May 2006 Issue

Simple Is Sophisticated

Debbie and I recently made the pilgrimage to Vermont’s Authentic Designs (www.authentic-designs.com) to order much of the inside and
outside lighting for a New England home we are renovating. At a most bucolic setting, skilled craftsmen turn out masterful creations with the aid of
150 year-old machines. On one such machine was taped the company’s guiding principle: Simple Is Sophisticated.

Authentic Designs & Simplicity

America’s oldest manufacturer of colonial and early American lighting fixtures likes to keep things simple and tidy. Whenever feasible, manufacturing
operations at West Rupert, Vermont’s Authentic Designs are hand ones, helping to eliminate the cold, artificial uniformity created by mass production
techniques. All exposed metal parts are individually cut, bent, and shaped, using methods employed two centuries ago.

Over the decades that I have been writing to you, I have steadfastly emphasized the “keep it simple” approach to investing. And henceforward,
I’m going to embellish my keep-it-simple wording with Authentic Designs’ “simple is sophisticated.” I think this fabulous little
old-world manufacturing company has beaten me to the punch with its great catchphrase.

Rich as Croesus

I want you to begin on your quest for sophistication through simplicity by focusing laser-like on compound interest. Here is an amazing story. I call
it my grandchildren’s “rich as Croesus” strategy. (Croesus was the last king of Lydia from 560–547 B.C.)

When each of my four grandchildren was born, I opened accounts for them at Vanguard’s Tax-Managed Growth & Income fund. Each
year, I deposit $10,000 (and yes, I know you can now give away $11,000/year tax-free). The money is invested with little in the way of long-term tax
implications. Let me show you how compound interest works its magic.

Gettin’ Rich Slowly

If you invest for a compounded rate of return of 10%, it’s easy to think that your long-term return would be twice the return gained by investing
at 5%. That is not the case—not by a long shot. Let’s take a long-term look here, for that is my intention with my grandchildren. Investing
$10,000 at 5% for 50 years gives them $115,000—a staggering sum, to be sure. But at 10%, $10,000 grows to a mind-boggling $1,174,000 (that’s
million). Double the growth rate to 20% (admittedly unrealistic, but useful in this example), your $10,000 would become a stratospheric $91 million (over
77 times the return). And you thought you understood compound interest?

You and Counterbalancing

As noted, a 20% annual return year after year is unrealistic. But you can achieve really terrific success, most conservatively, by counterbalancing
your portfolio with fixed-income and common stocks. Turn to the last page of my Economic Supplement to Chart #51 on the balanced Vanguard Wellington
fund. You will see a healthy number of years with gains actually in excess of 20%—an admirable record for sure.

In 1989, the editors of Fortune published an article headed, “A Low Risk Path to Profits” profiling Loews Corp. money manager Joseph
Rosenberg. Fortune noted that J.R. believed so fervently in the awesome power of compound interest that he carried a compound interest table
in his pocket at all times. Sayeth J.R., “It is the most important thing in investing.” As the article noted, it’s foolish to undermine
the power of compounding by taking big risks that kick you out of the game.

Who Is Bernard Klawans?

In 1986, Forbes headed its “Money Men” feature with “The cautious Bernard Klawans has beaten the stock market soundly over
the past decade. He also knows how to save a penny or two on overhead.” I’ve followed Mr. K. for a long time. In May 2002, the WSJ caught
up with Mr. K. and noted that, in the first quarter of the year, Mr. K.’s Valley Forge fund was tops among 515 balanced funds. At 81 years old,
Bernard Klawans was still chugging along. The Journal also noted that B.K.’s fund had down years only in 1973 and 1990. B.K. missed out
on the technology bubble. “When all that hullabaloo was going on, I was essentially out of the market… I never lost money but I didn’t
make much.” Asked about stock selection, Mr. K. says his stock selection method is idiosyncratic. “There’s no set criteria that I have;
you just have to be patient and look around.” Keep it simple and patient like the venerable Bernard Klawans, a way-under-the-radar veteran of the
investment wars.

