November 2005 Issue

November 1, 2005
By Richard C. Young

High Water…

Kim Wilson & the Fabulous Thunderbirds recorded High Water—High Water. “When darkness falls over the land/it strikes fear in the heart of man/get down on your knees and pray/this is rehearsal for judgment day.” Hurricanes Katrina and Rita allowed just such a feeling, and high water is the theme of this month’s report.

The Pam Plan

Last year, a plan was prepared by the government to respond to a Katrina-like hurricane in New Orleans. Submerged in all the media madness is vital intelligence. Some local officials, like the director of Emergency Preparation for Jefferson Parish, followed the mock hurricane plan. The majority of Jeff Parish evacuated.

The Hurricane Pam plan was distributed in early January to state emergency planners and officials with FEMA, as well as to the Army Corps of Engineers and the Coast Guard. Did you know that there exists a nearly 500-page document titled “Southeast Louisiana Catastrophic Hurricane Plan?” The plan outlines the view that a big percentage of New Orleans residents would not be able to evacuate because of a shortage of transportation. According to an excellent report by Robert Block in the WSJ, the plan projected that “the response capabilities…may be insufficient and quickly overwhelmed.”

And when did Louisiana begin calling for buses from the Feds? The call was delayed until the day following the breaching of New Orleans levees, if indeed the levees were breached. Did the earthen levees fail? It doesn’t appear so. Rather it is possible that the quality of construction material in the flood walls around the drainage canals caused the walls to give.

No-Call Blanco

As Daniel Henniger outlines in the WSJ, “It appears now that Governor Blanco did not make the crucial, early, legally mandated call to the president.” And The Economist maintains, “Kathleen Blanco, the Democratic Governor of Louisiana, refused to let the federal government take control of the National Guard relief effort in her state, fearing this would allow the Bush team to blame her for any earlier incompetence.”

Rapid Deployment

In an excellent Wonder Land editorial, Mr. Henniger tells us, “The popular impression left this past week—that the government was wholly unprepared for Katrina—is not true. Significant military assistance was on alert throughout the week prior to Katrina’s landfall…. The Pentagon began tracking the storm when it was still just a number in the ocean…. And a week earlier than this, Defense Secretary [Donald] Rumsfeld issued an executive order delegating hurricane decision authority to the head of the Northern Command, Adm. Timothy J. Keating. Four days later, as the tropical storm soon-to-be-named Katrina, gathered force, Adm. Keating acted on that order. Before a hurricane arrived in New Orleans, Adm. Keating approved the use of a Navy base in Meridian, Mississippi, and Barksdale Air Force Base, Louisiana, to position emergency meals and some medical equipment.” According to Assistant Secretary of Defense for Homeland Defense Paul McHale, as Daniel Henniger notes, “The U.S. military has never deployed a larger, better-resourced civil support capability so rapidly in the history of our country.”

So, as I’ve summarized for you, all is not as you may have thought while listening to the network coverage of Katrina. Perhaps 500,000 people are without homes due to Katrina, never mind Rita. Texas looks to have about 300,000 new residents, with Houston alone absorbing 100,000 to 200,000 evacuees. And perhaps $200 billion is now proposed to deal with Katrina.

“Come Shoot Us”

Before Hurricane Katrina, if anyone had suggested sending this kind of money anywhere near Louisiana, gales of laughter would have ensued. Former Louisiana lawmaker Billy Tauzin used to say, “Half of Louisiana is under water and the other half is under indictment.” National Review Editor Rich Lowry cautions, “The Orleans Levee Board, the state agency charged with protecting the levees, is so notorious that it makes Bush’s FEMA look like a paragon of professionalism.” Former president of the Board Billy Nungesser, who was ousted after trying to reform it, says, “Every time I turned over a rock, there was something rotten. I use to tell people, ‘If your children ever die in a hurricane, come shoot us, because we’re responsible. We threw away all sorts of money.'”

