
Kerry astonishingly concludes, “The U.S. must not cut and run from the real front in the war on terror. We must recommit to victory in Afghanistan.” Cut
and run? That’s from the very same John Kerry who asked the Senate to redeploy (Kerryism for cut and run) combat troops out of Iraq by 1 Ju1y 2007.
Not one Republican senator voted to cut and run in Iraq, but a lot of Democrat senators did, including N.J.’s soon-to-be-discarded Senator Robert
Menendez.

Kerry Dialogues with Terrorists?

In Lt. Col. Patterson’s most recent book, Reckless Disregard: How Liberal Democrats Undercut Our Military, Endanger Our Soldiers, and Jeopardize
Our Security, he explains how Kerry tried to veto nearly the entire military arsenal of the U.S., even voting 12 times against military pay increases,
and how Kerry promises to abandon the war on terror, open a dialogue with terrorists, and apologize for the “mistakes” of the Bush
administration.

Howard Dean’s Haze

Had enough of Mr. Kerry and Mr. Clinton? After Chairman Dean’s lead that we need a Democrat Congress to fight the war on terrorism, the
chairman compounds his Cheech & Chong line with, “Republican policies of the last five years have damaged our economy and failed Americans.” Not
even Cheech & Chong were ever in this kind of a haze. Look at my shocking chart on capacity utilization.

And Mr. Dean would ask America’s voters to bring back the Democrats? Capacity utilization relates to factories, the very factories where so many
of Mr. Dean’s unionized workers earn a living. It’s hard to square a total collapse in factory capacity utilization, Mr. Dean, with good
times for your constituents. No, were I a factory worker, I’d vote not for the Dean Democrats, but instead for the team that through the common-sense
fuel of tax cuts provided me with a factory/capitalization utilization reawakening, revitalization, and rebirth.

A Vote for Terrorists?

Americans concerned about terrorism and its effects on financial markets had to be deeply concerned with the recent Supreme Court ruling on Hamdan vs.
Rumsfeld. The ruling indicated that the Bush administration violated four Geneva Conventions. Not surprisingly, justices Souter, Ginsburg, Breyer, and
Stevens, joined by Justice Kennedy voted for it. I wonder how Justice Kennedy would have voted if he had known his vote was going to be the swing vote,
but it was not. Chief Justice Roberts excused himself from the case. As The WSJ correctly writes, “It was a bad ruling.”

Turn the Thumb Screws

There is no question that one of the best ways to attack terrorism is to sweat valuable info out of detainees. The more pressure, the more answers will
be forthcoming. It is a matter of life and death for Americans as well as for Israelis. David Forbes of the Evergreen-based aviation consulting firm
Boyd Forbes tells us, “To conduct profiling and interviewing of potential air-terror suspects will require a massive cultural switch and change
(in this country).” It’s clear that the TSA does not go nearly far enough in its profiling. It doesn’t take any genius to know, as The
WSJ writes, that “every suicide attack against U.S. aviation to date has been perpetrated by men of Muslim origin.” The ACLU has already
sued the Massachusetts Port Authority and the Massachusetts State Police for what the ACLU believes to be profiling irregularities.

Massoud’s Murder

How many Americans know that less than 48 hours before 9/11 one of Afghanistan’s national heroes, Ahmed Shah Massoud, the Lion of Panjshir, was
murdered? Massoud, revered to this day throughout Afghanistan, was the military leader of Afghanistan’s Northern Alliance. Osama bin Laden did
not want Massoud around to aid President Bush in the aftermath of 9/11.

Democrats Against Our Patriot Act

All Americans, not just American investors, would benefit from a hard-line upgrading of the Patriot Act to give it more teeth and a nastier bite. And
yet when it came time to renew even the current Patriot Act, a group of senators, including, Byrd, Feingold, Harkin, Leahy, Levin, Murray, and Wyden
(all Democrats), unbelievably voted no. Not one Republican voted no on the renewal of the Patriot Act. And tell Americans once again, Chairman Dean,
why Americans would want to put soft-on-terrorism Democrats in charge of defending America and, for that matter, Israel against the global Salafi jihad?