Mr. 3.5% Turnover

In 1992, Forbes profiled David L. Stone of the tiny Beacon Hill mutual fund. “The curmudgeonly manager of the little Beacon Hill mutual
fund has some old-fashioned advice for nervous investors: The wisest action is sometimes no action.” Forbes told readers that Stone “…arrives
early at his Federal Street office in Boston every day. He reads the newspapers, opens his mail, and waits for a call from State Street Bank, the fund’s
custodian, with the previous day’s closing price and cash position. He scribbles those down. Then he reads some more. Then he packs his briefcase
and leaves.” And he noted, “People ask me what I do all day. Well, a decision to do nothing is still a decision. It takes effort.” The
perfect response for a “standpatter” fund with a 10-year turnover rate of just 3.5%. Like I’ve said, keep it real simple. Practice
the ultimate in patience.

Get Paid

Now let’s set a track for your conservative money. First, demand to get paid or don’t invest. I’m talking interest or dividends. Do
not invest your hard-earned retirement money without getting one or the other. Next, you want to counterbalance with stocks and bonds. Your portfolio’s
fixed-income component should range between 25% and 75%, depending upon your age and tolerance for risk, and, of course, your investment acuity. In Charts
#50, #51, and #52, I profile for you the value of a balanced approach to investing.

My Efficient Frontier chart below shows you risk and return for various levels of diversification over specific time frames. There is a big problem
with most of the performance data that comes out. In large measure, it’s worthless. The bond bull market of the last two decades is over. Bonds
will not return anything like the returns of the 1980s and 1990s. And with the current high P/Es and low yields, neither will stocks.

The bottom line of my Efficient Frontier is the one on which you want to focus. The top line centers on 1981–2004, a period skewed by the two-decade-long
bond bull market. The middle line covers the complete 1955–2004 period, a period also influenced too much by the great bond bull market to be of
any interest to me. So your focus, as noted, is on the bottom line covering the more normalized 1955–1981 time frame.

Each space between the dots equals 10% in equities. The further you move to the right, the greater your portfolio’s percentage contribution to
equities, and, as you can see, the greater your returns (the vertical scale). As you move right, however, note how your risk increases (horizontal scale).
By selecting a 50/50 portfolio, you slash your risk dramatically while targeting an annual total return of about 7%. In retirement, you could draw 4%
from a 50/50 portfolio and leave 3% of your return behind to maintain purchasing power.

Most Want Funds

Funds or individual securities—what’s best for you? Both will work equally well, but for most investors, either (1) the capital required
to build a professionally diversified portfolio of stocks and bonds is not available, or (2) the enormous amount of time, hassle, and resources needed
makes the fund approach the better way to go. For a diversified portfolio of common stocks, I would want 32 stocks, which would require a minimum $350,000.

What about fund expenses? The cost-side foul ball is delivered to naïve fund investors in the form of front-end loads or sales charges and back-end
12b-1 marketing scabs where a fund group charges you to market its fund to new prospects. Neat, huh?

Next look at internal expenses, which include the investment management fee and associated costs, including custodial, legal, transfer, and
accounting. Associated costs tend to be a function of fund size. Bigger is usually less expensive. But I’m not too concerned here with these expenses.
They are kind of what they are. You need to look closely at the investment management fee: 1.25% and 1.50% are big numbers. In fact, my target is 0.75%
to start, and I like to see a break to 0.5% at some reasonable level of assets, say $1 billion. With so many of the funds I like closing, I wrote last
month about my consideration for a fund based on Young Research’s dividend-paying Retirement Compounders stocks. The 0.75%–0.5% management
fee structure would be most appropriate for such a fund. One back-end fee I do like is a fee for exiting a fund fast. Funds should not be about trading.
There should be a, say, 2% “fast traders penalty” paid directly into the fund for the benefit of all shareholders. Trading
penalty fees should not go to the manager.

Benchmarks Usually Meaningless

Now what about performance? All funds are measured against benchmarks (for example, the S&P 500). The S&P 500 is skewed because it is capitalization-weighted,
where the big-cap stocks have all the clout, and the junk names are regularly dropped and replaced by new names. As such, investors are forced to compare
against a skewed moving target. No good. Moreover, benchmarks have no expenses, trading costs, or tax liabilities. Thus you are not making an apples-to-apples
comparison. Once again, this is no good. How well you will do over time is a function of meeting your personal target (like the ones I’ve set up
for you) and the investment climate in general.

Today’s Weather Report

Let’s look at the investment climate. I have a simple guide that I refer to as my Hurricanes and Presidents barometer. I have an equally simple
two-part fine-tuning gauge of interest rates and economic momentum that can act as a barometer for you.

