THE SPEAR REPORT
45 Wintonbury Ave., Ste. 301, Bloomfield, CT 06002.
Monthly, 1 year, $297. www.spearreport.com.

Higher gold prices beneficial to Goldcorp

        Gregory Spear: "The price of gold has advanced more than 150% since 2001 due to a shift in investor interest from tech to commodities, a 28% decline in the U.S. dollar, a surge in jewelry demand among an emerging middle class in Asia, a diversification of reserve currencies away from the dollar, fears of inflation and outright speculation. Gold mining stocks have done quite a bit better. Shares of Goldcorp Inc. (GG), for example, have rallied over 1000% in that timeframe. In fact, many of the mining stocks have taken parabolic trajectories in the last 12 months, rallying 200-300%. The current correction in both gold and gold mines is overdue, healthy and it may not be over.
        Most precious metal mining stocks have endured a 25%-30% haircut in the past three weeks. The miners have been hurt by a 14% correction in the underlying metal, which fell partly as a result of fears that rising interest rates in the U.S. would stabilize the falling dollar and thus remove one of the catalysts for the gold rally. Another negative for gold is the 22% decline in jewelry demand in Asia and the Middle East, as jewelry accounts for 50% of total gold demand.
        Just as the oil has now clearly left the $40 zone behind, the question on the table is whether gold prices can kiss $400 goodbye and stabilize in the $600 area. Our technical projections suggest a target for this correction of $570. For now, these higher prices have increased the value of reserves among gold miners by 50% and have greatly improved earnings and cash flow. This has been particularly beneficial for Goldcorp, which recently completed the acquisition of mines in Canada, Chile and the Dominican Republic from Barrick Gold for approximately $1.6 billion. Goldcorp is the world's lowest cost producer in its class, with annualized gold production this year expected to be nearly 2 million ounces at a cash cost of approximately $125 per ounce.
        Goldcorp does not hedge its gold production, which is why the Vancouver, B.C.-based company was able to grow revenues 133% year-over-year to $286 million, and double earnings to 24 cents per share for the most recent reported quarter. Production increased 7%, while the number of ounces sold increased 32% and the rest of the gains were due to higher realized prices per ounce. Revenues and earnings also included the acquisition of Wheaton River Minerals. Technically, GG is sitting at a long-term uptrend line, which is offering support. If the support fails, GG has risk to $23."

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InvesTech Research PORTFOLIO STRATEGY
2472 Birch Glen, Whitefish, MT 59937.
1 year, 15 issues, $295.

Sell Newmont if it rallies to $54.50

        Bruce Morison: "We've put a target sell price on Newmont Mining (NEM). This is not because we feel the dollar will suddenly strengthen or geopolitical risks have lessened, but because of the sharp runup in gold prices.
        This parabolic increase in gold over the past year is based on fear and speculation, which raises the risk of a dramatic sell-off if buyers move to the sidelines. While the price of gold has backed off its recent high for now, we plan to take the rest of our profit off the table if Newmont Mining moves back to $54.50/share.
        Whether or not we have the opportunity to exit Newmont shortly, our portfolio's invested position remains well within our target range of 60-65%. Currently, this is about where our comfort level stands, but we're prepared to increase cash levels and/or add a reverse index (bear market) fund if warranted by our key technical models."

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FINANCIAL INSIGHTS
P.O. Box 793-Z, Oakhurst, NJ 07755.