The New Orleans school system is a joke. Even with low standards, the state has labeled well over half of its schools “academically unacceptable.” And it is perhaps not widely known even in New Orleans that a large number of good folk including plenty of school district employees, have been indicted on charges of theft and kickbacks.

Former Governor in the Joint

And lest we forget good old boy Edwin W. Edwards, four-term Louisiana governor. Edwards is now a guest of the state in Louisiana due to a conviction on 17 counts of federal racketeering related to gambling casino licenses.


Bordering Newport, Rhode Island, the town of Middletown graciously, if naively, welcomed 106 evacuees. Well, the local police apparently have SCMODS. You remember, State, County, Municipal Offender Data System from the Blues Brothers? It seems that 57 of the 106 guests share an annoying common trait—arrest records, of which 38 are for felonies. Welcome to Middletown. Worse yet, the evacuees are being housed on quasi-naval property, where the naval station in Newport was supposed to provide protection. Our local newspaper’s headlines read, “With Little Notice, Navy Backs Out of Policing.” The Middletown town council vice president explained why. “I think they (the navy) recognize that the people who were brought here, a majority of them have criminal backgrounds.”

Daniel Henniger ruminates in a Wonder Land editorial in the WSJ, “What is New Orleans today? It is the impoverished, lawless product of Huey Long’s anti-capitalist populism, cross-fertilized with every poverty program Washington produced for the past 60 years.”

One-Way Ticket

New Orleans City Council President Oliver Thomas has said, “Those who evacuated on their own will likely be able to return, while those who evacuated by bus, boat, and helicopter will be marooned once again, this time out of town…. They got a one-way ticket to nowhere.”

Demographics to Rapidly Change

Louisiana Garden District resident Jimmy Reiss is part of Mayor Ray Nagin’s administration. Reiss is chairman of the city’s Regional Transit Authority. In a WSJ conversation, Reiss stated that he and other business leaders will no longer tolerate living in a dangerous city with bad schools and substandard municipal services. “Those who want to see this city rebuilt want to see it done in a completely different way: demographically, geographically, and politically.

Murder Capital New Orleans

And what might Reiss be referring to as dangerous? In a recent visit to New Orleans, Debbie and I got into a cab whose driver had a loaded gun in the front seat for protection. Several days earlier, another cabbie had been shot and killed by a 16-year-old girl and her boyfriend. And last year, driving out of New Orleans in the daylight, we asked a policeman for directions to I-10. After telling us that we would not be safe, he escorted us out of the neighborhood, which was literally a stone’s throw from the French Quarter. The New Orleans metro area ranks #1 in the U.S. in murders, with a staggering 25.5 per 100,000 population. The national rate is 5.7 murders per 100,000. Thinking of all you 76 million Americans ready to retire and perhaps relocate, I’ve posted on my website a city-by-city roster of murder rates. Go to

Florida’s Castle Doctrine

Louisiana would do well to take a page from Florida Governor Jeb Bush’s playbook and vote into law the “Castle Doctrine.” The Nagin administration’s Reiss, justifiably concerned about having his Garden District manse looted by the hordes, flew in by helicopter (a perfect use for Audubon Park) an Israeli security company to safeguard the area. While Reiss did not tell me this, Instinctive Shooting International (ISI) was brought in to “fend off the unwelcome.” I know this because we checked in with ISI, which normally does not engage in Garden District-type foot patrols.

Israeli Counterterrorism Units

And an unfortunate day it would be for any looters running accidentally into an ISI team. It would be the “the final run-in.” ISI is normally involved in consulting and training services to the likes of the U.S. Navy Seals, the U.S. Border Patrol, and other associated national and international outfits. ISI instructors and consultants are veterans of the Israeli Special Task Force, including Israeli national police counterterrorism units.