Investment Implications

Over a number of quarters, three factors beyond terrorism will greatly influence stock prices: (1) the quadrennial cycle (presidential election cycle),
(2) interest rate momentum, and (3) stock price earnings ratios and yields. The quadrennial cycle is a basic Simple is Sophisticated concept.

Since I graduated from Shaker Heights High School in 1959, every presidential year has been a good year for stocks. (A typo at the end of last month’s
letter referred to 2007 as a presidential election year.) Politicians make all those phony spending promises in the year before a presidential election,
as well as in the presidential election year itself—all of which leads to good feelings for investors.

Next up is interest rate momentum. The stock market loves falling interest rates and hates rising rates. Once again, a Simple is Sophisticated concept.
When investors can get attractive rates with bank CDs and risk-free full-faith-and-credit U.S. T-bills (state and local tax-free), investors swarm to
these conservative, safe investments. Two years ago, the 90-day T-bill rate was actually below 1%. Today, it is near 5%. The last quarter has been a
barn burner for intermediate-term Treasury investments, as the rate on the 10-year T-note has plummeted from a high of 5.25% to 4.56% today. When rates
fall, the price of fixed-income securities rises.

Finally, among the three intermediate-term factors of significance are P/Es and yields. As the Big Picture showed last month, P/Es are sure not low.
And a 2.2% yield on the Dow is also no steal. On the basis of value, most stocks remain unattractive. Last month, I introduced you to Young Research’s
four-chart set and gave you Wrigley as a stock on its back and looking pretty washed out, ready for a turn. Remain with your Wrigley.

Corporate profits have soared since the 2001 Clinton recession. In fact, due largely to the Bush tax cuts, the year-to-year gains in after-tax profits
have been at a rate unmatched since George Tomsco and the Fireballs first hit the record charts with “Torquay” in 1959. And next year we
have 2007—a pre-presidential year.

Should rates stall out in the current area, the big threat to stocks, once we get through the summer/fall hurricane season, is the #1 long-term threat—terrorism.
Check out my Young Research website for updated graphics out of Iraq this week. The number of Iraqi army battalions in combat is up sharply, and you’ll
note in our display of sectarian incidents that the trend, which was down in the final months of 2005, has been shooting up since.

Iran Is the Fuse

Democrats are listing supposed George Bush “failures” as a reason for the upshot in violence. Do the Sunnis and Shiites hate each other
so much more now than last fall that there is this big increase in violence? As I’ve explained in the past, the Sunnis and Shiites historically
have gotten along a lot better than all the recent violence would indicate. No, the problem is not George Bush, and it’s not a change of heart
for the worse by the Sunni and Shiite Iraqis. What we have here is meddling by Iran via Iran’s heavily funded stooge Muqtada al-Sadr and the clerics’ Sadr
City-based Mahdi militia. Just how do Howard Dean’s Democrats think Muqtada is funding such a big militia? By selling raffle tickets? Muqtada and
his Mahdi army of thugs remain hunkered down on the other side of the Tigress River from the Green Zone. Hiding behind women and children, they lob mortars
at American troops and Iraqi soldiers and police. We have Iran to thank, as do the Israelis for the Lebanon horror show. My guess is that the clock is
ticking for both al-Sadr and Mahmoud Ahmadinejad, his benefactor in Iran. In any case, it is not the policies of President Bush that are the root cause
of the sectarian violence.

Get Hard-liners into Congress

OK, the terror issue is #1 on my list as a potential sore thumb for our economy, the financial markets, and the US$. With that said, it is hoped that
on November 7, Americans against Terrorism Day, voters will stock Congress with hard-liners on terror. We, along with Israel, are just beginning
on a long, hard road.