No market rises uncorrected skyward

        Dr. Richard Appel: "Gold has completed a major upwave in what I am confident will prove to be its greatest modern Bull Market. If I am correct this will ultimately pale its 1970's experience. However, this does not mean that its historic price rise will not be interrupted with repeated sharp, frightening reversals such as the one that we are now experiencing.
        To refresh the memories of those who participated from its bull inception, and to bring newer investors up to speed, we have already been forced to endure a few other harrowing and confidence testing time-frames in gold's present Bull Market. Of importance, despite these trying and gutwrenching down-drafts, none of these ended the golden bull's reign.
        Gold's Bull Market was conceived at its August, 1999, $252.50 Bear market low. After its initial stunning advance to $327 in October, its price again withered until it formed a double bottom at $255. This occurred in January, 2001. From top to bottom it lost 22% before finding absolute support. Later, in January, 2003, gold rose and struck $384. However, within the space of two short months, the bears drove it $65 lower for a 17% loss. Also, in March, 2004, gold posted a new bull high at $432. Again the bears took control and, within one month in April, overwhelmed the bulls and hammered it $60 lower to $372. This represented a 14% loss.
        Thus, the current decline from $730 to its recent $637 low should be viewed in context as being nothing more than just another healthy set-back. After all, this price reversal merely represents a 13% give-back to date.
        For the neophyte and seasoned "gold bugs" alike, who do not yet understand that "all correction whether primary, secondary or tertiary are ultimately corrected," do not wish for an early end to the current weakness in the eternal metal. Rather, embrace its decline.
        I do not pretend to know where gold is going in the short term. Much damage has been temporarily done to its price structure due to the already nearly 100 point price reversal. It may appear surprising, but I would not be shocked if this correction tests gold's 200-day moving average. In my opinion this will not only be healthy, but will help extend the longevity of its Bull Market.
        The 200-day average is currently at about $531. It is rising at about a one and a half point daily rate. It is true that it might not decline to this level. However, a move to the $550 zone, or even a brief piercing of this moving average, will allow the excessive excitement and overzealousness that has built up in its market to dissipate. Further, as difficult as it is now to accept or even contemplate, this will represent a normal correction in the context of a secular gold Bull market! If this ensues it will not only act to wash out all the late-comers, trend and momentum players, but it will set the stage for a renewed, substantial advance from an extremely strong base.
        In fact, as odd as it may sound, we should "hope" that the present correction lasts a few months or longer! For if gold shortly renews its skyward assault, we will likely experience a price explosion that may yet indeed appear parabolic. In that event, gold could easily surpass $1000 in the relatively short term.
        Yes, it will briefly give us all a great rush, a sense of euphoria, and temporarily reward us for our foresight and courage. Unfortunately, from a longer-term perspective after the final buy order is filled, the eternal metal will likely experience a major correction from which we will all directly and unduly suffer.
        Even if the latter scenario unfolds, gold will still not have ended its Bull Market. It will only herald in many months of gloom and sharply falling prices. This could have been avoided or at least postponed had the eternal metal been allowed to now rather than later, wring the excesses from its market.
        Rest assured. If I am correct, and a drastically lower price occurs before gold strikes its low, the eternal metal will again resume its bull run and post new, stunning highs on the way to its final Bull Market peak. There truly is "no fever like gold fever." For good or for bad I believe that we will again witness such an experience. But, it will occur far later, in what I believe history will dub its greatest Bull Market.

Uranium

       Uranium continues to climb a wall, not of worry but, of near disbelief. Even if I did not believe that it was entrenched in what will ultimately surpass any earlier Bull Market high, it continues to amaze me. It has either moved sideways or higher for over three years. Its recent spot price is $43.
        As I have stated, it requires a minimum of six to eight, or even ten years, for a new mine to be brought into production. Given the fact that uranium exploration virtually ceased for two decades, I can only image how high current and near term demand can coalesce to drive it. I for one would not even venture a guess as to its final market clearing price! However, I am confident that any junior uranium exploration company that is fortunate to "strike it rich" will richly reward its shareholders."

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THE ALEXANDER PARIS REPORT
161 N. Clark St., Ste. 2950, Chicago, IL 60601.
Monthly, 1 year, $195.

Commodities: Slowdown in 2nd half

        Alexander Paris: "While difficult to imagine in the face of the dramatic persistent rise in base metals so far in 2006, along with new highs in oil and precious metal prices, we fee that everything will slow down a bit in the second half including the economy, metal prices, oil prices and inflation expectations, at least temporarily. Most of the 2006 spike in basic metal prices has been driven by speculation without any appreciative change in the underlying supply/demand balance. Even with more positive longer-term fundamentals, that most recent speculative price overlay should probably be erased. Oil has different fundamentals but we would look for price moderation there as well. Gold prices will be determined more by the direction of the dollar and, if that decline moderates for a while, so will gold and other precious metals. Unfortunately, we believe the long-term direction of the dollar is still downward."

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THE VALUE VIEW GOLD REPORT
P.O. Box 846, Boca Raton, FL 33429.
Monthly, 1 year, $99.

Buy on pullbacks

        Ned Schmidt: "The May 17 report on the U.S. CPI had an important message for the markets, all of them. Consensus view had been that the Federal Reserve was almost done raising interest rates. The report on the CPI crushed that consensus, and led to massive selling of equities. Rising interest rates are not good for equity prices, despite hedge funds being able to push markets higher in the past year.
        Higher inflation should send Gold higher, right? What happened is a change in attitude had a short-term impact on the dollar's value. Gold rose to a high of US$719, then fell $30 on the news. Whenever the consensus view on interest rates changes, the foreign exchange market does what is called "over shooting." That development sent $Gold down. $Gold may be starting a period of lateral movement that will create multiple opportunities for Gold investors. The run from below $575 to over $700 was a strong move, and some consolidation is likely. Investors should watch for price pull backs to add to positions on buy signals."

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THE PERSONAL CAPITALIST
6911 S 66TH E Ave., Ste. 301, Tulsa, OK 74133.
1 year, 24 issues, $195.

Oil/Energy Shares, Metals

        Sean Christian's target forecast remains for the DJIA to reach 12,000 this year.
        "Oil trades as high as $75 a barrel and buying energy shares continue to be in vogue. We don't know what the correct price of oil is. But we are out of spare capacity to supply the world. In terms of supply, we don't see the likelihood of finding a huge new elephant-sized oil field that would change the world picture anytime soon. We see no need to change our stance of holding WMB, CRT, HGT, and XTO. The longer-term energy picture involves moving toward the hydrogen economy. Technology escalates in this area, as the focus on developing alternative fuels is more visible. Our two fuel cell stocks (PLUG and HYGS) look really good to us on a long-term basis. Look up the websites for these stocks to get great perspective to the future of fuel cells. Finally, we have had a good position in Cameco (CCJ) that is poised to benefit as the demand for nuclear energy increases on a global basis.

