January 2007 Issue

Straight No Chaser…

In late 1940, Thelonious Monk came to Minton’s Playhouse and I came into the world. No doubt about it, 1940 was a big year. Minton’s, located
in a rundown wing of the Cecil Hotel at 210 West 118th Street in Harlem, was the birthplace of be-bop. Big band leader Teddy Hill, who was selected by
owner Henry Minton to be the manager of “the house that built bop,” installed a house rhythm section that included avant-garde drummer Kenny
Clarke and Thelonious Monk. Monk and Clarke, along with Dizzy Gillespie and Charlie Christian, laid down the rhythmic and harmonic foundation for “the
new music.”

In Jazz Journal International (1967), Ian Carr wrote, “Like Ellington, Monk improvises more on the melody than on the harmonic sequence
of a tune. This approach has always separated Monk from the out-and-out be-boppers who, after playing the theme, simply created a whole series of improvised
melodies on the chord sequence.”

The great Whitney Balliet, writing in the New Yorker, said of Monk’s unique style, “His songs ripple with dissonance and rhythms
that often give one the sensation of missing the bottom step in the dark.”

A Sense of Rhythm

Regarding Monk, Gene Santoro, a music critic for The Nation (1994), wrote, “Meet Thelonious Monk, master of space … Monk’s
sense of rhythm was like no one else’s.”

Master of Space

A master of space with a sense of rhythm like no one else’s defines the musical contributions of the eccentric and reclusive Thelonious Monk.
Successful investing and Monk’s music have much in common—space. For you, the investor, space is mostly about what you do not do.

Your Own R&B

Let your portfolio breathe. Do not frantically overtrade. Rather, take it slow and easy. You need only a few good ideas in any given year to make yourself
a huge winner. You want to create your own personal sense of rhythm and balance (R&B) by doing what’s right for you. Do not allow yourself
to be influenced by those with investment goals far different than yours. Remember, no one else has the same tolerance for risk, cash flow needs, investment
acuity, financial resources, and patience, or lack thereof, as you have. In effect, you have a personal investor fingerprint that is unique only to you.
You have your own R&B.

You may have found, as I have, that many investors operate largely on emotion and are constantly reactive. A rigorous battle plan is just not in the
cards for these misguided, reactive folk, and patience is a word not in their lexicon.

Compound Interest Your Ally

Rarely have I had an unpleasant investment year, and certainly not in the new century. I rely on the power of compound interest as my closest investor
ally. Because of my disciplined lack of trading and refusal to invest in load funds, or funds with 12b-1 fees, I pay little in the way
of expenses. It’s a basic strategy to be sure, but you know what? It will keep you disciplined. At the end of the day, most investors fall off
the wagon. Their discipline fades like Republican chances in the last election. And when your discipline fades, you are most often headed for financial
trouble.

1 Chart = 1,000 Words

Here’s a program I’d like you to implement today. (1) Keep a log each month on the action you take from my monthly letters. It may be as
simple as checking my Web site at YoungResearch.com or IR‘s Web site. Or you may sell a security that is not on my list in order to allow
yourself the comfort and luxury of staying as close as you can to the advice I give each month. (2) Have your spouse read each letter. (3) Go over my
charts with a fine-tooth comb. Each chart is, as they say, worth a thousand words and tells a vital story that will give you a sense of rhythm and balance
(R&B) for the investment climate that you did not have before. I use these charts daily to guide my own decision-making.

Young Research spends over $20,000 annually just on the hard data used to formulate the decisions I bring to you each month. A subscription to these
letters is a modest $249/year. That’s all you pay to hear from me 12 times a year. If you make just one worthwhile strategic move per month, no
matter how small, you will have invested less than $21 per month per great idea. And if a few of these strategic moves make you good money or prevent
you from making a disastrous and costly move, you are way ahead for the year.

