Dear Investor,

At this very moment, a major opportunity has arisen in the financial markets.  It may surprise you to learn that this could be the biggest money-making opportunity that's come along in over 20 years - bigger, I believe, than even the technology bubble of the late 1990s.  

Like then, however, the average investor may lose out on this opportunity entirely.  Even worse, there are economic events taking place today that could cause many people to lose their shirts over the next year or so.  The recent mini-run on Northern Rock and the subprime meltdown in the U.S. are likely to be just a taste of what's coming.  

On the other hand, many smart investors will likely reap the biggest profits of their lifetime over the next three to five years.  Your choices today could determine which group you fall into.  But if you'd like to join with the "Smart Money", and become wealthier, I think you'll find this report extremely valuable. 

I'm James Ferguson.  You may know me from my regular column in MoneyWeek Magazine.  I'm also an economist and stockbroker.  I've spent over two decades working in both the UK and Japan for some of the top international financial firms.  

I can tell you honestly that many of my colleagues in the City are licking their chops in anticipation of the cash they will make as this opportunity unfolds.  They are quietly positioning themselves - putting money into exactly those securities that stand to benefit.

But who cares about them?  Most of them are rich enough already.  What's exciting is that this is an opportunity anyone can take advantage of, you included.  The only requirement is that you avoid the biggest mistake most investors make when it comes to investing in a great opportunity - the same mistake incidentally that the Smart Money profits from.  Let me explain ...
 

The end of the easy credit era will burst the property bubble, and create a new bull market in today's undervalued investments!

 
I'm sure you've heard about the meltdown in the U.S. subprime mortgage industry that began last year and has so far resulted in over 100 US mortgage lending firms going under or filing for bankruptcy. What you should know is that the situation in the U.K. property sector today is even more precarious than the American situation was a year ago.  

According to the International Monetary Fund, the last few years have seen property prices outpace income growth in the U.K. by an even greater extent than in America. Overpriced property has created the risk that a steep housing decline will occur as prices inevitably move back into line with what the average family can afford.[i] 

The obvious trigger for a U.K. meltdown is higher interest rates. The Bank of England has raised interest rates five times in the past four years.  The 2 million UK homeowners who are due to come off fixed rate mortgages in the next 18 months can look forward to their monthly payments going up an average of 26%.[ii] That will surely lead to rising delinquencies (people 30-90 days behind in their mortgage payments) among the most vulnerable borrowers, including those in the buy-to-let business.  Rising payments will turn rental incomes into net losses very quickly, triggering a selling spree that drives prices down.

But there's a more serious problem.  What most people don't realize is that house prices are not determined so much by the supply of houses but by the average person's access to cheap credit. 

You see, there are basically two models in the mortgage business.  Either a lender grabs market share by offering easy credit at cheaper rates and lets volume compensate for lower profit margins, or they lower their risk by lending prudently and using higher profit margins to make up for a lower volume of lending.  

For the past few years, banks have followed the "easy credit" strategy.  Both the U.K. and the U.S. central banks lowered interest rates considerably between July 2001 and 2003.  More significantly, banks on both sides of the Atlantic lowered the spreads between the base rate and the rate the average mortgage borrower had to pay.  Normally, only AAA corporate borrowers are allowed to borrow money for just slightly above the base rate.  In tough times, the worst corporate credit risks might have to pay as much as 10-11% on top of base rate.  But in recent years, banks were extending very low rates to just about anyone.  

But now this "easy credit" strategy is coming to an end. The downfall of many subprime lenders in the U.S. has impacted the banking system globally - Northern Rock being a prime example. As a result, lenders on both sides of the Atlantic are going to be much more careful from now on about who they lend to. Andy Hornby, CEO of HBOS, confirmed as much in an FT article recently when he said, the mortgage market will "undergo a fundamental shift" because the increase in funding costs will be passed on through to borrowers.  

In other words, even if the central banks start lowering their base rates again, mortgage lenders will protect themselves from rising delinquencies by restricting access to credit.  Either they will increase the spreads, or they will raise the qualifications for borrowing high enough to weed out all but the most solvent.  