Metals

        We've had tremendous success with our purchase of Zinifex Ltd. In late March. As of May 12th, we've had a 77% rise in price in a little over one month (from $5.99 to $10.60). It should be no surprise that the price has come down some after the great run. Zinifex is the world's second largest producer of zinc. Zinc's price had been rising steadily, along with other commodities such as copper. Also, gold and silver stocks continue to glisten as prices reach new peaks. Inflation worries, a sinking dollar, and international tensions put an extra shine on gold and silver prices. We will hold all our shares in this sector, aware that the bull market in metals will be subject to sharp price corrections from time to time."

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Russ Kaplan's HEARTLAND ADVISER
5002 Dodge St., Ste. 302, Omaha, NE 68132.
Monthly, 1 year, $150.

Overseas Shipping: Financially solid

        Russ Kaplan: "A new recommendation this month is Overseas Shipping Group (OSG). This is an interesting extension of our recent recommendations in the energy industry. Oil being produced around the world is nice, but it doesn't mean much if you can't get it from the producing countries to the consuming countries. This is where Overseas Shipping comes in with its large fleet of tankers and its ships which carry petroleum from all over the world.
        It is a financially solid company with a lot of good assets which will allow expansion in the future. It is down sharply from its high of 66 in 2004 and we think this drop is totally unwarranted.
It pleases us that top management owns almost 12% of the stock which gives them the incentive to make decisions that are for the long-term good of the company not for the benefit of next quarter's earnings. Also, Archer-Daniels-Midland owns about 13% of the company."

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EMERGING INVESTMENTS
P.O. Box 97, Williamsport, PA 17703.
Monthly, 1 year, $287.

Energy: Still Lighting up the markets

        Steven Lord: "Read through the 2005 annual report for deepwater oil & gas driller Transocean (RIG), and among the glowing reports of a truly booming business you will find, on page 3 of the management discussion, a brief paragraph regarding risk. Within that section RIG notes that while the energy bull market has allowed its own business to flourish, the costs for a wide variety of things, such as qualified people and component parts, are going through the roof. In some cases, there are significant shortages of key equipment.
        As the world rushes to get more oil and gas out of the ground, a wide variety of high-demand/low density component products are being fundamentally repriced. And increasingly, we're finding that this "downstream" area, populated by generally smaller-cap stocks than the integrated oil producers, offers the most opportunity to investors right now. This do in part to the demand companies like RIG are driving throughout the industry, and partly because at least this time around, the upswing in oil-services capital expenditures has all the signs of being a multi-year event. And, as is true with most small-cap stocks in rapidly-growing industries, the operating leverage to higher demand is greater.
        Lufkin (LUFK) is primarily known as the world's largest manufacturer of oil-well pumping units, one of those high-demand components currently in very short supply. Around since 1902, the company has seen its share of boom-bust oil cycles. The company's signature oilfield services division, home to its leading line of pumping equipment, generates roughly 62% of annual revenues, while power transmission does 22% and the firm's small but well-regarded trailer unit roughly 15%. Strong demand across all three areas has lead to international expansion, pricing power and capacity addition.
        As you would imagine, the company's growth has been torrid since the energy markets turned two years ago. From 2002 EPS of $0.63 on $228 million in sales, Lufkin has grown to earning $3.02 last year on revenues just shy of $500 million. And for the first quarter of this year, sales rose 32% year-over-year, to $133 million, while EPS doubled to $1.01. The company's overall backlog rose an extremely impressive 37%, to $190 million, rising 38% in oilfield services, 26% in power transmission and a whopping 64% in trailers. Significantly, the company's efficiency is increasing; Aided by higher prices for its products and a tight focus on costs, Lufkin's operating margins reached 28.8% in the quarter, a full 380 basis points above 2005's comparably quarter. For a small industrial stock, such improvement is not only amazing, but also extraordinarily rare.
        LUFK's first quarter results blew Wall Street's estimates out of the water and sent analysis back to their cubbies to recalculate current-year numbers. The result? LUFK should earn at least $4.25 this year, or 40% higher than last year, on roughly $600 million in sales. 2007 should see nearly $700 million in sales and EPS of $5 per share. Indeed, by the end of this fiscal year Lufkin should post quarterly sales equal to annual revenues back in 2002.
        Financials are strong. The company's growth has resulted in large amounts of free cash flow, which it has used to eliminate long-term debt and boost the dividend. And there is quality here in spades - return on equity is above 20%, and return on assets is 14%. We think the payout is still low considering the earnings power, and would expect further increases this year and next.
        LUFK is a compelling small-cap oil-services play. The combination of extremely strong industry fundamentals, pricing power, a growing backlog and rising margins means one thing. Buy LUFK at current levels."