My 100% Disclosure Policy

As you know, I do not invest beyond the pages of these letters. Thus it is impossible for me to make money without you having exactly the same shot
as I have. Next month, I will list for you my new 2007 investments. I’m not aware of 100% disclosure policy elsewhere, are you? My policy is open
and bold, to be sure. But with a track record of 43 years of success, I feel immensely comfortable in sharing my most detailed personal investment plans
with you. And, of course, at your option, you can invest right along with me.

From the top, you know by now that I am most likely more conservative than are most of you. I also don’t need any big scores, not that I would
not be delighted to have them. My over-four-decade strategy of being disciplined and allowing compound interest to do its work has paid off handsomely.

Here’s a Shocker

How much should you expect to make on your portfolio next year? Well first, I’d tell you it has been tough slogging this century for most investors
(not you, of course). Matt, in his recent monthly letter for our family investment management company, wrote, “From December 1999 through 27 November
2006, the S&P 500 gained 6.6%. This is not the average annual return, but the entire amount the S&P 500 appreciated over nearly seven years.
Over the same period, the ultra-conservative (and a big holding of mine) Vanguard GNMA Fund (VFIIX) gained nearly 50%.” If you were not
already convinced about the necessity of proper portfolio balance, including both stocks and bonds, the experience this century should have convinced
you otherwise. Most investors retired, or soon to be, should have a fixed-income component of at least 30%, and most often 50%.

No Confirmation Yet

Included below are DJIA and DJTA charts showing the tough going each index had over the 2000– 2003 period and the great rebound since. Recently,
the Dow industrials have moved to a new high, but as yet, the transportations have not confirmed. I’ve been a fan of Dow Theory since my
days studying the work of Charles Dow while at Babson College. Once the transportations confirm to a new high, I think the base will be set for a decent
year in 2007. Until I see such confirmation, however, I’ll be concerned.

6.7% Return Projected

As I’ve explained in past issues, I add the earnings yield of the Dow (the inverse of the P/E) to the Dow’s yield to arrive at a fair back-of-the-matchbook
projection for a total return from a stock portfolio over the next 12 months. Today, that number is 6.7%.

Don’t Outlive Your Portfolio

For fixed income, I use the Vanguard GNMA 30-Day SEC yield as a proxy. The yield today is 5.17%. A portfolio divided 50/50 between conservative,
dividend-paying, blue-chip stocks and full-faith-and-credit GNMAs could be expected to provide a total return of 5.9% over the next 12 months. From such
a portfolio, a retired investor could take a max draw for living expenses of 4%, or $40,000 pre-tax, on a $1 million portfolio. To take an average annual
draw in excess of 4% would be irrational and dangerous. Long term, inflation is the arch enemy of retirement portfolios. You do not want to overdraw
your portfolio’s ability to maintain its long-term purchasing power. Neither you nor your spouse wants to end up outliving your money.

Presidential Election Cycle

I’ve written often about how important the presidential election cycle is to the stock market. It has little to do with specific party factors
or who wins or loses. Rather, it has everything to do with the nature of politics and what politicians do to get elected and re-elected. Well, 2007 is
a pre-presidential election year. In every year since I graduated from Shaker Heights High School in 1959, the year before a presidential election has
been an up year for stocks. Electioneering rhetoric flies with promises for one and all. With November 7 now behind us, what can be said looking ahead
to 2007 and 2008?

10 Reasons to Love the Outcome of the November 7 Elections

1. Americans at least do not get former dictator Daniel Ortega back for a second sorry go-around. If you can believe it, the Sandinistas are back in
Nicaragua. Ronald Reagan should be turning over in his grave.

2. Robert Rubin, Mr. Tax Increase himself, will not return as Secretary of Treasury. In a recent “The Outlook” (WSJ), Greg Ip wrote, “Mr.
Rubin has argued the economy did well in the 1990s because after President Clinton raised taxes in 1993, the deficit fell, and that brought down long-term
interest rates.” What you’re missing, Mr. Rubin, is that it was the Clinton/Rubin-era defense budget gutting that helped balance the budget.