In fact, this is already happening.  According to Moneyfacts.co.uk, between July and October 2007, "the number of buy-to-let and residential mortgage products available has fallen by a staggering 40% overall."[iii]  The Financial Times reports that the number of mortgage borrowers rejected by lenders rose 60% in the six months ending Sept. 2007.  

The result of no more easy credit will be a self-reinforcing cycle of falling home prices, the end of the subprime market in the U.S. , and the end of the buy-to-let market in the U.K. 

If you own rental properties, you might consider getting out of that business before the rush.  However, you should also know that fallout from the bursting of the property bubble will cause additional risks, and ... one sensational investment opportunity, for those who get in ahead of the crowd.

As recession looms nearer, it's time to switch your savings into investments that will thrive and grow regardless

 
You see, in addition to falling property prices, the end of easy credit will have a serious dampening effect on American consumer spending.  This is important because consumer spending has been one of the main pillars holding up the U.S. and the world economy since the technology crash of 2001-2.  

One indicator that consumer spending has already begun to fall is the amount of money being borrowed through second mortgages.  Second mortgages are a way homeowners can spend their home equity on consumer goods - a process known as Mortgage Equity Withdrawals, but which I prefer to think of as "burning down the house."  The most recent statistics show that in the U.S. Mortgage Equity Withdrawals have declined by 54% since 2005 - a drop of $450 billion.  That's $450 billion less that will be spent on cars and other products. 

In addition, the number of delinquencies has recently risen to more than 5% of mortgages in the U.S.  Naturally, if people can't afford their mortgage payments, they can't afford to buy much else.  For the past 30 years, whenever delinquencies have risen this high in the US, the result has been an economic recession, and this time should be no different.  And because today's world is so interconnected, a U.S. recession will create a drag on other economies as well.
 

But all is not doom and gloom.  There is a golden lining to this dark cloud, and it could be the biggest moneymaking opportunity I've seen in my lifetime - what I believe will be the next great investment trend.  It's an opportunity most U.K. investors, who rely only on the media for financial tips, will miss completely.  Yet it's where the Smart Money will make huge returns.

The impending bull market in stocks that most investors will miss

 
You see, as this recession unfolds, I expect most of the commentators and financial journalists will make a fatal error.  They will assume, because conventional wisdom says so, that the recession will be bad for stock prices.  It won't.  And here's why ...

By studying the data over the past 50 years, it's very easy to see that, while there is a connection between stock prices and the economy, it is not a direct relationship.  One does not always predict the other.  For example, there's a saying in financial circles, which is absolutely true, that says "the market has predicted nine of the last six recessions."  Setting aside 1995 (as a near miss), this table shows that falling stock prices and economic recession coincide only half the time ...

The famous stock market crash of 1987, for example, did not lead to an economic recession, while the major bear market of 2001-2002 produced only a brief recession which hardly affected consumer spending at all.  

More importantly, the full-fledged recession of 1990 hardly made a dent in the stock market.  Stock prices fell for just three months, and then charged into a 3-year, uninterrupted bull run!  Same in 1980, when a U.S. recession triggered a rising stock market.

What is it that made the difference?  Why do stocks sometimes do well even in recessionary times?  Ironically, it's the same thing that separates smart investors from victims of the financial system. In a word: value.

You see, the big difference between the smart investors and the average Joe is that smart investors love value; they buy low and sell high.  One way to measure the relative value of stocks or bonds is to look at yields.  The higher the yield, the more value you get for your money.

For example, the chart below compares gilt yields to the earnings yield of the FTSE-100.  (The earnings yield is the average earnings per share divided by the stock price.)  
 

As you can see, stocks did poorly in 2001-2 because the earnings yield on stocks was very low compared to bond yields.  In fact, whenever the yield on stocks falls to 80% that of bonds, stocks can be considered overpriced.

On the other hand, in July 1990, stocks and bonds yielded roughly the same.  When the recession hit, there was no big sell-off in stocks because stocks never seemed expensive compared to bonds.  

What most people don't realize is, therefore ... that recessions are only a problem when stocks are overpriced.  If you stick with value, you'll do fine no matter what happens.