Rounding out the picture for the financial markets is the relationship between the economy and the stock and bond markets. The manufacturing sector
is keeping the economic ship afloat. While Private Housing Units Permits and Consumer Expectations (two key leading economic indicators) are collapsing,
Manufacturing, Machinery and Equipment Sales and Business Construction Expenditures are booming. And in concert, the broad-based Industrial Production
Index continues on the upside. On balance, it’s a plus for stock prices.

Add to Gold Holdings

The metals have had a good few years, but, with the exception of gold, I’ve advised of late that you cut positions to one-half of your normal
holdings. No group rises in a straight line. I’ve included a group of long-term charts that measure wheat, soybeans, nickel, and gold versus the
S&P 500 over long periods. My Gold/S&P 500 Chart goes back to 1900. Don’t blink, or you’ll miss the new century’s gold rally.
Long term, it’s no more than a speck. I think I’ll hold onto my now weighty stash of rare gold Pandas and the new American Buffalo gold coins.
I’ve seen some nice ads for the MS-69 “first strike” Buffs, but I suggest eschewing them and keeping it Simple is Sophisticated with
the regular 24K (.9999 fine) one-ounce gold Buffalos.

Agricultural Commodities Are Cheap

Nickel is one of my favorite metals long term, and its 2002–2006 run up has made a pretty decent dent in the long-term Nickel/S&P 500 Chart.
As a new nickel buyer today, however, I’m on the sidelines. Check out the depression in the wheat and soy fields. Makes you want to load up on
prized farmland—always a good bet in my book. I’m not sure what’s going to set off these agricultural commodities, but some catalyst
will emerge.

Monster Master List Mutual Funds

The headline in an excellent weekly newspaper for financial advisors recently proclaimed “An unfortunate retreat by the SEC.” The article’s
lead: “The requirement for independent mutual fund chairman appears dead.” In April, following a legal challenge by the U.S. Chamber of Commerce,
a Federal court sent the rule back to the SEC. Thanks to the Chamber. Many learned folk in the financial industry were behind the independent chairman
concept. Dick Young was not. And it was the potential for an independent chairman ruling that was one key reason that I decided not long ago to abandon
my plans to offer investors a low-cost, no-load, low-turnover dividend-paying mutual fund based on Young Research’s Retirement Compounders. Since
inception, the RCs have had a gentlemanly record. For the record, YTD (unaudited), the RCs are up 10.52%. Here are some comparables.

Dow Jones Hedge Benchmarks
  YTD % Change
Convertible Arbitrage 9.1
Merger Arbitrage 5.6
Event Driven 6.7
Distressed Securities 9.3
Equity Market Neutral 5.2
Equity Long/Short 1.5
(Source: WSJ)

And I would add that the highly visible, media-favorite Legg Mason Value Trust is actually down 2.3% YTD. So Young Research’s RCs continue to
chug along with a most conservative list of old-line dividend payers and modest growers. It’s a comforting theme for me and one I would have liked
to share with more investors in a less-onerous regulatory and legal environment.

A Twin Shocker

I write often that the majority of mutual funds offer no compelling reason for investment. Here’s a double shocker for you. Of the top-ten largest
equity mutual funds, seven come from one family. How could one management company capture so many places in the top-ten-size race? Must have pretty spectacular
performance, right? That must be the reason. Well, performance has been fine, but the single compelling reason these funds sit at the top ten in size
is that all seven have 5.75% front-end sales loads. Sales pressure gets big results. The majority of fund sales for load funds are made by salesmen to
unsophisticated investors. No knowledgeable investor would invest in a load fund.

The second big surprise is that I now think ETFs have come closer to being in a position to overwhelm the mutual fund industry. For the ETF industry
as a whole, it is a little early in the game because, as yet, not all the chairs at the table have been filled. The fixed-income side needs to broaden
out a lot. I especially hope that Vanguard will substantially broaden its ETF menu. I would guess that within a year I will be able to give the green
flag to the ETF industry as the lead horse in the long-term race between ETFs and the mutual fund industry. There will be a select group of mutual fund
groups that will continue to prosper as the ETF industry hollows out the mutual fund industry. Here I would point to Vanguard, Third Avenue, Dodge & Cox,
and T. Rowe Price. International banking behemoths will acquire fund group assets at nothing like the crazy prices being talked about today for
the sorry likes of MFS and Putnam.