Black Ice

We also know that Black Ice Security Services was on the ground in New Orleans answering an array of security-related issues. Any New Orleans resident of means was crazy not to have called in “the real people” to protect life and limb from one of the most destructive Third-World looting hordes ever witnessed in the U.S.

Writing in the WSJ, David Schoenbrod noted, “After Hurricane Betsy swamped New Orleans….the Army Corps of Engineers designed in 1965 a Lake Pontchartrain hurricane barrier to shield the city with flood gates like those that protect the Netherlands from the North Sea.” Well none was built, and the reason why is somewhat cloudy. Don Basham, chief of engineering at Army Corps headquarters in Washington, told the WSJ, “There’s no question…we could build to protect against a category five storm.”

The Maaslandkering

A trip to Holland would be instructive for the New Orleans powers. The 1953 Dutch floods brought about a 30-year program to strengthen protection. Today, a one-and-a-half-mile stretch of 62 gates controls entry and exit of North Sea waters in Holland’s low-lying southwestern province. The Netherlands’ strongest sea defenses were designed to stand up against a storm so strong it would occur only once in 10,000 years. The two most impressive barriers are the storm surge barrier in the Ooster-Schelde (Zeeland) and the New Waterway Storm Surge Barrier (Maaslandkering) near Rotterdam.

Back to Nature

Along with an expensive form of protective barriers, it is clear that the wise choice for New Orleans, as Holman Jenkins writes in the WSJ, is “relinquishing the city’s lowest elevations back to the waters.” In other words, a lot of the worst-hit sections of New Orleans would not be rebuilt, and the population of New Orleans would shrink dramatically. Common sense calls for restoration of the coastal wetlands that act as a natural storm barrier.

The central structure of New Orleans will rebuild better than ever on the high land along the Mississippi, which includes the French Quarter and the Garden District. New Orleans’ one/two punch of tourism and shipping will come back. Employers must find ways to house their own employees. Remember, the Port of New Orleans is #1 in the U.S. and ranks as the fifth-largest in the world.

No Landfill Big Enough

Regarding cleanup and disposal of all the waste, Edward J. Bouwer, environmental engineering professor at Johns Hopkins University, told BusinessWeek, “This is going to be an absolutely enormous volume. And I doubt that much of it will be able to be recycled.” As BusinessWeek notes, “There is no landfill in the U.S. large enough to accommodate a trashed city, and scientists say there is a limit to how much other nations would be willing to take.”

As Paul Burka writes in the WSJ, “A 15-foot storm tide can reach 50 miles inland, spilling into the heart of a metropolitan area.” Hurricane Katrina and Rita have forever changed the way Americans should look at living and certainly retirement living.


Charles Murray, American Enterprise Institute Scholar, writes in the WSJ, “Criminality is the most extreme manifestation of the unsocialized young male. Another is the proportion of young males who choose not to work. Among black males ages 20 to 24, for example, the percentage who were not working or looking for work when the first numbers were gathered in 1954 was 9%. That figure jumped during the 1960s and 1970s, stabilizing at around 20% during the 1980s. The proportion rose again, reaching 30% in 1999, a year when employers were frantically seeking workers for every level of job. Hurricane Katrina temporarily blew away the screens that we have erected to keep the underclass out of sight and out of mind. We are now to be treated to a flurry of government efforts from politicians who are shocked, shocked, by what they saw.”

My Big Idea

All the hurricane-related issues in my preceding analysis are vital in your thinking regarding my Big Idea. For many quarters, I’ve been keying in on the impending retirement beginning in 2008 of 76 million baby boomers. I’ve tied this retirement wave into the emergence of real broadband, the widespread availability of very light jets (VLJs) as virtual air taxis for the affluent, the 2008 U.S. presidential election, and the Chinese-hosted Olympics. The 2008 Olympics (if there is an Olympics) will open China’s window to the world. And as the window opens, a wide array of issues will float forth. All in all, my Big Idea has profound importance for you in every facet of your life—especially if you are retired or soon to be.

