Interactive Investor

Party like it's 1997, and buy Barclays

24th September 2015 13:15

Ken Fisher from ii contributor

Stocks falling fast after years of calm. Swinging currencies and hard-landing fears in Emerging Asia. Plunging commodity prices. Strong dollar, strong pound. We've seen this movie before, and it has a happy ending. Stay cool, hang on, and be ready for this bull market to party on.

This year is a rerun of 1997, when an Emerging Markets currency crisis sparked a global correction. Then, like now, we were over six years into a long bull market, with pundits wrongly warning above-average valuations signalled "irrational exuberance". The developed world was a bastion of relative strength, but folks feared trouble in developing Asia would derail the West, killing the bull market.

In 1997's crisis, dubbed the "Asian Contagion", unsustainable currency pegs fell one by one. Thailand was the first, draining reserves to defend the baht and prevent big piles of dollar-denominated debt from going bust. It didn't work, and they devalued in July. Korea and Indonesia fell next, and all took IMF bailouts. Investors freaked worldwide, and global stocks fell -15% between August 7 and November 12. Not so big, but it felt awful since we had five correction-free years - just like this drop feels huge after three correction-free years.

No two time periods are exactly alike

Asia suffered in 1997, but world stocks rebounded before Emerging Markets' bleeding stopped, and the crisis didn't go global. Hong Kong, Malaysia and the Philippines were pressed but avoided Thailand's fate. Russia devalued and defaulted in 1998, and Brazil devalued in 1999, but America, Britain and Europe thundered on. Western growth pulled the world along, and the bull market ran through March 2000.

No two time periods are exactly alike, but many parallels exist between 1997 and now. Instead of Thailand, Korea and Indonesia, we have China, Malaysia and Kazakhstan. China is huge, which might seem different, but August's devaluation was a tiny -3% move. China's economic data are mostly in line with recent trends - more modest slowdown, no hard landing. Like then, commodity prices are falling and interest rates are stable. And of course, the developed world is driving global growth, bolstered by cheaper energy costs. America, the Eurozone and Britain are plenty strong enough to carry the weak, just like in 1997. Even commodity-heavy nations aren't uniformly struggling. Canada, Brazil and Russia are in recession, but Mexico, Australia and Indonesia are growing. Cheap commodities boost China, too, lowering input costs, a big benefit no one talks about - bullish.

Don't expect smooth sailing from here, but that's okay. You don't get big bull markets without big short-term wobbles. Stocks corrected again (and worse) in 1998 as Russia imploded but still rose 23% for the year. Corrections are normal in big bull markets.

Own stocks, and ride the bull higher

Anything can happen, but this bull market should resurge, trampling all the fears allegedly in its way. Own stocks, and ride the bull higher. Here are two for you:

How can Amazon be worth more than $200 billion, yet never earn material profits? First, if it did, it would pay material taxes. Why are taxes good? Second, it still self-funds strong sales growth with an okay balance sheet. Third, it's at only 2.5 times revenue, cheap for any real growth stock. But the killer? More and more it simply dominates retailing. Whatever it is, if it isn't on Amazon you probably don't need it (except securities - and probably even them soon). Don't believe me? Try searching for bizarre esoterica you expect only in a niche specialty store, far away. Profits later; dominance now! Amazon is an "old tech" name yet merely 21 years young, barely the US drinking age. As such, this huge category killer fits perfectly into my vision of "old tech" leading this bull market's golden years.

I'm also recommending Barclay's for the first time ever. It hasn't made any reasonable money in years. Stagnant sales! Flat stock - just where it was five years ago, half of ten years ago! And it has been accused of darned near everything shy of being an actual terrorist cell. I like that. Expectations are negligible - just as the company now actually, by my reckoning, rights its ship. Once results are in, it will be too late.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.