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CONTRA THE HEARD
42 Rivercrest Rd., Toronto, ON M6S 4H3.
1 year, 4 issues, $450.

NQL Energy: Still meat on the bones

        Benj Gallander: "When it comes to NQL Energy Services, it's fair to say that there's still meat left on the bones. After jettisoning 40 percent of our position at the initial sell target in November, the stock looked like it would shoot up the ramp this winter. But when oil prices softened, it turned on its master like the tiger Montecore did with Siegfried's sidekick, Roy. Within a few weeks the stock was down by about 25 percent. Aye, the commodity pit is volatile, and - please excuse the cliché - not for the faint of heart. So the big question remains, how should the remaining 60 percent of our holding be played?
        Though it can be argued that NQL should continue to be very profitable even if oil prices drop, investors have clearly shown an aptitude for keeping the company shares closely correlated with the price of crude. If petroleum collapses, there is little doubt that so too will share prices throughout the sector. Strong inventory numbers have yet to spook anybody, but if the demand side of the equation should weaken unexpectedly, that could maul NQL. A dip might devolve into a rout as fund managers trip over one another to unload their shares. Nobody wants to be the last guy holding the drill bit, after all.
        However, there are some compelling reasons to continue holding. Start with the political uncertainty and rhetoric coming out of Africa and the Middle East; the summer driving season is at hand; and there is the possibility of further damage to infrastructure as more frequent hurricanes, of greater magnitude, are predicted. As mentioned, the demand side of the equation remains strong. And, as the "peak oil" crowd constantly harps on, an increasing number of people in the developing world are seeking an urbanized consumer lifestyle similar to that of the developed countries, so the pressure on finite petroleum resources will intensify.
        Also attractive is management's continued conservative stance about forecasting earnings. Investors tend to respond well to higher-than-anticipated anything. NQL is providing new guidance for 2006 which includes a recent acquisition of Prescott Drilling Motors and Manufacturing: they're bumping up projected earnings five cents to 52 cents a share. The purchase price for Prescott is US $18 million cash, plus an earn-out equal to 25 percent of operating cash flow over three years. They'll finance it through $3 million in available cash and about $15 million drawn against its recently-amended debt facilities. Prescott has been involved primarily in the Gulf Coast region of the U.S. Even as NQL tries to grow with these acquisitions, it's still a fraction of the corporate structure in the 1980s.
        At this point, we'll stick to the plan and hold NQL in hopes of a rise up, up and away, in our beautiful balloon. (We work hard coming up with these references. Why, last night, we didn't get to sleep at all! What, were you expecting "Stoned Soul Picnic"?).

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WALL STREET STOCK FORECASTER
250 Liston Rd., Ste. 700, Buffalo, NY 14223.
Monthly, 1 year, $99. 888-292-0296. E-mail: mckeough@idirect.com.