Hurricanes and Presidents

In the past, I’ve given you tables that show that stocks tend to do well in the year before a presidential election and the year of a presidential
election. In the two off years, it’s a 50/50 mixed bag, and 2006 is a mixed-bag year. History shows that stocks do real well out of hurricane season
and not as well in hurricane season. We looked at hurricane seasons back to 1985 and discovered the following: Since 1985, during hurricane season, the
S&P 500 has had seven negative readings versus only three negative readings out of hurricane season. Moreover, the S&P 500’s gains out
of hurricane season were about five times the gains during hurricane season.

My Hurricanes and Presidents strategy tells you that you make most of your money during the non-hurricane season of a pre-election and election year.
The rest of the time, you can figure to do a whole lot worse. When you factor in momentum in interest rates and the economy, you complete the picture.
The stock market loves declining interest rates and upside economic momentum, and generally reacts not as well or even poorly to increasing interest
rates and declining economic momentum.

Rough Waters Ahead

In the presidential election cycle, 2006 is an off year, and June starts the hurricane season (through November), which is most often a period of reduced
stock market returns. Furthermore, it looks as if the Fed will increase rates once or twice more, which the markets tend not to like. There is yet no
reason, however, to look for much of a falloff in economic momentum. But we are looking at higher interest rates as we approach hurricane season in a
June non-election year. That is not a great scenario for the summer or fall. By year end, however, storm season will have passed, interest rates should
have stopped rising, and the economy, it is hoped, will have remained on track. We then will be looking at 2007, the best year in the four-year presidential
cycle. It would be rare for the stock market to fall in a pre-presidential election year. As long as the economy does not fall into recession, derailed
by higher interest rate hikes or terrorism, I think risk can be figured to be minimal starting in late November 2006.

Stick With Dizzy

Now you have all the portfolio construction and climatic guidance you need looking ahead to the 2008 presidential election. Whatever you do, keep it
simple. The great jazz trumpeter Dizzy Gillespie used to say, “It took me all my life to learn what notes not to play.” There’s a lesson
here: simplicity counts.

Even Mr. Buffett Hits Flat Spots

And no matter how sound your game plan, you will have good periods and not-so-good periods. Even the great Warren Buffett can run aground for a while.
In his most recent Berkshire Hathaway (NYSE: BRKb) shareholder letter, W.B. presents a table that shows, for the three-year period 2003–2005, that
his performance lagged the S&P 500 with dividends.

John Henry Will Rebound

The name John Henry may be new to you. Mr. Henry is the majority owner of the Boston Red Sox and an excellent hedge fund manager with a solid long-term
record. Well, BusinessWeek recently told readers that, from the end of 2004 through February 2006, the assets of Henry’s firm were down
30%. Unpleasant results for Mr. Henry and his investors, but even the best and brightest have dry spells. Never worry about a couple years of mediocre
performance. And, of course, do not harbor expectations that are unrealistic in terms of the investment climate.

Tax Cuts a Must

My constituency includes conservative investors saving for retirement or already in retirement and business owners—period. The high-octane
fuel for success is tax cuts and more tax cuts. Today, the U.S. has the highest corporate tax rate in the world. Our combined Fed and local corporate
tax rate is a growth-strangling 39.3%. The rate is 24.1% in Switzerland and 12.5% in Ireland (wonder why Ireland has the fastest job and economic growth
in the Eurozone?). In the Heritage Foundation’s Index of Economic Freedom, the U.S. ranks only #9. Hong Kong, Singapore, and Ireland rank #1, #2,
and #3. The Economist Intelligence Unit recently ranked Ireland #1 for worldwide quality of life. Switzerland ranked #2. We came in at an uninspiring
#13.

The Case for a Sales Tax

Hong Kong (#1 for economic freedom) has a historical aversion to taxation (for enjoyment and education, I recommend James Clavell’s Noble
House, which is set in Hong Kong). Hong Kong business leaders recently have been anticipating the introduction of a sales tax that would make
unnecessary an increase in the tax on corporate profits. Leo F. Goodstadt, former head of the H.K. government’s Central Policy Unit, wrote recently
in the Far Eastern Economic Review that business wants “the man in the street to pay for a bigger share of any expansion in social services… .
Buried in the [Hong Kong] government’s archives is the intriguing story of how big business first began to dream of a sales tax 60 years
ago. On Christmas Eve 1945, the legendary tycoon Lawrence Kadoorie took time off from rebuilding his power company, CLP, after the ravages of
the Japanese occupation to write to the British military administration. Would they be kind enough, he inquired, to replace all direct taxation with
a sales tax? In 1942, Shanghai’s municipal council had introduced this tax, he explained, which had solved its financial problems despite the
Japanese war.”