Thankfully, Mr. Rubin will not be returning to Treasury, but he did not waste any time after November 7 advising Democrats to raise taxes. This is the
same Mr. Rubin who told you so wrongly that the 2003 Bush tax cuts would do little for economic growth and, in fact, would be a budget buster. Mr. Rubin
and the Democrats want to reverse the very Bush tax cuts that Treasury estimates do the most to boost economic growth.

Income Redistribution Folly

Tax cuts on dividends and capital gains, as well as tax cuts on the upper-marginal income-tax rates, in fact offer a most powerful stimulus to economic
growth. I have argued in the past that the desired scenario would be to eliminate entirely taxation on dividends and cap gains, as well as on interest
and estates. And I would eliminate the income tax in favor of a consumption tax. Mr. Rubin and his Democratic followers attempt to buy votes with income
redistribution schemes, while labeling Americans in the upper marginal income brackets as the rich. No, these Americans are not the rich by any income
bracket measurement. Rather, they are our most successful citizens, the very ones most likely to start businesses and employ others.

Brazil Dead Last

Let’s look at Brazil as a model. An unwelcome leftist gentleman named Luiz Inacio Lula da Silva has just been returned by the Brazilian voters
to another term as president. Mr. da Silva, the country’s first blue-collar president, won because he garnered 77% of the vote of the poor, less-educated
folk in the northeast. Votes are bought in the northeast by providing welfare stipends to the poor. Does this vote-buying strategy sound familiar? In
the more developed south, da Silva got trounced. One of Brazil’s biggest newspapers wrote, “Brazil is dominated by a mass of ignorant poor
people. They are deciding for us. And they are deciding very badly.” The same leading paper wrote of Mr. da Silva, “I wouldn’t even
choose Lula to open and close the garage door of my apartment building.” What we have is two Brazils. Beats me why the south, including Rio, doesn’t
separate from the welfare state in the north. Da Silva’s recipe for government is a steady dose of Rubin-esque tax increases, as well as steady
welfare expansion. And the result has been? Brazil, Latin America’s largest economy in terms of GDP, has the slowest growth.

3. Former Federal Judge Alcee Hastings (previously thrown off the bench for conspiring to extort a $150,000 bribe) will not be trusted with our country’s
top secrets as the next Chairman of the House Intelligence Committee. How could this guy ever have been considered? It’s just nuts. Jane Harman,
a Blue Dog Democrat (see item #10) and the committee’s ranking Democrat, is solid and smart. Without question, she should have been selected as
chairperson.

4. Joe Lieberman was the winner in Connecticut after his own party, led by back-stabbing John Kerry, the Clintons, and Joe’s fellow Connecticut
Democrat, Senator Chris Dodd, endorsed Joe’s opponent. Now it’s payback time for J.L., the really big winner on November 7.

5. Democrats will get a chance to act rather than talk about solving the fiasco of Social Security, Medicare, and Medicaid. My goal would be to get
the federal government out of all of these boondoggles, including No Child Left Behind.

6. George Bush still has two more years to perhaps nominate another Supreme Court justice in the spirit of Justices Roberts and Alito, both fine choices.
And as Mr. Daschle found, any potential Democrat-led filibuster could turn into a Demo-disaster.

7. Neither George Allen nor John Kerry, thankfully, will be running for president in 2008.

8. Wall Street will much like the Washington gridlock certain to take hold over the next two years.

9. With President Bush holding veto power, nothing too controversial can happen in two years. It is unlikely that a two-thirds majority could be raised
in the House to override a presidential veto.