Vanguard Equity Income +13.2% YTD

I have had a truly memorable 2006 in my own account. In that I invest only in a list from the pages of my monthly letter, you just may have scored big
right along with me. Among my biggest holdings are Franklin Mutual Shares (MUTHX) +9.3% YTD, Third Avenue International (TAVIX) +8.4%, Third
Avenue Real Estate (TAREX) +18.3%, Third Avenue Value (TAVFX) +7.9%, Vanguard Equity Income (VEIPX) +13.2%, and Vanguard Precious
Metals & Mining (VGPMX) +17.6%. Even I’m surprised at these truly magnificent returns. And the returns have come in (a) an off year in
the quadrennial cycle, where your odds are usually only 50/50, and (b) a year in which interest rates have risen steadily.

You will achieve a most pleasing level of comfort as well as great success by sticking 100% with investments I advise for you in these letters. Where
you do not have savage tax consequences, sell all holdings not on my lists and replace your sales with names from my lists or in my letters. I also would
consolidate all of your holdings at one custodian. I like both Vanguard and Fidelity. Either one is a good choice.

So where do you put new money today? If you require current income or invest in an IRA, I love two Monster Master List Black Rock closed-end funds—Enhanced
Dividend Achievers Trust (BDJ) (8.4% YLD) and Global Opportunities Equity Trust (BOE) (8.7% YLD). Both concentrate on dividend-payers and
write covered calls to boost income. The Dow Diamonds Trust (DIA) is a nice low-cost (0.17 bp) core fund. Vanguard Equity Income has been in
a nice groove of late and is always a core selection of good pedigree. Vanguard Value Index (VIVAX), with its concentration on big dividend-paying
stocks, is another worthy selection for your core list. Add one or more of these five funds to your roster.

On the fixed-income side, I stick largely with Vanguard, which has the lowest costs in the industry. In fact, the only non-Vanguard fixed-income fund
on my Monster Master List is Dodge & Cox Income (DODIX).

Sell Wellesley or Wellington

I also carry a select group of hybrid balanced funds (stocks and bonds). You can jack up your fixed-income position by including any of them. Dodge & Cox
Balanced (DODBX) is currently closed. In the past, I have advised you to hold both Vanguard’s Wellington (VWELX) and Wellesley (VWINX)
to create a 50/50 mix of stocks and bonds. Historically, there has not been much duplication in top-ten holdings. But through the years, Vanguard has
juggled its outside managers and brought more management responsibilities in-house, all of which has resulted in a duplication of stocks. If you own
both Wellington and Wellesley, sell one now. Wellesley has the bigger fixed-income component.

Monster Master List Stocks

Here from Young Research’s four-chart set, introduced to you with Wrigley (NYSE: WWY) last month, is a short list of buys: Aber Diamonds (NASDAQ:
ABER) (ABER is no longer a buy based on an updated chart that became available after the November issue went to print), Coca-Cola (NYSE: KO), ConAgra Foods (NYSE: CAG), Duke Energy (NYSE: DUK), Federated Investors (NYSE: FII), General
Electric (NYSE: GE), Hormel (NYSE: HRL), Johnson & Johnson (NYSE: JNJ), PepsiCo (NYSE: PEP), Piedmont Natural Gas (NYSE:
PNY), Sysco (NYSE: SYY), TimberWest (TORONTO: TWF.UN) Yankee Candle (NYSE: YCC), and Sturm, Ruger (NYSE: RGR). All should
treat you well over the next year or so.