I’ve written often that we need a sales or consumption tax in the U.S. to replace the personal and corporate income tax. Today’s ponderous
tax code, along with the IRS, the estate tax, and taxation of dividends and interest, would disappear. Our politicians need to make the Bush tax cuts
permanent, especially the tax cuts on estate taxes, dividends and corporate gains.

Tax cutting, of course, goes hand in hand with budget restraint. And what have our elected officials in the U.S. Senate done for us recently? Well,
how about a 53–46 vote against a DeMint-Crapo plan (GOP Senators) to deposit surplus payroll tax dollars in personalized bank accounts for each
worker. On 20 March, the WSJ laid out the whole sorry mess in “Bonnie & Clyde Budgeteers.” As the Journal noted, on
the list of those voting to continue the Social Security raid is every potential 2008 Democratic presidential aspirant in the Senate, including Clinton,
Kerry, and Bidden. And these people are considered candidates to lead the country?

Dismantle the Welfare State

In a WSJ editorial titled “A Plan to Replace the Welfare State,” American Enterprise Institute scholar Charles Murray hits the
nail on the head. “This much is certain: The welfare state as we know it cannot survive. No serious student of entitlements thinks that we can
let Fed spending on S.S., Medicare, and Medicaid rise from its current 9% of GDP to the 28% of GDP that it will consume in 2052 if past growth rates
continue.” Investors and business owners have good reason for concern. Is our government watching what is going on in India and China and focusing
on the hyper-competitive worldwide environment ahead?

Newt Gingrich to the Rescue

Here’s what The New York Times magazine wrote in its “Party Like It’s 1994” feature: “Democrats hope the 2006
elections will be for them what the midterms 12 years ago were for Newt Gingrich and the Contract with America Republicans. The number of Americans who
identify themselves as ‘conservative’ (a third), ‘moderate’ (two-fifths to a third) and ‘liberal’ (one-fifth) has
scarcely changed over the last 30 years.” The Times notes that the Republican landslide in 1994 was all thanks to Gingrich’s ideas.
Gingrich’s message for Republican candidates: “I am for a balanced budget; I am for a tax cut; I am for a stronger military.”

President Bush continues to take a pounding in the media and the phony opinion polls largely because the media has convinced the uninformed American
public that Iraq is a lost cause. Bush has been a long way from perfect. For starters, we do not have a balanced budget as should be mandated by law.
But Bush has appointed two solid Supreme Court justices (he needs at least one more appointment). He also has filled about a quarter of the spots on
the Federal Appeals Court with conservatives (a lot more needs to be done here). And the president’s tax cuts, as my charts show, have served to
fuel a terrific boost in economic activity and employment.

The Clinton Recession Hangover

Remember, as President Bush took office, he was left with (1) the hangover of the Clinton recession (see my Chart #3) and (2) 9/11. To accurately appraise
how the policies of the Bush administration have affected the U.S. economy, simply turn to Charts #5, #6, #7, and #8 in the enclosed Economic Supplement.
Results have been terrific. No American should complain about Bush’s economic management.

Get Out the History Books

The situation in Iraq, however, is a sticking point. I have outlined my view on the oil issue, and anyone who believes we should be pulling our troops
out of Iraq has not done much historical homework. A good place to start would be Army Major Joel Rayburn’s “The Last Exit from Iraq.” In
volume 85, issue no. 2 of Foreign Affairs, Rayburn warns: (A) “Washington now finds itself facing roughly the same question that London
faced between 1925 and 1927. Should it leave Iraq, or continue until its
project there has truly fulfilled its aims?” And (B) “Having left the work of the mandate undone, the British were forced to return and attempt
to finish the job nine misery-filled years later. The United States can ill afford to do the same.”

Time to Drop the Hammer

Four provinces make up Sunni country, and it is in these four provinces that 80% to 90% of today’s insurgent attacks occur. Insurgents tend to
be indigenous Sunnis. In Iraq’s other 14 provinces, violence is sporadic at most. You see little anti-occupation agitation in Kurdish or Shiite
provinces. At the end of the day, the Sunni triangle is where the problem lies. In my view, until we convince the Shiites militarily speaking, they will
not get the message.

