The Credit Crisis: Just How Bad Is It? And When Will Investors Get the All-Clear?..............Page 4 THE OXFORD CLUB EXECUTIVE COMMITTEE JAMES BOXLEY COOKE Honorary Chairman Baltimore, Maryland JULIA GUTH Executive Director/Publisher ALEXANDER GREEN Investment Director GREAT PROFITS IN THE COMPANY OF GOOD FRIENDS Club News Edition LOUIS BASENESE APRIL 15, 2008, VOLUME 21, NO. 07 Associate Investment Director MICHAEL WARD Editorial Director ROBERT WILLIAMS Managing Editor RUTH LYONS The Most Surprising Member Recruitment Director COLLEEN MONAHAN Operations Manager STEVEN KING Profit Play of 2008... Director, World Financial Seminars KATE MURPHY Member Services Manager RICHARD FLYNN E-Commerce Director Dear Member, THE OXFORD We’ve never experienced a market quite like this before. In one day, INVESTMENT PANEL FLOYD BROWN the Dow rallies 416 points; then days later it gets clubbed as the 85-year old ROBERT WILLIAMS Bear Stearns gasps its last independent breath. A giant brought to its knees DAVID FESSLER by the credit crunch. WEALTH PROTECTION Put simply, investing right now is not easy. And, if left to our own ADVISORY PANEL Louis Basenese ROBERT BAUMAN basic instincts to shoot first and ask questions later, we’re likely to follow the Associate Investment Director MICHAEL CHECKAN herd over a cliff. Or out of the next most profitable investment. WAYNE LELAND Yes, even though we all like to pride ourselves on being independent thinkers, the reality CANADIAN is that when it comes to investing – especially during uncertain times – most will fall victim to INVESTMENT PANEL BRENT AMEY the herd mentality. And a mountain of evidence proves it. DAVID MELNIK ERIC ROSEMAN The latest proof comes from JP Morgan Asset Management. The firm’s been tracking mutual fund flows for the past six years. What it found was that investors tend to pile into INVESTMENT U stocks at the highs and sit on the sidelines at the lows. So instead of buying low and selling ALEXANDER GREEN Chairman & Editor high, more often than not, we do the opposite. ALEX WILLIAMS Publisher And no one is immune to this basic instinct, either. Not even those most “in-the-know” ADVISORY PANELISTS investment bankers, hedge-fund managers or seasoned floor traders. DR. MARK SKOUSEN DR. SCOTT BROWN But here’s the thing – once we “Know Thyself” as the ancient Greeks implored, we can do something about it, if we dare. And this month we will. MT VERNON RESEARCH KARIM RAHEMTULLA Investment Director So grab the Maalox. Because in a moment, we’ll ask you to do something completely COLLEEN MONAHAN counter to what the herd is doing. It could prove to be the hardest trade to execute in Publisher 2008. But at the same time, it could well be the most profitable, too. Let me explain… ADVISORY PANELISTS MARC LICHTENFELD LEE LOWELL The Best Buying Opportunity in the Last 20 Years JIM STANTON As I write, the credit contagion keeps expanding, infecting commercial banks, MONEY MAP REPORT savings banks, insurance companies, brokerage houses, mortgage companies and almost KEITH FITZ-GERALD all other financial companies without exception. A slew of companies have even hit the Investment Director MARTIN HUTCHINSON courthouse steps. HORACIO MÁRQUEZ WILLIAM PATALON III Over, please... PROFIT PICKS Only a fool would tell you that there’s no more actually buy into the sector? bad news in the pipeline. That said, however, it’s too If you’re on the fence, or question whether such late to take a position against these financials. Even a contrarian approach can be profitable, go back the collapse of Bear Stearns couldn’t bring about to the chart. Look at what happened to Citi the another scalping. last time it hit such rock bottom levels. Shortly In short, the freefall has already occurred. And after everyone bailed, prices zoomed higher. If most of the bad news is already reflected in current you pull up charts of the other financials, invari- ably, you’d see the same scenario has played out prices. The tape tells the story – Citigroup is trading time and again. 