My primary residence is in Key West and my longtime summer residence is in Newport, Rhode Island. Each of these small cities is at constant risk for hurricanes. Over the last three decades, many hurricanes have indeed hit. No matter where you live, you no doubt face natural disaster risks from hurricanes, tornados, earthquakes, mud slides, rain washouts, wild fires, and rockslides. On our recent Harley trip to Colorado, we faced a monster of a rockslide that paralyzed Interstate 70 between Vail and Denver. Fortunately for us, it was the I-70 West that was bombarded and closed, or we could have been among those stuck in a seven-hour traffic jam.

We have no plans to retreat from either Key West or Newport. Both homes are on high ground, such as it is. You can get all the wind-damage insurance you need, and damage from wind is pretty manageable. Flood is quite another matter. All you get is $250,000 per single structure, and, at that, you will get only 80% of the damage (and try to convince the flood insurance folk you have flood and not wind damage) or $250,000, which ever is less. In Key West, we have two structures as part of our mini compound. As such, we have two flood policies, two wind storm policies, and two homeowner policies, (which I’ve been complaining about for years, but they have actually worked in my favor).

On Come the Hyenas

The jerk of an Attorney General in Mississippi and the tort lawyer hyenas are suing insurance companies that have flood exclusions in their contracts. These suits are an outrage, and all concerned should be disbarred. The Mississippi AG needs to resign. My Key West wind policy explicitly reads, “This policy does not protect you against loss due to flood or wave wash.” End of disclosure. That is why I and every other homeowner with any sense has a flood insurance policy.

Over the last half a dozen quarters, I’ve given you a number of ideas to make you safer. Go back to my December 2004 issue, and turn to “Check out Deltec.” As I wrote, over the past 12 years Deltec has delivered over 1,100 homes. Not a single one has collapsed from high winds, a huge selling point in hurricane country, especially in the Caribbean. Deltec is in Asheville, North Carolina.

Slash New Orleans’ Population

When a home floods, as was the case all over greater New Orleans, it is a serious issue. Regarding the New Orleans flooding, Haag engineering’s Jim Wiethorn told USA Today editors, “I’ll be surprised if any of the houses submerged to the ceiling will be able to be salvaged.” Christopher Jones, a coastal engineer from Durham, North Carolina, told USA Today, “My best assessment is that you won’t be able to dry out these homes, which means they will have to tear them down.” The Economist summarizes that between 140,000 and 160,000 homes have been submerged or ruined. To me, all will fall into the ruined and should not be rebuilt category. Thus my view is that the population of New Orleans could well be cut in half or more. There will not be a powerful or well-financed lobby to repopulate an area where the crime rate was 10X the national average.

You Want X-Zone

To summarize, you don’t want to flood. You want to build or own high above the water. I’ve advised you to eschew older waterfront condos not built to the latest Florida code. Trust me, you won’t live long enough to get a big group of condo owners together to regroup with multiple insurance companies after a high damage storm. I’ve advised you to buy and build to the current Florida code, which is the harshest in the nation. I’ve advised you to go for X-zone or non-flood zone designation as I have. And yet I still have flood insurance and so should you. I’ve advised historic neighborhoods, like the Garden District in New Orleans, that values hold up best. Golf course communities and condo projects are thicker than flies at the dump. Avoid both—as well as the dump.

Buy a Satellite Phone

Two of the biggest problems in a natural disaster, like a hurricane, are lost power and no phone service. I own a Qualcomm satellite phone, which I carry on our Harley trips. I’ve been able to make connections in remote places. As for no utilities, for $650, you can run your refrig, TV, and lights with a 50-lb. Coleman #6250 generator. It has a reliable Briggs & Statton gas engine and can be run in your garage. And you always want 150-mph rated tempered glass windows, along with hurricane-fighting front and garage doors. All these items are a must.