10. Although the Democrats now control the House 231/197, 37 of the Democrat’s House members are conservative-to-moderate Blue Dog Democrats.
In 1994, during the 104th Congress, the Blue Dog coalition was formed as a way for more conservative members from the Democratic Party to have a unified
vote. The group will be instrumental in striking a balance between liberal and conservative ideas. The Dogs share a strong orientation toward fiscal
responsibility (one reason many Republicans did not get re-elected). The 2006 House includes five incoming Blue Dogs, of which four get an A rating from
the NRA as supporters of the Second Amendment and one gets a C. In total, of the 37 Blue Dog Democrats, 28 rate B or better by the NRA, with most getting
A/A- or better ratings. Should these 28 conservative Blue Dogs choose to vote with Republicans on any specific issue, the number of Republican/Blue Dog
votes would total 225, versus 203 for the remaining Democrats. Let them bark. All in all, there will be a nice balance in the House, which will surprise
a lot of Americans. Wall Street will applaud the mix.

Now, given that it’s the end of voting season, here’s my list of 10 unfolding events and trends that I believe will affect most investors
over the next couple of years.

1. Broad-scale emergence of exchange-traded funds as alternatives to high-expense/load mutual funds.

2. A general hollowing out of the mutual fund industry, as most mutual funds offer no compelling reason for investment or a reason to even exist. This
is not the case with the mutual funds I advise for you in my Monster Master List.

3. Boutique-registered investment advisory firms offering proprietary management and research abilities and management fees starting below 1% will increasingly
capture market share of high-net-worth individuals from wrap-fee, packaged-products-oriented wire houses, insurance-based groups, certified financial
planners, and RIAs charging 1% fees and even egregiously high fees above 1.5%.

4. Total returns to investors will be much less than anticipated because much of the potential icing on the 2007/2008 cake was licked off in 2006. P/Es
are high and yields are low. Furthermore, the two-decade secular bull market in bonds is over, not to be repeated.

5. The commodities sector will continue to offer pleasing if volatile diversification prospects. I especially like the agricultural commodities, water,
coal, platinum, silver, and gold.

6. The structurally weak US$ will weaken further due, in large measure, to the dangerously high level of America’s current account deficit. Big
U.S. dividend-paying blue chips with outsized export earnings will serve as a nice hedge as will foreign currency-denominated assets, including the Canadian
$, Swiss franc, Singapore $, and Japanese yen.

7. In 2008, as 76 million babyboomers start to retire, my Big Idea will come clearly into focus. The emergence of very light jets (VLJs) and real broadband
will allow more and more affluent Americans to flee congested, crime-riddled, cookie-cutter, box-store-behemoth sprawls. The biggest benefactors will
be (1) remote scenic settings, (2) ocean-front enclaves, and (3) Sunbelt jewels too expensive for the masses. I’ll have a list of my Top 10 favorite
retirement spots next month. Also next month is my annual reader Q & A section. You’ll get your only chance of the year to have your voice
heard in my monthly letter. E-mail, fax or mail me your most thoughtful question. The broader the appeal of your question, the more likely it will see
the light of day. Please no Qs on individual securities. As I did last year, I’ll send personal postcards to the runners-up for the best Qs and
will call the winner with a personal thank you. It will be a great issue from which every investor will benefit.

8. Fixed-income will take on increasing importance for sensible, conservative investors. Yields are now more attractive, and stock P/Es, already high,
will soar if earnings collapse. Babyboomers will create a sea change of demand for the comfortable, stable, income-producing value of fixed income.

9. Oil prices will face at least one huge spike related to the coming showdown with a nuclear-hungry Iran.

10. Distressed securities and takeover candidates will offer the brightest opportunities for aggressive investors.

Monster Master List Stocks

Federal Express (NYSE: FDX) and United Parcel Service (NYSE: UPS). I’m adding both to my Monster Master List as Big Idea 2008 benefactors.
Shown below are price charts on FedEx and UPS, as well as digital-era stalwarts Microsoft (NASDAQ: MSFT), which is on my Monster Master List,
and Dell, Amazon, eBay, and Hewlett-Packard (not on my Monster Master List).

As babyboomers begin to retire en mass in 2008, the wealthiest millions in the group, as I’ve noted, will begin to flee from the big city crime
capitals and the drudgery of suburban sprawls. These retirees will seek out more remote, scenic, civilized destinations thanks to faster broadband and
the emergence of VLJs, virtual air-taxi service. Better-positioned consumers will do more and more shopping online, and FedEx and UPS will be natural
benefactors as the delivery agents. And FedEx has recently bought out the Chinese joint-venture partner it was forced to take on by the “free market” Chinese
folk. FedEx can now let ’em rip in China.