Harley-Davidson (NYSE: HOG). As you will see in Charts #1 and #2, Harley, after sharp setbacks, has regained its momentum as well as relative
momentum versus the S&P 1500. Chart #3 shows that Harley, after reaching a low in its year-to-year rate of change momentum, has also turned up. Chart
#4 indicates that Harley’s stock, despite its nice re-bound, is still at a big discount to trend. A comfortable margin of safely remains. Finally,
my short-term chart shows Harley’s power since our re-buy on July 18.

Posted on my Intelligence Report website () is a brand-new Breaking News feature that will keep you up on any
mid-month changes I make. Harley is already up about 18% from my re-buy date. Continue to buy Harley-Davidson.

Polaris Industries (NYSE: PII). Time to buy again. I’ve included Young Research’s four-chart set for Polaris on page 7. Charts #1
and #2 show a Polaris mini rebound. After a mean retrenchment, life is back in the corpse. Chart #3 shows that two standard deviations have been hit,
which is a rarity for any stock. In such a setting, a given stock is severely washed out. Chart #4 shows that Polaris is selling at a deep discount to
trend. You gain a comfortable margin of safety. Buy.

Wrigley (NYSE: WYY). No sign yet of a big upside reversal. Have patience and continue to buy. When investing in the unwashed, unwanted, and forlorn,
patience is required each and every time.

J.M. Smucker (NYSE: SJM). The worst is behind Smucker. After retreating to $37/share, the stock has regained its footing and is now above $47/share.
Continue to buy one of my long-time favorite family-run businesses.

Delta and Pine Land (NYSE: DLP). It’s time to wave good-bye to a name that has been a huge winner. Sell.

McCormick (NYSE: MKC) continues as the #1 player in the spice universe, and the stock is now at an all-time high. One of my long-time favorites,
McCormick continues as the conservative dividend-paying name you can have comfort in owning. Buy.

McDonald’s (NYSE: MCD) may not have taken out the trans fats from its fries, but in our regular stops at McDonald’s on Harley trips,
the wide-of-girth set at McDonald’s could care less. I’d be surprised if many in this crowd had ever heard of trans fats. Were I McDonald’s
management, I sure wouldn’t stay up nights worrying about the matter. Have you ever seen a Monster Thick Burger (not a McDonald’s item)?
These things look like a steer on a hubcap. Each must have at least a trillion grams of saturated fat. The dripping monsters have been a huge hit. Perhaps
McDonald’s should quit worrying about the tofu crowd and roll out a McDonald’s Monstrosity. I’d bet lines would form. McDonald’s
just announced a giant 49% increase in its dividend. And the company expects to buy in enough shares in 2006 to reduce shares outstanding by 5%. The
one-two punch of dividend increases and share reductions is my most highly desired formula for stock purchase. In 2007, I’m looking for a lot more
good things from McDonald’s. Continue to buy.

Anheuser Busch (NYSE: BUD) is now added to my Monster Master List. For the last three years, the stock has acted horribly. Now our four-chart
set indicates a solid reversal. BUD is well below trend, giving you that margin of safety I write about. Last month, I noted that Young Research’s
databases run $17,000/year. And that’s just the start, as a lot of expertise goes into the custom work Young Research does to bring you our common
stock research, as well as all the detailed economic, monetary, and commodities research. You are the regular benefactor of considerable staff effort.
No way would I want to invest a dime in a stock without the multi-step technical work we conduct once a stock has met our screens for dividend and value
suitability.

We like BUD’s growth prospects in China, where BUD holds a stake in Tsingtao and has recently purchased Harbin Brewery. Tsingtao (a super-premium
beer to the Chinese) and BUD are the only nationally distributed beers in China. Harbin is a beer popular in northeastern China, where beer consumption
is twice the national average. And BUD owns a large equity stake in a company that makes huge-selling Corona.

A developing middleclass and low per capita consumption in China bode well for BUD. Per capita consumption in China is 20% of what it is in developed
countries. And 50% of what it is in Japan and South Korea. As per capital income increases per capita consumption and pricing for beer should also increase.
Buy BUD.