Taking a St. Joe Break

I’ve written that if the hurricane season gives you any discomfort, you should sell St. Joe (NYSE: JOE) and return after the hurricane season. For my money, anyone who does not take every defensive position possible during hurricane season is a little out of touch. Since the start of hurricane season, St. Joe is down 25 points. I think the stock could see the $40s again before it returns to the $80s. Last year, even with four major hurricanes slapping Florida, St. Joe properties had no problem and, so far so good in 2005. St. Joe has some of the finest properties in the U.S. and is clearly #1 in Florida. The upcoming RiverTown development 30 miles south of Jacksonville may well become the #1 top-end family and retirement development in the U.S. This part of Florida is relatively free of hurricanes, and the St. Joe property is well inland. But we are now in a new long-term cycle for hurricanes that will look potentially like the 1931–1960 period, when there were an average of eight to ten major hurricanes a decade, rather than four or five as has been the case in the 1971-2005 period.

Check Out Coral Springs

The explosion of broadband and VLJ air taxi service (runways of only 2,500 feet required) will allow you to live in small towns and remote places in general. You, of course, will consider eschewing the high murder rate meccas like Victoria, Texas, and Pine Bluff, Arkansas, for example. As noted, I’ve listed the murder rates on my website ( You will find dozens of options with low murder rates in the 40 or so cities with less than two and even no murders per year. Some pleasing candidates include Coral Springs and Cape Coral, Florida; Boulder, Colorado; Cary, North Carolina; Napa, California; Rochester, Minnesota; and Sandy, Utah.

Big-Box Store Demographics Stink

When looking for a retirement spot, if possible, look to be as far away from a Wal-Mart or Rite Aid and similar big-box stores. And I especially loathe the Dollar Stores that seek to locate where demographics are most hostile to civility. I would point to Woodstock, Vermont, for example, which has none of the above and, instead, has a locally owned drugstore and a beautiful country store in the middle of town.

Every locale in the U.S. has not been bid out of sight, such as, for example, Tuscaloosa, Alabama. I have not been to Tuscaloosa, but my niece is now applying to college and loves the University of Alabama campus in Tuscaloosa. Recently listed in the WSJ was a beautiful, large home on a wooded lot at only $389,500 in an area near the University of Chancellor. Taxes were a low $328 a year.

Aside from reasonably priced real estate, you may also want to take my advice and avoid fast-depreciating new cars and instead look for a classic beauty for light money. I recently looked at a one-owner, solid-as-a-rock Pontiac 1976 Bonneville with only 46,000 original miles. The asking price? $4,000. Think of all the fun you can have with a classic car for light bucks. Prudence in retirement is a good strategy. One of our cars is a 17-year-old Jeep Wrangler.

I’ll have a nice rundown for you on my air taxis concept next month. For now, I can tell you that at the top of my checklist are the $1.3 million Eclipse 500 jet and the world’s best-selling airplane in the world, the much cheaper Cirrus SR22 (single-engine prop plane).

China Issues

Looking toward 2008 and my Big Idea, China plays a big part. I’m not interested in investing directly in China, nor do I advise China mutual funds or individual shares. China is loaded with serious problems. Instead, stick with shares in countries that must benefit as China, over time, moves more toward the center of the world economic stage. Best-positioned are companies based in Australia, New Zealand, Singapore, and Hong Kong.

Yoda Speaks

I’ve been writing about concerns I have with China’s military buildup, and it has a most offensive, not just defensive, look to it. The name Andrew Marshall may or may not mean anything to you. If you are high up at the Pentagon, the name resonates. Marshall is perhaps the most distinguished hawk on China. Defense Secretary Rumsfeld relies on the 83-year-old futurist. Rumsfeld is considered a Marshall protégée, as is Vice President Cheney. Insiders at the Pentagon affectionately, perhaps, refer to this creative thinker as Yoda. Marshall’s forte is future war fighting.