My charts on Amazon, eBay, and Dell all depict stocks in a basic three-year downdraft. Each still enjoys a strong competitive position and a reasonably
good name with investors. And each has had a nice rebound of late. But I look at all three as vulnerable. H-P, as my chart shows, has had a nice three-year
run, and it continues to look good on my chart. You can have H-P. Long term, I’m not sure why the company should exist. H-P gets great margins
on its big-selling printer/cartridges gambit. Why the Chinese won’t take this market from H-P is a good question. And as for computers, even though
H-P’s products are excellent, I want no part of the business.

I’ve been sticking with Microsoft because it (1) continues to generate lots of cash and (2) is doing some interesting things regarding the Web.
As you can see, the stock looks poised to break out, but I will not be with Microsoft for long. Eventually, investors worldwide will figure out that
you just don’t need the complexity of what Intel and Microsoft offer and all the baggage, including viruses, that comes with the package. To date,
Internet service providers have been unable to give—yes, give—you a cheap and ultra-simple machine to connect to the Internet, to receive
and send e-mail, and to conduct simple word-processing tasks. The whole PC thing is one giant fraud. The Internet, however, is quite the reverse.

Sturm, Ruger (NYSE: RGR). The chart below is a one-day chart that shows what happened when we put up Sturm, Ruger on our IR Web site as a buy
on 11/3/06. It remains a buy for the reasons cited last month. It pays to check our IR Web site regularly and to get my Breaking News alerts.

Boeing (NYSE: BA). The waiting list to get most Boeings is now about two years. For the 787 “Dreamliner,” a new customer today will
wait until 2013. My chart on Boeing shows a breakout to a new high. Buy.

Hormel (NYSE: HRL) tried to convince Whole Foods that Hormel’s Natural Choice line was not really Spam in drag. No go. But Wal-Mart, of
course, was a ready taker, quickly putting Natural Choice on its shelves. My chart on Hormel shows a nice saw-tooth upward pattern of strength versus
the S&P 1500. Buy Hormel.

Piedmont Natural Gas (NYSE: PNY). How boring and basic a business. But as my price chart shows, Piedmont continues as a great retirement compounder.
Buy.

PepsiCo (NYSE: PEP) tends to run up and down in a sideways pattern as to its competitiveness versus the S&P 1500. The stock is now at the
low end of the range, offering you an especially timely opportunity to load up on one of my long-term favorites.

McCormick & Company (NYSE: MKC) has broken out. My long-term favorite is a good option at current prices. Buy.

HSBC‘s (NYSE: HBC) stock demonstrates real power and should be a major benefactor of the emergence of China. Buy.

ExxonMobil‘s (NYSE: XOM) stock tends to stay right on trend, offering a compelling long-term option for blue-chip investors. Buy.

Duke Energy (NYSE: DUK) is regularly on the 52-week-high list and is part of my Monster Master List utilities stock group. As my chart shows,
the stock looks well set to improve its relative strength versus the S&P 1500 group. Buy.

Platinum/Silver/Gold

My four charts below point to the powerful bull markets in oil, platinum, gold, and silver. Over the last three years, one of my strongest recommendations
has been Vanguard Precious Metals & Mining (VGPMX). As anyone who follows this great winner knows, the fund’s biggest holdings are platinum
stocks #1, #2, #3; diamonds #4; and base metals #5. When you look at this fund, gold, of course, is not the first thing on your mind. Now look at my
chart on gold/platinum futures. Unreal. What you’re staring at in disbelief is a two-and-one-half-decade bull market in platinum versus gold. So
how do the managers at Vanguard Precious Metals & Mining look with their top-three holdings being platinum stocks? Pretty smart.