In resources, time to stick with quality

        Patrick McKeough: "Today many investors take it for granted that rapid industrialization in China and India has spurred the sharp increases in energy and metal prices of the past few years. They overlook the fact that hedge funds have poured investor money into the commodity markets these past few years - directly, and by investing in junior resource companies.
        As hedge funds and other traders try to sell their holdings, commodities could become even more volatile than usual. Prices could slump deeply over the next six months to a year. But rapid growth in China, India and elsewhere ensures that commodity prices will fluctuate in a much higher range in the next 10 years than in the last 10.
        That's why we recommend that you hold some Resources issues in your portfolio. But it pays to stick with well-established companies, and limit your exposure to 25% or less of your overall portfolio. That way, you avoid the heavier risk of more aggressive stocks, but you still profit from growth in worldwide demand.
        These three resources stocks from our Portfolios are likely to profit from the long-term rising trend, while holding up nicely during commodities downturns. At the moment, however, only two are buys.
        EnCana Corp. (NYSE ECA $47; Conservative Growth Portfolio, Resources sector; WSSF Rating: Average) is a leading Canadian energy company. Natural gas accounts for about 75% of its production.
        In the past two years, EnCana has sold most of its overseas assets and conventional properties to focus on early-stage natural gas fields in North America.
        These properties are located mainly in remote mountainous areas, which makes them more expensive to develop.
        However, these unconventional fields could last decades longer than the assets it sold, and EnCana feels that this outweighs the high initial development costs.
        EnCana is also expanding its operations in Canada's oil sands region. These projects are highly complex, so costs are difficult to estimate. That's why EnCana is now thinking about spinning off its oil sands assets, probably through a merger with a larger producer.
        In the three months ended March 31, 2006, EnCana earned $1.70 a share, compared with a loss of $0.05 a year earlier, mostly due to a hedging plan that shielded it from falling natural gas prices. Cash flow per share grew 26.5%, to $1.96 from $1.55, while revenue jumped to $4.7 billion from $2.0 billion.
        EnCana just raised its quarterly dividend 33.3% from $0.075 a share to $0.10. The new annual rate of $0.40 yields 0.9%. The stock trades at 5.6 times its projected 2006 cash flow of $8.38 a share, and at 12.6 times the $3.72 a share it should earn this year.
We like EnCana's long-term strategy. But rising production costs hurt its profits, particularly now that energy prices are moving down.
        EnCana is a hold.
        Apache Corp. (NYSE APA $62; Aggressive Growth Portfolio, resources sector; WSSF Rating: Average) explores for and produces oil and natural gas in North America, the UK, Australia, Argentina, China and Egypt. In 2005, oil accounted for 54% of its production, while gas supplied 46%.
        In the past few years, Apache has expanded its operations in the Gulf of Mexico. It currently operates over 400 offshore platforms, which accounted for 18% of its 2005 production.
        Oil companies have operated in the Gulf of Mexico for 60 years. But many of the bigger firms are now looking elsewhere for new reserves, because the yearly threat of hurricane damage increases the risk of drilling in the Gulf. That's why BP recently sold its remaining operations in the Gulf to Apache for $1.3 billion.
        This is a sizeable purchase for Apache, which earned $1.97 a share (total $660.9 million) in the first quarter of 2006, up 18.0% from $1.67 a share ($560.5 million) a year earlier. Cash flow per share grew 24.0%, to $3.16 from $2.55, while revenue grew 17.6%, to $2.0 billion from $1.7 billion.
        Apache's long experience operating in the Gulf helps cut the risk of this new investment. New 3-D seismic technology has also helped it squeeze more oil out of existing wells, and extend their productive lives. New offshore drilling technology also makes it easier for Apache to operate in deeper areas of the Gulf.
        The company should earn $8.28 a share in 2006, and the stock trades at just 7.5 times that estimate. It's also cheap at 4.8 times its forecasted cash flow of $13.00 a share. The $0.40 dividend yields 0.6%
        Apache is a buy.
Weyerhauser Co. (NYSE WY $63; Conservative Growth Portfolio, Resources sector; WSSF Rating: Average) is a leading forest products company. It owns or leases 36 million acres of timberland in the United States, and Canada.
        We normally advise investors to avoid forest products stocks, due to high labor costs, excessive environmental regulations and international trade disputes.
However, we feel Weyerhauser is different. Its large holdings are worth around $41 a Weyerhauser share, and its U.S. and Canadian operations will each benefit from a new deal between the two countries to settle a dispute over tariffs on Canadian lumber exports to the U.S. In fact, the company's Canadian unit will probably get back $300 million of the $377 million in extra duties that it paid in the past five years.
        The company is taking steps to improve its profitability as high interest rates slow demand for new homes and lumber, including selling some slower-growing operations like its fine-paper businesses.
        Due to restructuring charges and a goodwill write-down, Weyerhauser lost $2.36 a share (total $580 million) from continuing operations in the three months ended March 26, 2006. If you disregard all one-time items, it would have earned $0.75 a share, down 27.2% from $1.03 a year earlier. Revenue was unchanged at $5.4 billion.
        Strong demand for lumber after Hurricane Katrina and Rita pushed Weyerhauser's stock price up to $76 in April 2006, but it has moved down lately. It now trades at 14.7 times its likely 2006 profits of $4.29 a share. The $2.00 dividend yields 3.2%.
        Weyerhauser is a hold."

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COMMON CENTS
P.O. Box 126354, Benbrook, TX 76126.
1 year, 8 issues, $72.

Precision Drilling Trust offers a huge yield

        Roland Carter: "Precision Drilling Trust (PDS) is a Canadian Income Trust whose assets are the largest oil/gas drilling and completion rig fleet in Canada, owning about 30% of that country's rigs. This is not your typical CC stock, but there's a huge yield here with possible continued growth if the oil boom continues. PDS converted to an L.P., then a trust in late 2005, spinning off other assets (shares of Weatherford Int'l) at that time. Supposedly these shares' (monthly) distributions are qualified (15% tax rate) with no K-1's or other paperwork baggage involved. PDS is expanding into the U.S. Their recent quarter saw sales +40% and earnings +61%. Most expect more of such as the oil business is booming. Caveat: In the past there's always been a time to "get out" during oil price booms, as busts have followed. Some think it's different this time. We're not convinced. Tread lightly here. If the boom started fading tomorrow, you'd have to sell this one, and other energy stocks, possibly at a loss. That's not easy for most investors. The big distribution rate could fall drastically, even disappear."

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INSIIDE TRACK
P.O. Box 2252, Naperville, IL 60567.
Monthly, 1 year, $179.

Overview for long-term
investors and fund traders

        Eric Hadik: "Stock Indices are completing a major uptrend but could see a peak extend into November 2006.
        Interest Rates (opposite of Bond Direction) - Long-term neutral-to-down trend consolidating. Rates could move gradually higher into Oct./Nov. 2006.
        Gold & Silver - Long-term uptrends in Gold & Silver remain intact. A 2-4 month pullback is possible.
        Dollar - Long-term trend down & projected to continue into 2008/2009. An intervening 12-18 month rebound is intact and could stretch into September 2006 - or even Feb./Mar. 2007.
        Crude Oil - Long-term trend up. A correction is unfolding.
        Commodities - Long-term trend up; May 2006 - July 2006 was/is next anticipated correction."