Although President Hu puts on a peaceful face (perhaps genuine), clearly there is rising anti-U.S. nationalism inside the Chinese military. Hu will be under pressure to continue with China’s rapid military buildup.  For the first time ever, China and Russia are conducting joint military exercises. It is thought that perhaps as many as 10,000 troops participated in the recent maneuvers. I see the drills aimed not only at the increasing potential for internal strife in N. Korea, but more important, also at China’s ill-advised saber-rattling against Taiwan. The U.S. Pacific Command was concerned enough to have sent surveillance aircraft into the zone near the exercises.

Hong Kong news services continue to report that China is speeding up work on anti-aircraft carrier tactics. It is clear that the People’s Liberation Army’s (PLA) strategy is aimed at causing the U.S. to think hard about sending carriers into the Taiwan Strait in the event of a PLA invasion there. A blockade of the Strait of Malacca would cripple Chinese oil imports and effectively hog-tie the Chinese economy. And China could probably forget the Olympics if a single shot were fired in the direction of Taiwan. With so much at stake for China keyed to the 2008 Chinese-hosted Olympics, you would think that the comrades might want to tone down the ill-advised yak on Taiwan. The U.S. doesn’t need to engage in any form of military action to virtually shut down the Chinese economy. And few in the world would benefit from such an unfortunate occurrence.

Why does China continue to export missiles to Iran, N. Korea, and Pakistan? Chinese Internet sites are reporting the deployment of China’s new ballistic missile and attack subs (type 093 and 094 subs). Both are hush-hush and classified as top-secret. Both subs appear to have the capability of targeting China’s newest generation missiles at the U.S.

Deputy Secretary of State Robert Zoellick has challenged China to explain its military buildup. Secretary of State Condoleezza Rice has said, “The Chinese military modernization looks outsized for its regional interests.”

Now you have some perspective on why one’s investment perspective regarding China must first and foremost hinge on the knowledge that China talks one way and acts far differently. China’s offensive military buildup is associated with its ongoing fascination of forcing Taiwan back into the mother ship. More next month.

The Bear Market Century

In the new century, a stock portfolio invested 50% in the S&P 500 and 50% in NASDAQ would be down 32%. By comparison, a conservative portfolio invested 50/50 in the boring DJ utilities and transportation indices would be up a near equal 34%. And, of course, a fixed-income portfolio of short- and intermediate-Treasuries would have provided comfortable if not exhilarating positive returns. I don’t look for much from either stocks or bonds over the coming five quarters. It will be tough for stocks to mount a charge in the face of higher interest rates and the overhang of the massive U.S. current account, trade, and budget deficits.

Three Key Words

My Big Idea is illuminated by the neon light of 76 million retirees starting in 2008. 1) INCOME will define the hordes’ central investment theme. 2) MIGRATION is front and center as the swarm heads to safe, remote, and appealing villages, towns, and small cities (population below 25,000). I look for warm weather destinations to prevail. 3) LEISURE will also be key. Time spent commuting to the office in crime-riddled, poisonous air cities instead will be spent on outdoor recreational activities, including motorcycling, ATVing, snowmobiling (probably not in Florida), RVing, and shooting range lessons (a good idea).

Migration, Leisure, and Income are my three theme words for you to focus on as you consider the domestic investment landscape over the next few years. What are the specific implications for you and what do I want you to do now—today—to set yourself on the right track?

I touched earlier on the migration issue as to where you might look for a retirement base or well-earned second home. Take the appropriate action for you. For example, do you have flood insurance, a satellite phone (a must), or a generator? Are you currently hot on the trail of retirement spot or second home that would violate my defensive principles? Consider an alternative. And please remember both my residences as well as additional properties are in hurricane zones. They are on high or quasi-high ground, constructed to fight the battle, and each is insured to the hilt.