Now look at my spot gold/silver chart. You’re looking at an over-a-decade bull market in silver versus gold. In other words, as great as gold
has been (see my gold chart), platinum and silver have been even stronger. Now look at my oil chart—a big bull run since 2003, with six setbacks
along the way, of which the recent one has been the sharpest. Although we believe oil is overpriced based on supply and demand fundamentals, the nuclear
red light flashing in Iran makes the cutoff of oil supplies a good prospect. If so, presto—much higher oil prices. And precious metals will run
up with oil. This condition, plus the strikingly weak condition of the US$, further strengthens the picture for precious metals.

Add any of the following from my Monster Master Lists: (1) Barrick Gold (NYSE: ABX), (2) Gold Corp. (NYSE: GG), (3) Lonmin (LONDON:
LMI.L), (4) Newmont (NYSE: NEM), (5) American Century Global Gold (BGEIX), (6) iShares Silver Trust (SLV), (7) streetTracks Gold
Shares (GLD), and (8) the platinum-loaded Vanguard Precious Metals & Mining (VGPMX).

Finally, I’m a big believer in Swiss bank accounts for asset protection from legal predators, not for tax avoidance. And holding physical metal
or your precious metals shares at your Swiss bank is always a good bet. Working in person with a Swiss bank group that does not have assets in the U.S.
is the way to go.

Minton’s Is Back

On 4 July 1976, Thelonious Monk, after sitting in for a couple of tunes at Bradley’s in N.Y., headed out into the night and would not to be heard
from again by the jazz public. Monk simply got tired. He spent the rest of his days in solitude at the estate of jazz patron Baroness Nica de Koenigswarter.
On 17 February 1982, Thelonious passed on. Today, in remembrance of Monk, my ringtone on my cell phone is Monk’s “Straight No Chaser.” And
down in Harlem, Minton’s Playhouse is back in action with great jazz at its original 1940s location—210 W. 118th Street.

Risk Tolerance & Patience

Gene Santoro has written that Monk had “a veering, gyrating and utterly unique sense of rhythm.” No one else sounded like Monk. Just one
note was all it took. Trust me, every really successful investor develops his own sense of investor rhythm and balance. And R&B has everything to
do with risk tolerance and patience.

Think Blue & Gold

Terrorism and the US$ rank high on my risk list, and my theme of blue and gold (as in dividend-paying, export-oriented blue chips) is your easiest and
most direct target for both risk avoidance and balance. Make it a good month.

Warm regards,

Richard C. Young

P.S. Coming next month: My annual subscriber Q&A special, Dick Young’s 10 Great Retirement Spots, part #1 of my asset and personal protection
feature, two high-powered computer companies whose products and shares you must avoid, and Breaking News on a trademarked antioxidant with no known side
effects, but has been shown to produce protection from heat attacks and strokes, reduce edema (inflammation), promote eye health, and reduce cancer risk.
You’ll also get Breaking News on an oft-prescribed antibiotic used to treat bronchitis and sinusitis that is now linked to sever liver problems.
Finally, you’ll get my current thoughts on Pfizer and its cholesterol drug problem.

P.P.S. If you were already not aware that Russia is the clear enemy of the U.S., I’d read “Russia: The Enemy” by Bret Stephens in
the 28 November WSJ. International nonferrous mineral exploration rose by nearly 50% this year, versus a projected 10% to 15% for 2006. I’ve
added iShares Goldman Sachs Commodities Funds and iShares S&P 500 Global Energy Sector Index Fund to my Monster Master List. The US$,
now at a 14-year low versus sterling, has fallen in the past year nearly 7% against a Federal Reserve index of seven major currencies.

P.P.P.S. Go to YoungResearch.com to check out two of the best personal protection Christmas gift items I know of, Breaking News on the life-saving properties
of selenium, and my essential music intelligence on Thelonious Monk.

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; Managing Editor: Kenneth L. Washington; Business Manager: Thomas C. Burne; Research Associate: Rebecca L. Young;
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.