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THE DINES LETTER
P.O. Box 22, Belvedere, CA 94920.
1 year, 17 issues, $195. www.dinesletter.com.

Dollar in grave danger
of slipping below the waves

       James Dines: "One way to make serious money in stocks is to get into harmony with underlying realities, regardless of popular interpretations. That is why we study the financial news in the High State of Truth, carefully observing the evolution of opinion for clues to Mass Psychology so that we could report our observations to you.
        What we observe these days is that The Hive is beginning to claim that soaring metal prices are "proof" that what they call "inflation" is returning, which is their explanation as to why gold has been making new highs. The financial press is impressed by the Uptrend in the Dow-Jones Industrial Average (DJI) rather than depressed by gigantic government deficits - both domestic and international. The declining dollar is regarded as "a good thing" because the United States can export more cheaply. Americans have been annoyed by high gas prices but, instead of confessing that they have refused to allow the building of new refineries here for decades because they're smelly, or comprehending that the world will someday run out of oil, they degenerate into the Low State of Blaming "speculators" or "oil companies" and "price gougers." We pondered long and hard over this tangled spaghetti of opinions, wondering how to lead you to profits by uncovering the underlying realities.
        Our view is entirely different, and we urge all serious market students to patiently work through all this with us. As we marveled at the price of copper having soared to an all-time high at $3.81/lb, and other metals at historic highs, we realized that the real key to the puzzle is concealed from public view inasmuch as the value of the dollar itself is plunging! In other words, prices are not rising, the dollar is falling. We toyed with that concept, and conjured up some graphs (published in The Dines Letter) just to see where it led us.
        The press and public mistakenly define "inflation" as "rising prices," whereas the dictionary defines it as an increase in the money supply and credit - consequently when more paper chases the same goods and services that usually results in higher prices. An oblivious American public has little concept how the US government gets away with huge deficits, or who pays them. In fact, Washington just prints the money, with only rudimentary restraint - producing as much as they dare - and they borrow the rest by selling bonds and going into debt. All this was laid out for you in depth in our second book The Invisible Crash. As defined by DITOGR (Dinesism #14), gold is the real money, worth different amounts of paper in different nations, depending on the amount of paper that they printed.
        Our charts clearly show, without a doubt, that money is gushing out of the U.S. dollar and stocks, and into gold and silver.
       We performed the same exercise on crude oil and our charts conclude that oil has not really risen this decade, the US dollar has dropped! What Americans perceive as "higher gas prices" are nothing of the sort, but rather a free-market adjustment to Washington's printing presses. The same would apply to sky-high copper, zinc, lead and other prices, with each incredibly-shrinking US dollar able to buy fewer units of real things! It might be mind bending to see things in terms of the dollar dropping rather than prices rising, but that is the reality of it.
        For many years The Dines Letter descried other nations holding their currencies too low against the US dollar so that they could outcompete us on price, we were clear that someday the US would retaliate by likewise deliberately cheapening its currency and so we predicted "The Coming Competing Currency Devaluations and Trade Wars." That's what is happening now, and for example, why the US has been pressuring China to upvalue its currency and also why that nation is resisting American pressure to do so. Nations favor cheapening their currencies.
       While dollar futures have tried to stabilize in the last two years, our chart of US dollar futures, expressed in London gold, shows the US dollar has been crashing all decade.
        The dizzying pieces of the puzzle not only fit but, much more importantly, we have actually discovered specific trendlines with which to help us call the final turn when they are broken, the reversal that might provide clues to us all for the inevitable sale of precious metals and uraniums!
        Rising gold prices do not always automatically mean that inflation is coming, since fear can also drive buyers to it. Anyway, the force of inflation from government overprinting is outweighed by the classic deflationary factors that follow all inflations. As The Invisible Crash pointed out, after a certain peak, the printing of paper money actually contributes to a deflation, such that the more paper is printed the more fierce deflationary pressures become. A recent example was the Japanese economy, which ran the printing presses in the 1980s such that we flashed a "Sell" signal on the Japanese stock market around 1989 before its devastating subsequent deflation. Printing money even faster did not help.
        Currencies might seem uninteresting, but they are as vital as blood to an animal, so we predict that someday news about them will move from the present's back pages of newspapers to front-page headlines, believe it or not. The new prominence of currencies should start in Canada, now that the "loonie" has risen from a low of 62 cents in 2002 to around 90 cents squeezing Canada's exports lower - but also lowering the prices of what Canadians could buy in America. Including vacations, so why not enjoy?
        More serious was the agreement by finance ministers from China, Japan and South Korea on 4 May 06 to produce a common regional currency like the euro. Uh-oh, maybe America's screw-the-world's-dollar-holders is ending. And then what? The American dollar is in grave danger of quietly slipping below the waves."