President Bush has now said that a troop pullout in his term is unlikely, and it should be unlikely. Those investors studying military and economic
conditions in Iraq, Iran, and throughout the Middle East recognize the importance of stability. The financial markets will react positively to a harder
line by the U.S. and to weakness with far less enthusiasm.

Four Carrier Battle Groups

As I have noted, the U.S. will increasingly be in competition with China and India in terms of commerce as well as the headlong search for raw materials,
including energy resources. And the military issue will be center stage. The Pentagon is shifting both focus and forces to the Pacific. We expect this
year the largest military exercise in the Pacific in decades. It now looks like four aircraft carrier battle groups will exercise in unison in the Pacific.
We know that China is rapidly building its missile forces, and we are reacting accordingly.

E85

We already have the technology to produce plug-in hybrid cars that can be built to run on short 40- to 50-mile trips before the gasoline (E85) engine
needs to kick in. Short-run commuters would not even need gas. Plug-ins rely on batteries for short runs. Plug-in flex-fuel vehicles burn E85 (85% ethanol
and 15% petroleum) and might get as much as 1,000 miles per gallon for short trips. Dick Lugar (R-Ind.) will soon co-introduce a bill that will mandate
that oil companies install E85 pumps in appropriate markets. Virgin Group’s Richard Branson believes that E85 can replace fossil fuels in 30 years.
He has set up an ethanol-inspired subsidiary called Virgin Fuels. The goal is the construction of cellulosic ethanol plants where the resultant fuel
is 100% environmentally friendly. Bill Gates is funding publicly traded ethanol maker Pacific Ethanol of Fresno, California. Vinod Khosla, revered co-founder
of Sun Microsystems and a Kleiner, Perkins, Caufield & Byers partner, is sinking his own money into “clean fuel” technologies such as
ethanol. Stephen Dolezalek, a Vantage Point (venture capital) partner told the WSJ, “This is a sector that can be every bit as big as
the Internet.”

It’s Time for Professional Management

In 1975, Brazil launched a full-bore ethanol program while we slept. You really can’t make up how idiotic we have been. Have you ever thought,
as I often have, that it is time we brought in the management consultants with a plan to run this place as a world-class country able to compete with
any country on any front business, rather than continue as the lumbering income-redistribution welfare state we have become? Well this year, unlike the
old U.S.A., Brazil will declare energy independence and say goodbye to the Middle East oil crowd. Brazil makes its ethanol from sugar cane grown endlessly
there with its favorable climate. Today, over 70% of Brazil’s new car sales are “flex” or E85 users. Brazil has nearly 29,000 ethanol
filling stations. We have about 600 here in the U.S. Nice going! Brazil is the world’s #1 sugar producer, the #1 sugar exporter, and the low-cost
sugar producer. Australia ranks #5 in terms of low-cost sugar production, after some questionable candidates in Africa. Plug-in hybrid battery/E85 cars
have the ability to change so many things that it is shocking to contemplate the international landscape in the years ahead.

The Crash

Do you feel the cracks where you live? I do. Down here in the Florida Keys, there are more houses on the market than at any time since Debbie and I
first came to Key West in 1990. Old Town historic properties are probably off in price about 20% from their peak. Hundreds and hundreds of properties
bought for speculation are not selling, nor are the hundreds that flooded in Wilma. Many of the flooders will become bank repos. The saturated South
Florida condo market is going to get savaged. Do not buy a waterfront condo from Florida to Texas unless it is up to Dade County, Florida, building code.
You won’t live long enough to collect damages from the insurance company thieves down here even if your fellow condo cheapskates can agree on what
needs to be done. No way. Buy only on high ground. Having lived on the water on the East Coast for three decades, I’ve been through a boatload
of hurricanes, but let me tell you, it’s a whole new ballgame with the new hurricane cycle.

Do not speculate. Own for cash where possible. Max out on your homeowners and flood insurance. I’m not in a flood zone in my primary residence
or in my summer home in Newport, but I’m covered for flood insurance on both. Big-time metal storm shutters go up in Key West, and trees are trimmed
to look like pencils. I’m looking for 30 or more named tropical storms this year, which should, as they say, put the cat amongst the chickens.