66% below it’s 52-week high. Merrill’s off 55%. Morgan Stanley’s off 48%. Lehman’s down 47%. Undervalued? Yes. Double-digit upside? Yes. The Goldman Sachs is down 37%. Even insurance only question left to answer is how we recommend behemoth AIG is off 42%. playing this historic opportunity. To put all this in perspective, we haven’t witnessed How to Avoid Getting Snared such precipitous declines since the late-90s market collapse, according to Bespoke Investment Group. In by a Bear the case of Citigroup, Bespoke reveals that it’s never Sure, it’s tempting to consider buying a stock like traded at these levels. Not even after the 1987 crash. Citigroup. It’s already off 66% from its high, which (See chart below.) On a historical price-to-book ratio, many finan- The Oxford Club, LLC provides its subscribers with unique opportunities to build and protect wealth globally, under all cials are similarly trading at or near decade, or multi- market conditions. We believe the advice presented to sub- decade lows. For instance, Citigroup, Goldman and scribers in our published resources and at our seminars is the best and most useful to global investors today. The recom- Morgan Stanley are trading at levels that have only mendations and analysis presented is for the exclusive use of subscribers. Subscribers should be aware that investment markets have inherent risks been exceeded in one other period. and there can be no guarantee of future profits. Likewise, past performance does not secure future results. Recommendations are subject to change at And on a price-to-earnings ratio, financials repre- any time, so subscribers are encouraged to make regular use of our website, www.monumentstreetpublishing.com sent the cheapest of the 10 sectors in the S&P 500 by © 2008, The Oxford Club, LLC an average margin of 25%. So clearly there’s no 105 W. Monument St., Baltimore, MD 21201 refuting the value proposition here. What we’re wit- Publisher Julia Guth Member Services Mgr. Kate Murphy nessing is a rare buying opportunity, which leads us to Investment Director Alexander Green Director of Research Chris Matthai Assoc. Inv. Director Louis Basenese Sr. Graphic Designer Kathy Osborne a fundamental question. And it’s not a Clint Eastwood- Editorial Director Michael Ward Graphic Designer Jennifer Ross esque, “Do you feel lucky? Well, do ya punk?” Managing Editor Robert Williams Copyeditor Katharine Schildt Protected by copyright laws of the United States and international treaties. Luck’s got nothing to do with this one. It’s a This newsletter may only be used persuant to the subscription agreement question of courage. With the herd staging such an and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited epic stampede out of financials, can you defy your without the express written permission of The Oxford Club, LLC. Information gut instincts, which are traditionally wrong, and contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. You and your family are entitled to review and act on any recommendations made in this document. The Oxford Club expressly forbids its writers from having a financial interest in any security they recommend to their readers. All The Oxford Club employees and agents must wait 24 hours after an Internet publication and 72 hours after a publication is mailed before taking action on an initial rec- ommendation. The Oxford Club does not act as an investment advisor, or advocate the purchase or sale of any security or investment. Investments recommended in this newsletter should be made only after consulting with your investment advisor and only after reviewing the prospectus or finan- cial statements of the company. Basic dues for membership in The Oxford Club are $149 a year. Membership includes the Communiqué (USPS 008-575), which is published twice monthly on the first and third weeks of each month by The Oxford Club, LLC, 105 W. Monument Street, Baltimore, MD 21201. Non-U.S. dues are higher and vary from country to country. Periodicals’ Postage Paid at Baltimore, MD and additional mailing offices. POSTMASTER: Send address changes to The Oxford Club Communiqué, 105 W. Monument Street, Baltimore, MD 21201. For ques- tions regarding the status of your membership call Member Account Services at 410.223.2643 or fax to 410.223.2650. Our website is: www.oxfordclub.com. 2 PROFIT PICKS means if it only bounces halfway back, one would log roughly a 100% gain. But focusing solely on the upside can lead to disastrous results. Look at what happened to Bear Stearns’ shareholders. A week before being acquired (or given away) for $2 a share, the stock opened at $70.28 a share, a bargain compared to its 52-week peak of $159.36. Seven days later, however, it was all but a penny-stock. Ultimately, focusing on the risks in such an unloved sector makes much more sense. And that’s why we’re recommending the Financial Select Sector SPDR (AMEX: XLF). (by buying shares), which could lead to a The ETF lets us own a diversified mix of financial dramatic up-tick. services firms, 92 to be exact. And it insulates us from any more blowups. In fact, when Bear Stearns cratered 4. Too Much FASB 157. The new accounting rule 91% in two days, the XLF only gave up 6%. A day that forces banks to move their Level III (illiquid) later, it was trading at the same levels again, while assets back on the balance sheet – and essential- Bear Stearns investors were still licking their wounds.