You can insure and counterbalance to make risk acceptable. For example, I’d love to have a spot in the French Quarter or Garden District, despite the hurricane disaster and crime capital of the U.S. designation, a label I expect to change in a big way with the chief of police forced out by Mayor Ray Nagin. I’m probably one of the few who are not down big time on the mayor.

Let’s move on to LEISURE, specifically outdoor activities and the common stocks (Harley-Davidson, Polaris, and Sturm, Ruger) that will benefit.

I’ve long tooled on Harley-Davidson‘s (NYSE: HDI) stepchild, its light-selling Buell unit. No more. Buell has a hot new entry in the sport-touring class (XB 12X Ulysses), and it’s hard to get one from Harley dealers. I’m told a lot of XB 12Xs are being exported. A Pennsylvania dealer told me he could sell 30—if he had any to sell. Fortunate XB 12X seekers will find 1) one of the finest American motorcycles ever built, 2) super suspension and comfy seating, 3) a reasonable base price of $11,495, 4) 82 horsepower at the rear wheel and 127 mph top end, 5) 50 mpg, and 6) super aftermarket luggage cases. Harley/Buell has a real winner here. Stick with your Harley stock. More next month.

Polaris Industries (NYSE: PII) has taken a sizable stake in Austria’s KTM Power Sports AG. KTMs are great bikes. This Feb, dealers will have the brand-new KTM 950 Supermoto (MRSP $12,988). This monster is going to be red-hot and along with the Buell XB 12X will be the dark-horse surprise of the 2006 riding season. With a dry weight of 420 lbs, the Supermoto is light for a V-twin, has an upright seating position, a top end of probably 130 mph, and 91 horsepower at the rear wheel. The go-anywhere KTM 950 will help draw attention to Polaris, a company that consistently does the right thing. Polaris has corrected back after a great run and offers quality and value at the current share. Buy it.

Sturm, Ruger (NYSE: RGR) will benefit from Florida’s “Castle Doctrine.” Upscale couples will now be found at the shooting range on Saturdays clutching the brand-new Ruger 50th Anniversary Blackhawk .357 magnum or the Ruger Super Redhawk .454. Both pack a mean wallop. I like the dividend-paying, debt-free Ruger as an ideal takeover target here at $8.50/share.

INCOME is my third key word. Check out my Economic Supplement Charts #50, #51, and #52 to see what fixed-income balance does for you. Conservative investors should have a fixed-income component of between 30% and 75% depending on circumstances. The two most important words in investing are compound interest, and you can’t compound without a flow of cash. I own Vanguard’s GNMA and Short-Term Investment-Grade funds and advise both for you. These two income funds should be core positions. If you have not opened accounts, do so today.

Great Preferred Stocks

I love preferred stocks for income seekers and hard-rock conservatives looking to compound cash in tax-deferred accounts like an IRA. Stick with investment-grade issues only. Here’s a handful you can add to your list today. I’ve switched my fixed-income allocation mix to 60% preferreds, 20% U.S. Treasuries, and 20% bond funds, so it’s time to be certain you are up to speed with your preferreds. My short list includes 1) Lehman Bros. 6.00% (BBB+/A), 2) Wells Fargo 5.625% (Aa2/A), 3) J.P. Morgan Chase 6.20% (A1/A-), 4) Bank of America Corp 6% (A/Aa3), 5) ABN Amro Capital V11 6.08% (A2/A), 6) Cabco Goldman Sachs 6% (A1/A-).


Cheap is the operative word here. Go back and read what I wrote on the China gold Pandas in the last two issues and buy some Pandas. I recently purchased the 5-ounce 2005 gold Panda. It’s .999 pure gold. Only 1,000 were minted worldwide, with perhaps as few as 120 available in the U.S. I’d buy Placer Dome (NYSE: PDG) as a takeover candidate.

What’s Cheap?