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HENDERSHOT INVESTMENTS
11321 Trenton Ct., Bristow, VA 20136.
1 year, 4 issues, $45.

Berkshire Hathaway attractively valued

        Ingrid Hendershot: "Berkshire Hathaway (BRKB $3,067) is a holding company owning subsidiaries engaged in a number of diverse business activities. The most important of these is the property and casualty insurance business conducted on both a direct and reinsurance basis. GEICO is one of the four largest auto insurers in the U.S. with General Re and Berkshire Hathaway Reinsurance Group among the largest reinsurers in the world. Other businesses include include apparel, building products, flight services finance and financial products, distribution, retail, and flooring and carpeting operations.

Strong Financial Results

        Over the past forty years, Berkshire Hathaway has skillfully compounded its investments per share and pre-tax earnings per share at 28% and 17% annual rates, respectively. Over the past decade, pre-tax EPS have compounded at an even higher 30% annual rate, reflecting an ever-increasing emphasis on business acquisitions. This impressive track record is due to Berkshire owning a "wide variety of relatively-stable earnings streams combined with great liquidity and minimum debt."
        Strategically, Warren Buffett strives to invest in business that possess excellent economics, with able and honest management, and to buy these businesses at sensible prices. He applies the same criteria to making long-term stock investments. When Mr. Buffett finds such stocks, he invests a meaningful amount. At year end, 59% of the market value of Berkshire's $47 billion in equity investments was concentrated in just four stocks: Coca-Cola, American Express, Wells Fargo and Procter & Gamble.
        Berkshire's first quarter revenues increased 29% with earnings jumping 70%. These results included the consolidation of MidAmerican Energy as well as results from recent acquisitions. Higher interest income and investment gains also benefited first quarter results. Mr. Buffett noted that the operating earnings of all the businesses in the first quarter "worked out pretty well." He specifically lauded GEICO, which demonstrated "excellent growth - better than any of their competitors."

Iscar Acquisition

        Berkshire Hathaway recently announced plans to acquire 80% of Iscar Metalworking Companies (IMC) in a transaction that values IMC at $5 billion. Iscar is a global industry leader in the metal cutting tools business. Mr. Buffett and Mr. Munger recognized an "extraordinary management team" at Iscar and are enthusiastic about the acquisition given the benefits of investing in a "stable business with very significant growth prospects." Israeli-based Iscar is the third largest acquisition ever made by Berkshire Hathaway, and the first business acquired outside the U.S. Mr. Buffett stated that shareholders ten years from now will look back on this acquisition as a "significant event in Berkshire's history." This acquisition also provides Berkshire with a way to diversify its earnings stream into other currencies and countries, as Mr. Buffett continues to believe that the U.S. dollar will likely decline given our growing trade deficit.

Growing Cash

        Ever after recent significant acquisitions, Berkshire's cash exceeded $37 billion at quarter end. Declaring that a "normal" cash position for Berkshire is now $10 billion to meet insurance needs, Mr. Buffett seeks to put excess cash to work in further acquisitions as his goal is to "translate the cash into more permanent earnings power."
        Mr. Buffett indicated that Berkshire likely won't be spending much of its growing cash on share buybacks, as Berkshire's low trading volume would make it difficult to buy back enough Berkshire stock to be meaningful. Berkshire's shareholder base is perhaps among the most loyal of any publicly-traded company with a mere 14% turnover.

Investing Advice

        Mr. Buffett explained that investing is not complicated. Investors just need to "find the best pockets of undervalution, have the courage of their conviction, and buy when others are paralyzed by fear." He further added that investors "don't need a ton of ideas - just one idea that is worth a ton." He quoted Ben Graham: "You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right." He further instructed investors to focus on what is "important and knowable" and pay heed to Graham's wise observation that "the market is there to serve you, not instruct you." Berkshire Hathaway appears attractively valued. Buy."

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THE COMPLETE INVESTOR
P.O. Box 248, Williamsport, PA 17703.
Monthly, 1 year, $72.