How About Renting?

If you are planning to retire soon or are currently retired and want to live down south, or for that matter anywhere on the East Coast where hurricanes
roar, I’d strongly consider renting rather than buying. You should be so lucky to miss out on any property appreciation. And if your manse gets
hit, you can simply split. I’m not kidding here. I really like the concept of renting rather than owning where the winds will blow. Not all sectors
of the country will get hit with the real estate crunch that I project, but there will be enough carnage to create a boatload of misery. Read carefully
what I’ve just written here on real estate, and ask yourself whether you need to rethink your own retirement game plan. It’s not a seller’s
market, that’s for sure.

What I’m Doing

As I’ve written often, I let you know what I’m doing myself. For my pension fund, I have recently bought (1) Fidelity International Real
Estate, (2) Fidelity Canada Fund, (3) Third Avenue International Value (closed to new investors), and (4) Vanguard Precious Metals & Mining (also
closed to new investors). It would not surprise me if the first two funds above closed once the public catches on to their existence. I also bought two
iShares positions—Singapore and Australia.

In a nutshell, here’s why I like the six (in order): (1) Lots of international properties can be had today at more reasonable prices than here
at home. (2) A new conservative government, a strong currency (see my Chart #21), and a gigantic natural resources base, including tar sands, nickel,
timber, and diamonds. (3) My #1 fund choice. (4) US$ on thin ice. Wealth accumulation (gold, silver, diamonds) over the coming decade in China and India
augurs well for the fund. (5) A stable government and an ancillary benefactor of China’s growth. (6) A great natural resources base. I’d
like you to invest in each of these six. Unfortunately, unless you have already opened positions, you are shut out of two. Do not miss the boat on the
two Fidelity funds, as I plan to feature each in coming months. My advice will influence the growth in assets for both.

Breaking news: The SEC has approved rule changes that will allow the listing of Barclay’s iShares Silver Trust. Each silver share will correspond
to 10 ounces of silver. I’ll have trading info for you shortly and will post it at
www.youngresearch.com as I get the info.

Fixed Income

Investment-grade preferreds always make sense in IRAs and where you need money to spend today in retirement. You can target 6% yields. NYSE-listed preferreds
are a cinch to buy. You buy in 100-share lots, just like any listed common stock. New issues usually come at $25/share with five years until first potential
call. Preferreds trade like long bonds, meaning values fall in an environment of advancing long-term interest rates. Pay no attention to volatility in
values on your brokerage statement. You are investing simply for a flow of cash to spend or to compound. That’s it. Forget cap gains. And unless
a preferred has been downgraded, it is rare that you would want to sell until your issue is called away from you. Do not let your broker try to trade
you by giving you the “let’s take some profits off the table” rap. You are being conned. I like JPM Chase Capital XIV (A1/A-) to yield
about 6.2% (symbol: JPMpY); Metlife 5.87% (A2/A) to yield about 6.1% (symbol: MLG); HSBC Finance 6.36% (NR/BBB+) to yield about 6.2% (symbol: HFXPRB);
Lehman Bros. 6.50% (NR/A-) to yield about 6.2% (symbol: LEHPrF). Add all to your fixed-income portfolio with impunity. I really like the municipals market
here. Stick to AAA-insured issues in your state with an average maturity of about five years.

Over the last year, the #1 performing big bond fund has been my long-owned and highly favored Vanguard GNMA. The current 30-day SEC
yield is 5.05% with duration of 3.4 years. My #1 selection for a shorter-duration fund is Vanguard’s Short-Term Investment-Grade with
a 30-day SEC yield of 4.7% and duration of 1.8 years. As always, I love full-faith-and-credit U.S. Treasury securities whether coupon bonds or zeros.
Keep your average maturity around 5 years. Today, the 5-year Treasury yields around 4.6%.

Balanced funds can work well for you in adding some fixed-income. Each month on the last page of my Economic Supplement, you will find charts helpful
to you. Make Vanguard’s Wellesley and Wellington your first choice. I’ve been with both for many years.