Which brings us to today.  You see, even though all the signs point towards a recession in the U.S. in the next year or so, stocks are very cheap.  And because of that, even a decline in earnings spilling over from the U.S. would be unlikely to push U.K. stock prices down very far or for very long.

On the contrary ...historically, FTSE stocks have been relatively very inexpensive whenever they yield more than 1.2 times that of bonds.  Times when this has happened (1988, 1998, and 2002) have been great times to buy stocks.  But what's really exciting is that, since 2004, stocks by this measure have become cheaper than they've been anytime in the last 20 years.  The implication is that, despite any recession, stock prices are likely to skyrocket over the next few years.

Naturally, the Smart Money will be flowing into stocks because Smart Money cannot ignore that tremendous value.  It certainly isn't going to hang around in bonds or property as that market continues to implode.  Unfortunately, the media will likely under-report on this opportunity until all the best bargains are gone.

However, if you want to make a serious killing in what I expect will be the biggest bull market we've seen in the past two decades, don't make the mistake of keeping your money in overvalued property.  Instead, switch to investments that offer you real value.  In other words, buy stocks.  But not just any stocks.  The big gains, once again will come from a market segment the not-so-smart investors will likely avoid.  I'm talking here about blue chips, large caps, the stocks that are included in the FTSE-100.  

Let me show you why...
 

Your chance to snap up undervalued shares for bargain bin prices

 
Over the years, I have developed a very sophisticated computerized model, using an enormous 25-year database, that's designed to spot divergences between stock prices and their intrinsic value.  It costs as much as £100,000 a year to run this system (when you take into account the huge cost of the software, hardware and data feeds).  But it's worth every penny because it helps me pinpoint which stocks and indices are undervalued and poised for big gains.  But to keep things simple for the moment, I've prepared a chart that shows why blue chips offer you a tremendous opportunity right now ...
 

 
The green line on the chart shows mid-cap stock prices, while the blue line shows their intrinsic value - what the stocks are actually worth according to my model.  As you can see, since 2001 mid-cap stock prices have pretty much kept pace with their value.  Even though much investment money was flowing into real estate rather than stocks, mid-caps stayed fairly priced.  That's because, until recently, easy credit made mid-cap stocks candidates for corporate mergers and takeovers.  Private equity was borrowing heavily and using the cash to buy mid-cap companies, just as buy-to-let investors were taking out big mortgages to buy rental properties

However, take a look at the other two lines, and you'll see that a fantastic investment opportunity has arisen.  The red line shows what, according to my model, blue chip stocks are worth today, while the black line shows their actual prices.  The huge gap between the two tells us that blue chip prices have lagged far behind their intrinsic value.  They are dirt cheap today!  What's more, this situation cannot last.  Eventually, blue chip prices will catch up to their value, and that "catching up" will take the form of very big price gains.

After all, blue chips have a lot of things going for them.  Blue chips generally have low debt and generate a lot of cash - important traits for weathering any financial storm, including credit crunches and recessions.  They generally have higher dividend yields than other stocks.  They are far more liquid than property. And most importantly, because they are already undervalued they tend to have less downside risk than property.

The trigger for the coming surge in blue chip prices will likely be the drying up of credit and the continued disarray in the bond market.  The lack of cheap credit is likely to cause the merger activity to dry up.  Investors will flee property and bonds and head for the more attractive blue chips.  The result could be the greatest profits you and I will likely see in our lifetime - provided you take advantage of the current bargains to get in early.

Once again, however, you don't want just any blue chips, you want the best.  Here's how to find them ...

Using sophisticated analysis, I can show you which stocks are ready to make substantial gains

 
You see, taking my computer model and its vast pool of data, I have developed a system for comparing the prices of individual stocks to their intrinsic value.  That way, I can identify which stocks offer the highest value for the money - which ones have lagged the furthest behind their true worth.  

I then research the most promising undervalued companies.  I make sure they are sound businesses that really deserve to be trading at higher prices.  Finally, I look for the moment when the stock price starts to rise - to close the gap between it and its true value.  That's the best time to buy -- when the stock is poised to deliver substantial gains.