Chinese energy companies
deliver growth and high yields

       Tobias Crabtree: "A robust weighting in energy helped our Income Portfolio deliver solid first-quarter total returns of 5.1 percent, beating the S&P's 4.2 percent gain and far outpacing the -0.7 percent return from the Lehman Brothers bond index. But we think our oil holdings still have further to go. Not only are valuation still attractive - industry bellweather Chevron (CVX), an Income pick, trades below 8 times next year's earnings, as does ConocoPhillips (COP) - but we expect oil prices to continue trending higher, boosting revenues and profits.
        One of the biggest factors in oil's relentless rise, as we've discussed many times in TCI, is accelerating demand from China, whose oil consumption, remarkably, is now second only to that of the U.S. It's not surprising, therefore, that the two of the brightest stars in our portfolio have been Chinese energy companies: PetroChina (PTR), up 28 percent so far this year, and CNOOC (CEO), up 15 percent. Both remain strong buys.
        With the average selling price for its crude surging 44 percent in 2005, to $49 a barrel, PetroChina delivered a record $16.6 billion in earnings for the year, a 28 percent rise. This makes it the fourth-largest energy company in the world, behind industry behemoths Exxon Mobil, BP, and Royal Dutch. The company bumped its dividend payout up a hefty 22 percent; investors in PetroChina's ADRs (American Depository Receipts) will receive a $2.25 payment per share on June 19. Moreover, investors will benefit from a strengthening of the Chinese yuan vs. the U.S. dollar. That's because holders of PetroChina ADRs receive dividend payments in U.S. dollars derived from earnings in yuan - so a stronger yuan-to-dollar means a larger dollar payout. Trading at 8 times next year's earnings, PetroChina is reasonably valued, and given its nearly 4 percent yield, we recommend buying it for a target of 125.
        Like its mainland peer, Hong Kong-based CNOOC also had an outstanding 2005. Net income rose 57 percent and revenues were up 35 percent. CNOOC is China's leading natural gas play and one of the better growth stories in the global energy sector. Higher oil and natural gas selling prices along with solid growth in production volumes should continue in 2006. The company's ability to increase production - estimates are for 9 percent production growth this year - makes it a standout in the energy patch: most major energy companies are struggling to stave off production declines. In 2005, CNOOC replaced 186 percent of its reserves; for the year ahead, recent acquisitions - in particular, a major Nigerian natural gas field - and 10 new projects in offshore China should keep this strong reserve replacement trend intact. On June 14, CNOOC will pay investors $1.29 per ADR. The stock offers the opportunity, rare within the energy sector, for strong growth plus an high dividend. Yielding 3.1 percent and trading at less than 9 times next year's earnings, CNOOC is a buy for a target of 100.
        Update: Hurt by rising rates, utilities have limped through the first part of 2006. Long-term bonds, as of this writing, look ready to push through 5 percent, making the utility sector's yields less attractive. While utilities have enjoyed a tremendous run over the past two years, we continue to believe the high-quality growth utes - such as Income Portfolio's Exelon (EXC) and FPL Group (FPL) - remain worthy plays, offering investors the chance to capture low-risk double-digit total returns over the next 12 months. Exelon and FPL shares have been further held down by fears that pending mergers may be stalled by regulators. We'd use any merger-related weakness as a buying opportunity."

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THE TURNAROUND LETTER
225 Friend St., Ste. 801, Boston, MA 02114.
Monthly, 1 year, $195.

Pluses significantly outweigh the
minuses in Newpark Resources

        George Putnam, III: "Newpark Resources (NYSE NR $5.65) serves the oil and gas drilling industry in a variety of ways. Its largest business segment provides fluids and related technology to the drillers. It also provides mats which assist in moving heavy equipment, and it removes pollutants from drilling sites.
        Newpark grew steadily through the early 1990's, and its stock peaked above 20 in 1997. Then volatile oil prices took a toll on results, and the stock price has bounced around the mid-single digits since 1999. Just as higher oil prices were beginning to give the company a boost, in April it announced an accounting problem at one of its subsidiaries, and the stock came crashing back down again.
        Analysis: Newpark's business definitely appears to be on the upswing. Even though oil prices have generally been on the rise since 2002, many drillers were initially hesitant to increase their activity because they had been burned in the past when previous run-ups in oil prices had peaked quickly and been followed by sharp price declines. Now, drillers (and their clients, the oil companies) appear to be more convinced that oil prices will stay at high levels, and so drilling activity is picking up. All of this bodes well for Newpark.
        While accounting problems are always troubling, Newpark's issue appears to be confined to a small subsidiary. Our best guess is that there will not be a major impact on either past or future results. Of greater concern is the fact that the company's current CFO and former CEO (who now runs a subsidiary) have been suspended as a result of the accounting investigation. The good news is that Newpark has had a new CEO in place since March.
        The accounting problem is likely to put a damper on the amount of financial information coming out of Newpark for a while. But the information that has emerged is very good. Newpark recently announced that first quarter revenues were up 29 percent over last year, and operating cash flow nearly doubled. (It did not announce any earnings figures).
        One other concern about Newpark is its relatively heavy debt load. As long as results remain good, the leverage will magnify the positive impact. But if results weaken, the debt could become a problem.
        Back on the positive side, Newpark could be very attractive acquisition candidate, once it gets its accounting issues squared away. It has appealing niche businesses in a growing field, and it would be a good fit for several larger oilfield service companies.
        All in all, we believe that the pluses significantly outweigh the minuses in Newpark, and that the accounting problem provides an opportunity to get into the stock at an attractive price. The stock is off about 40 percent from its high earlier this year, and it now trades around the same level it did in early 1999 when oil was below $15 a barrel. Even if the price of oil declines from its current lofty level above $70, we expect Newpark's business to thrive. We recommend buying Newpark Resources up to 7.50."
        Disclosure Note: Accounts managed by an affiliate of the Publisher own Newpark Resources stock.

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