Monster Master List Stocks

Harley-Davidson (NYSE: HDI): My longer-term price target for Harley remains $72/share. After my most recent buy advice around $45/share and the advance
to nearly $53/share, I’m going to stand aside a while with a nice profit. In early April, I’m seeing weaker used-bike prices as the ’06
riding season gets under way nationwide. This pattern may change, but I want to wait for a couple of months. Harley has recently changed its warehouse
arrangement with dealers, and there are potential implications here that require some clarification not yet visible. Finally, I want to see what the
EPA is up to this season in terms of altering or enforcing new emissions standards. In recent years, Harley’s stock has taken occasional nasty
hits on what is often misinterpretation of some event or announcement. Good buying opportunities frequently are presented. Over the spring, I’ll
complete the field research outlined above and sit patiently awaiting the next good interim buying opportunity.

St. Joe (NYSE: JOE), like Harley, is one of my favorite companies in the land. Today, I’m on the sidelines with St. Joe as well.
My April 2006 stance on St. Joe relates specifically to the start of the hurricane season in June. St. Joe’s properties did not get hit in ’04
or ’05 and, I hope, will again dodge the bullet in ’06. I’ve decided to pull back and await the end of hurricane season for my
next potential buying opportunity.

Jardine Matheson Holdings Ltd (US ADR: JMHLY): I’m adding this Singapore-based conglomerate to my Monster Master List. The company
was founded in the 1700s by William Jardine and James Matheson largely to smuggle Indian-grown opium into China from the company’s base in Shanghai.
The opium trade ushered in foreign
control of Shanghai. Today, J.M. looks to snag its customers with quite a different package of assets ranging from the company’s interest in Mandarin
Oriental (hotels) to property development (Hong Kong).

Alexander & Baldwin (NASDAQ: ALEX): As China grows over the coming decade, A&B, with its interests in real estate, food products,
and ocean tankers, will prosper. Over the last 36 months, you have averaged over 28% on your money. You must be delighted. Continue to buy.

Illinois Tool Works (NYSE: ITW) has a powerhouse balance sheet and unmatched diversification. Make ITW a core holding. The company
works off its base principle that each of its literally hundreds of operating units should receive 80% of earnings from 20% of their customers. Over
the last 36 months, you have averaged over 14% per year on your investment. Continue to buy.

General Electric (NYSE: GE) has made a $650 million deal to acquire Canadian water treatment company Zenon Environmental Inc. I like
the course GE is on, as well as Jeff Immelt-led management. Buy.

The #1 holding of Vanguard Precious Metals & Mining (now closed) is Lonmin PLC (LONDON: LMI.L), a dividend-paying major South African
platinum producer. I’ve added Lonmin to my Monster Master List. It’s a nice natural resources holding for you.

China has about 40 nuclear plants on the drawing boards for development over the next 15 years. Imported nickel (perhaps 45 million pounds of nickel
in total) will be a must. Much of it will come from the world’s new #1 producer, Inco (NYSE: N). I’d add Inco to your portfolio.
India, as well as China, relies heavily on imports.

Go to my Top 10 Countdown for all the stocks to add to first this month. #1 is Time Warner (NYSE: TWX). I just don’t see much
downside there. And upside? Well…

Make it a good month.

Warm regards,

Richard C. Young

P.S. It costs the Saudis less than $1/bbl to bring their oil to the surface. It is in their very direct self-interest to prevent sky-high oil prices
from bringing about an E85/nuclear/coal revolution that makes the U.S. independent of Middle East oil. The Saudis could engineer a collapse in oil prices
to prevent such a scenario. As much as I hate to advise it, the U.S. needs a tax on crude oil imports at a level a little above Young Research’s
$42/bbl theoretical price for oil (see Chart #39). There’s a whole lot of oil out there to find. In a recent issue of Foreign Affairs,
the Italian energy company ENI’s Leonard Maugeri explained, “Between 1995 and 2004, fewer than 100 new-field wildcats were drilled in the
Persian Gulf, compared with 15,700 in the U.S.” Much more next month on the international energy scene and potential U.S. energy self-dependency.

P.P.S. Next month: My best investment ideas from the country that has more lakes than the rest of the world combined; Digital Revolution-era intelligence
on the discovery that one engineer thinks can over the next decade reduce cancer treatments to a “simple outpatient procedure”; intelligence
on a digital-age high-tech machine that will provide more accurate testing for prostate cancer; and info on my new pharmaceutical company find. I use
this quiet company’s products every day.

P.P.P.S. Go to www.youngresearch.com for my answers to your most frequently asked questions, my latest essential music additions, and our brand-new
baseball stats feature, giving you a look into baseball’s not-so-distant future.

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.