Obviously I can't guarantee that every recommendation will turn out to be a success.  We all know that investing in shares carries risk, even when investing in blue chip shares. Anyone who promises otherwise is either fooling themselves, or trying to fool others. What I can promise you is a stream of shares with the potential to make you serious profit - and instant updates when the model identifies the precise moment of when to buy or sell.

Here's an example.  The following chart shows the price of Edison International (the black line) versus what my computerized model said the shares were worth (the red line).
 

 
You can see how the bear market of 2000-01 caused Edison's shares to fall well below their true value.  It was therefore only a matter of time before share prices moved back in line with their worth.  The time to buy Edison was as soon as the price began heading back towards the red line.
 
And here's another example, Hanson PLC ...

Hanson's share price fell far below their value in 2003, partly the result of Lord Hanson's death, and partly because a similar company, Tyco, was falling apart.  But Hanson was still a great company, and its shares were selling cheap.  All a smart investor needed to do was buy the moment the price started moving back in line with what they were worth.

Each week, when I run my computer model, I find similar undervalued stocks that are poised to make similar gains.  I have quite a few of these that I'm looking at right now.  For some time, I've been sharing the results of my analysis with a small group of investors - people who, like you, want to join the Smart Money in buying low and selling high.  And I'd be glad to share them with you as well, along with something much more important.

Get the scoop on what's really happening in the investment world

 
I mentioned earlier that investors need a better source of information than currently offered by newspapers.  In particular, you need to know where the undervalued opportunities are today.  You need to find out where the next big bubble will be - years in advance - so you can get in early along with the experts and smart investors.  And you need to know when the bubble is getting stretched, so you can cash in your investments before the downturn begins.

Drawing on my decades of experience in the markets, my connections within the financial industry, and my training as an economist, I have created a weekly publication designed to give you the information you need to invest alongside the Smart Money, and avoid buying the wrong thing at the wrong time.  

My publication, which I call Model Investor, covers what's really happening in the markets and the economy, including information you'll never get in the mainstream media.  In the past few months, Model Investor has covered such topics as ...

• Why inflation is NOT the threat that people believe
• Why the U.S. dollar is in danger of collapsing - and destroying the yen carry trade in the process.
• Opportunities in undervalued pharmaceutical stocks.
• Why oil prices will remain high, despite the impending U.S. recession - and how you can profit.
• Why Australia 's drought means good news for certain maritime shipping stocks
• What's really behind the run on Northern Rock, and what it means for the average U.K. homeowner.
• The one place in the world where property remains a good investment.

Each article features detailed charts and research, so you gain a clear picture of what's happening in the world.  

But that's just the beginning.  You'll also get extensive coverage of the best long-term investment opportunities, as generated by my computer model and further analyzed by me.  These are stocks you can safely hold for the next 3-5 years to take advantage of the major trends taking shape today - stocks I expect will at least double as events unfold. 

Instant delivery lets you take advantage of fast-moving profit opportunities

 
And while you're patiently waiting for our long-term picks to bear fruit, you'll also find out about many short-term investment opportunities in the market today.  You see, I often come across outstanding opportunities that fall outside my model (for instance, stocks that haven't been around long enough to establish a track record).  Rather than ignore them, I pass the best of these opportunities on to you as well.  For example, in recent months, my readers have been able to take short-term profits on such stocks as ...

Nippon Yakin - rose 83.9%
DA Office - rose 37.1%
Nippon Metal - rose 22.2%
(Please note - these figures refer to the past and the past is not a reliable indicator of future results)

I send each detailed issue of Model Investor to you by email each Friday, after the markets close.  The advantage of email is that you get the information right away, no matter where you are in the world, without having to worry about postal delays.  That means you can take advantage of fast-moving opportunities to buy low and take profits.  Plus, because you get your copy on Friday, you'll have time to study it over the weekend and make your investment decisions without feeling rushed.  Each issue also includes a complete update on all our outstanding positions, so you can see at a glance what's new, what's a sell, and how well each stock is doing.

If there's some urgent development during the week that will affect your investments, I will email you an Update, so you don't miss any great opportunity.