Where should you focus? Cheap are short rates (ride ’em up with Vanguard funds), gold, aluminum, lumber, nickel, uranium. Aluminum and nickel are in supply deficit for sure and will remain so in 2006. High energy prices hurt the energy intensive aluminum smelting industry. If production is restrained, what happens to prices? Alcoa (NYSE: AA) and Alcan (NYSE: AL) are both cyclically depressed enough to be of great contrary interest. I’d buy both and be patient. Nickel is cheap. I carry Falconbridge (NYSE: FAL) on my list and don’t currently have Inco. I like both. On the uranium front, the big gun is Cameco (NYSE: CCJ).

Mandarin Oriental International

Check into the Mandarin Oriental New York, Kahala Mandarin Oriental in Hawaii, the Mandarin Oriental in Miami, or the Mandarin Oriental in Washington, D.C., for a first-class experience. Instead of owning hotels, the group goes for the lucrative management contracts. The stock trades on the London and Singapore stock exchanges and is controlled 75% by the giant Jardine Matheson. The shares sell well below book value versus Marriot International at 4X book. Buy Mandarin Oriental International (MOIL.SI) (a non-dividend-payer) in aggressive portfolios here at $0.90/share.

More Stocks to Buy Now

I like Norfolk Southern (NYSE: NSC) (smooth running operations); PepsiCo (NYSE: PEP)(gotta love Gatorade and Frito-Lay’s numbers); McDonald’s (NYSE: MCD) (talk of a REIT deal and IPO for the red-hot Chipotle unit and potential for digital media centers at McDonald’s restaurants for burning CDs [via BlazeNet machines, allowing customers to search a library of 40,000 songs and create custom CDs for  $0.99/song, download cell phone ring tones, and print photos]); Caterpillar (NYSE:CAT) (rebuilding the U.S. Gulf Coast and the world); Plum Creek (NYSE: PCL), Rayonier (NYSE: RYN) and Deltic Timber (NYSE: DEL) (absolute must-have timber counterbalancers for all investors).

Blazing Funds

Canadian General Investments is up 43% YTD. Vanguard Precious Metals & Mining is up a staggering 34% YTD and 37%/year over the past three years. T. Rowe Price New Asia is up 20% YTD and 30%/year over the past three years. New Era is up 28% YTD and 33%/year over the past three years. I’ve written extensively on the group, and you should have scored big in 2005. And, of course, all the Dodge & Cox and Mutual Series funds advised have done well, as have the outstanding four Third Avenue Value funds, with my #1 mutual fund choice Third Avenue International Value up 32%/year over the last three years. Continue to add to all, and make it a good month.

Warm regards,

Richard Young signature

Richard C. Young

P.S. I belong to MedjetAssist, an air medical membership co-operative that will fly you to the hospital of your choice wherever it or you may be. When you are 12,000 feet in the Rockies, as Debbie and I and our Harleys were recently, this is a plan to have. I advise it for you even if you aren’t riding a Harley.

P.P.S. Go to for a special New Orleans feature I’ve added for you. It’s part culinary and part sight and sound. Enjoy! And you will also find information on Kim Wilson & the Fabulous Thunderbirds, including their great High Water CD, as well as a listing of other great Thunderbird music I own and advise for you. In New Orleans, the French Quarter, the central business district, the warehouse and arts district, and Uptown, including the Garden District, are now open to residents. Electricity has been restored to the French Quarter, and phone and Internet service is unharmed in all areas noted. Class-action suits are disgracefully beginning to pile up. I’d do away with these things. Finally, work is already under way on next year’s Mardi Gras.

P.P.P.S. Next month: My #1 favored country for international investment; my Supreme Court review of Harriet Miers (Senators Hillary Rodham Clinton and John Kerry voted against our new Chief Justice John Roberts, showing a total disdain for a justice clearly committed to upholding the Constitution.); intelligence on SKYPE, whose software allows ultra-cheap phone calls over the Internet; the #1 heart center in the U.S.; and a revolutionary $39 music amplifier.

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: 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.

Log In

Forgot Password