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Venture capital veteran Tom Perkins, co-founder of Kleiner Perkins sees danger ahead: “There is too much money chasing too few companies, he said, and the increasingly large sums invested mean failures will hurt more.”
Raleigh, NC. The Technology Stock Advisor, a weekly online newsletter for technology stock investors, published by Thomas Vass, a portfolio manager based in Raleigh, N. C., initiated coverage on Quaker Chemical today and offered economic commentary for investors.
The Technology Stock Advisor stock selections are based upon a 2007 stock selection and portfolio management patent issued to Vass. The patent explains the relationship between technology innovation and stock investments.
And, everything reaches equilibrium at precisely the same moment in time. Or, so the theory goes.
The private capital markets are no different than any other market in terms of being connected to each other, given any starting point in general equilibrium economic theory.
Issues and factors are so complicated in understanding how capital markets are connected to production markets, that economists simplify in order to focus on just one aspect of the economy, or one main indicator, the favorite in America universities being productivity.
Capital markets, and the other important indicator, the rate of investment, tend to get less scholarly attention, but it does not matter where you start, or the direction of your analysis, because it all ends up in the same place: at equilibrium.
When an industry expert like Tom Perkins, issues a warning, it is useful to apply his capital market analysis to the implications for the broader economy, and apply the implications to stock market guidance on what to do with your money.
In her Reuters article, “Venture Capital Veteran Perkins Sees Danger Ahead,” Sarah McBride reports where Perkins would be looking for innovation today. “He would be scouring university research labs looking for novel technologies that could be commercialized -- the model for one of his earliest successes, biotechnology firm Genentech,” she writes.
The reason for his focus on innovation is that technology commercialization is the precursor activity to investment activity, in general equilibrium. One of the worst economic issues confronting the American economy is very low rates of innovation and technology commercialization.
Without high rates of technology innovation, there are no investment deals.
If there are no deals to invest in, then there is a lot of capital surplus from prior investments sitting around idle, looking for somewhere to go.
Existing surplus capital, therefore, piles into the few meager investment deals that exist, which means too much money chasing too few deals. The same forces affect the public stock markets, and when too much money is chasing too few investments, some economists call that, “an asset bubble.”
"Mathematically, there's no way that all venture capital in America will make 10 to 1," or $10 for every dollar invested -- a fairly typical return in past years,” Perkins told McBride.
When too much money is chasing too few deals, the risk of investment failure goes up, along with the magnitude of financial loss from any single investment, or in equilibrium, all capital market investments.
“Firms hit by outsized failures will find it hard to raise money for future funds,” Perkins said, “leaving the playing field to a select few with the cash and experience to outperform, including his eponymous fund, Kleiner Perkins Caufield & Byers, and Sequoia Capital "and a handful of others."
In other words, all the capital markets contract, the number of firms in the markets decline, and competition erodes, leading to monopoly capitalism, and politically, an increased emphasis on political collusion between the big corporations and political elites.
Some political analysts call this phenomena “corporate cronyism.”
I have tried to boil this economic analysis on equilibrium down to its most elemental level to help Larry Summers, and all the other Keynesian wizards on Team Obama understand it.
In general equilibrium, everything is connected to everything, and right now, there is no investment activity in one part of the American economy.
The economic outcome of no investment is economic catastrophe. Perkins is a much more accomplished guy than any economist on Team Obama, and he is warning Americans that the nation is confronting an economic catastrophe related to a low national rate of investment.
(Note to Team Obama: Keynesian tinkering with temporary tax credits in your recent jobs plan is an absurd idea).
“When we begin our search for possible stock investments,” said Vass, “we define 9 high tech value chains, where we believe most of America’s innovation occurs in sustaining product innovations and radical disruptive technology commercialization.”
“We suspect that companies within any given value chain category would be from industrial sectors whose trading relationships and linkages with one another are stronger than their linkages with sectors outside the group, and that these types of relationships explains much about the future stock prices of companies that we follow,” Vass added.
“We added Quaker Chemicals today because they fit all the investment parameters that are needed, given where the economy is, in general disequilibrium,” he explained. “They are right at the starting gate of innovation for the new, integrated global supply chains.”
Quaker Chemical Corporation (KWR) develops, produces, and markets formulated chemical specialty products for various heavy industrial and manufacturing applications. The company also offers and markets chemical management services (CMS). Its products and services include rolling lubricants, which are used by the manufacturers of steel in the hot and cold rolling of steel, as well as by the manufacturers of aluminum in the hot rolling of aluminum; corrosion preventives that are used by steel and metalworking customers to protect metal during manufacture, storage, and shipment; metal finishing compounds, which are used to prepare metal surfaces for treatments, such as galvanizing and tin plating, as well as to prepare metal for further processing; and machining and grinding compounds that are used by metalworking customers in cutting, shaping, and grinding metal parts.
Quaker Chemical was added to the TSA B-rated stock portfolio, with an initial target buy price under $24 per share.
About The Technology Stock Advisor: TSA is an online newsletter about investing in technology stocks. The newsletter is managed by Thomas Vass, a professional money manager.
Investment Disclosure: The past performance of an investment is no guarantee of future performance. All investments bear risk of loss of principal invested. There are no guarantees related to investing. Please visit the TSA website to read the ADV Part II disclosure document for information about our qualifications and investment management fees.
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About the Author
I am a portfolio manager and an insurance agent. I also manage a new crowd funding website called the Private Capital Market.com, where tec
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