And, of course, you'll also get FREE access to the subscribers-only WebPages where I maintain an archive of all back issues of Model Investor, so you can catch up on all the opportunities presented in the past few months.

I've worked hard to make Model Investor your best source of investment advice, including objective economic analysis that gets to the heart of what's happening in the world, undervalued investments that will let you profit from the biggest long-term trends, and short-term money-making opportunities just for added excitement.  And all in one, weekly bulletin.  It really is your easiest way to become part of the Smart Money crowd, the ones who aim to make the biggest profits in every financial boom and bubble.

And that's not all ...

To make sure you're completely comfortable with my methods, when you sign up for Model Investor, I'll immediately mail you a FREE copy of my guide, Model Investor: How to make serious money from share price deviations, in which I reveal the secrets behind my computer model.  You'll discover ...

• The Secret of Dark Matter - the invisible investment crowd that profits when most fund managers and amateurs fail.
• The fundamental flaw in the Efficient Market Hypothesis that you can exploit to make fantastic returns.
• How the Law of Large Numbers can improve the accuracy of your investment picks.
• John Maynard Keynes' greatest tip on market timing.
• The easiest way to short overpriced stocks.
• How to avoid paying stamp duty and commissions on your short-term trades.
• How to lower your risk level through the proper use of stop-loss orders.
• Recommended trading firms. 

... And more!  You will find this guide will help you get the most out of your subscription to Model Investor.
 
Best of all, you can get your first issue of Model Investor this coming Friday, plus weekly issues from then on, for a very reasonable price.

Try Model Investor on a money back trail for the next 3 months, with no obligation to continue!

 
Naturally, providing you with the best financial information available takes a lot of work.  As I mentioned, it would cost you thousands of pounds a year just to run my computer model - and that doesn't begin to include all my other research costs and know-how.  Fortunately, I have found a way to offer you a very Special Deal on Model Investor.  

You see, normally a one year subscription to Model Investor costs £495.  This is considerably less than many high-end investment advisories, and quite a deal considering the depth of research that goes into it.

However, if you're the least bit hesitant, you can test-drive Model Investor for the next 3 months, with no obligation to continue.

And if you sign up by Direct Debit you'll SAVE 20% off the full credit card price and no money at all will leave your account for 28 days... If you want to cancel at any time, just let us know, and we will stop your subscription and return any refund immediately - no questions asked.

But you will still receive every Model Investor bulletin and update during that period, as well as your FREE copy of the guide, Model Investor: How to make serious money from share price deviations.

Why not use that period to paper trade my recommendations? That way you can see if the risk/reward ratio is something that you are comfortable with. If you decide not to continue with Model Investor at any time during your test-drive period, just let us know. Your subscription will be cancelled immediately, and you will have paid nothing. Your guide and all issues you have received are yours to keep either way. 

If you do decide to continue, your subscription will automatically renew at the rate of £99 every three months - that's a 20% saving off the regular rate. (The advantage of direct debit is that you'll never have to worry about renewing in time to get the next issue.). Or of course you can pay by Credit Card which costs £495 for a one year subscription.

Naturally, should you ever wish to stop receiving Model Investor, just call one of my customer service representatives on 0207 633 3620 or email mdi@f-s-p.co.uk and we will cancel your subscription and refund the balance of your subscription fee.

However, once you experience the excitement and profits that come from investing with the Smart Money, rather than against it, I expect you'll want to stay with us for many years.  

I look forward to hearing from you and helping you enjoy a wealthier future.

Sincerely,

James Ferguson
Editor
Model Investor

P.S. One big question that investors should be concerned with now is how a recession in the U.S. will affect commodity prices.  On the one hand, commodities have risen very far in the past few years due to higher demand from developing countries. China 's growth in particular has been phenomenal. On the other hand, the U.S. is 20% of the world's economy, so an American recession is bound to affect China 's economy as the U.S. imports fewer Chinese products. Is this another bubble that's drawing near its breaking point, or another case of the media unintentionally leading investors astray? Huge profits can be made if you invest on the right side of these events.  To stay abreast of the real story, subscribe to Model Investor today.