November 7—Americans Against Terrorism Day

The absolute key issue facing American investors and non-investors alike this November 7 is who Americans will choose to defend the country against
the Islamic fanatics in the global Salafi jihad. Marc Sageman, an expert in terror networks, tells us in Understanding Terror Networks, “For
decades, a new type of terrorism has been quietly gathering ranks in the world. American ability to remain oblivious to these new movements ended on
9/11.” Mr. Sageman emphasizes, “The success of the 9/11 operation backfired on al-Qaeda… There is some evidence that al-Qaeda leadership
anticipated a limited U.S. response to the operation, on the order of the Clinton administration’s response to the East African embassy bombings
and its lack of response to the USS Cole bombing. This turned out to be a serious miscalculation; the Bush administration decided to freeze al-Qaeda
funds and invade Afghanistan to change its regime and deny al-Qaeda any refuge.”

Israel in Iran’s Sights

The stakes are rising dramatically not just for Americans, but also for our Israeli friends. William Kristol writes, “Jews are under attack.
And no one seems much concerned. Liberal Jews are more concerned about Mel Gibson than Ahmadinejad (Iran’s Mahmoud).” Benjamin Netanyahu,
in a recent interview, said, “Iran has clearly put Israel in its sights… He (Ahmadinejad) wants us to be wiped away.” The WSJ references
Charles Duelfer’s definitive post-mortem report on Iraq’s WMD: “Saddam maintained weapons programs that were in ‘material breech’ of
U.N. resolutions. And he intended to reconstruct his former programs as soon as the sanctions regime was lifted.” The Economist writes, “However
badly America may have conducted its post-war plan for Iraq, it would be a shameful dereliction of duty if it were to leave because voters, in
Connecticut or elsewhere, lose heart.”

Joe Lieberman and Jim Talent Stand Strong

To defend America and, in the same boat, Israel, against the Islamic fanatics in the global Salafi jihad will take guts, patience, a hard line, and
unwavering leadership. The U.S. senate recently passed the badly needed detainee treatment and trials bill by a much-too-close 65–34 vote. Voting
against: only one Republican, Chafee, joining, among other soft-on-terrorism Democrats, Senators Biden, Dodd, Levin, Kerry, and Clinton. Among those
senators willing to stand for the necessary hard line: powerful Second Amendment-defender Jim Talent of Missouri and Connecticut’s Joe Lieberman.
If the guts and leadership of Senators Talent and Lieberman prevail on November 7, the stock market will go into 2007 on a good note. God bless America.

Make it a good month.

Warm regards,

Richard Young signature

Richard C. Young

P.S. Looking ahead into 2007, six industry groups have drawn Young Research’s specific attention. Today, out of favor, unloved, but with great
promise to put a lot of money in your pockets in 2007, are, in no special order, timber, tankers, coal, iron ore, and natural gas, plus biofuels. I’ll
be giving you laser-like intelligence on each.

P.P.S. Go to my website (www.youngresearch.com) for my newly updated Dick’s Juke Box R&R Top 100 as well as this month’s essential
music additions. Here you’ll also get breaking news the minute we have word on the final certificate for the Eclipse VLJs. My Intelligence Report Breaking
News feature will also keep you up on any change I have for my W.M. Wrigley Simple is Sophisticated single-stock program, as well as any mid-month
thoughts I may have on Harley, Polaris, and our other Monster Master List holdings. To ensure you don’t miss a single Intelligence Report Breaking
News update, visit to register your email address.

P.P.P.S. Oliver North writes, “Iranian Hezbollah spokesman Mojtaba Bigdeli has issued a threat to dispatch 2,000 operatives ‘to every corner
of the world to jeopardize Israel and America’s interests’.” And Maj. Gen. Efraim Sneh, retired Israeli defense minister, has told
NewsMax that he believes Iran’s heavy support of Hezbollah makes war with Israel inevitable. Updates on terrorism and its influence on the November
7 election, as well as American and Israeli interests worldwide, will be available to you regularly on my Young Research website.

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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