Investing The Carlota Perez Way

by: Dana Blankenhorn

You will probably be hearing a lot about Carlota Perez over the next year.

Perez, a Venezuelan now teaching in Estonia and England, is the author of 2002's “Technological Revolutions and Financial Capital,” which actually predicted the financial collapse of 2008 and put it into an historical perspective. Think of it as explaining why things like the Elliott Wave theories of Robert Prechter work.

Perez sees us entering a major technology shift, from manufacturing to knowledge, and the last crash as merely the end of the old order. The new world will be built on mass customization made possible through new knowledge, on global regulation made necessary by the nature of the Internet, and on energy harvesting made possible by the rise of that resource.

As with 1929, she believes, so it is with 2008:

The collapse reveals the need for regulation to restrain financial excesses and to favor the real economy, usually under political pressure for reversing the income polarization and other negative consequences of the bubble times.”

This idea of needing new regulation, of global regulation, to reverse income polarization is bound to make her politically controversial. But she's getting serious attention from business types, like Irving Wladawsky-Berger of MIT (formerly of IBM) and venture capitalist Fred Wilson, arguing for policies that favor new industries over the old.

Investing the Perez way means doubling-down on technology, which may be why IBM (IBM) and Cisco (CSCO) listen to her at length. She believes social networking is no bubble, but the first proof of how important the Internet is becoming as a growth driver. (If Facebook were public, she'd probably suggest you buy it.)

So Internet infrastructure companies like Juniper (JNPR) , EMC (EMC) and Microsoft (MSFT) are long-term plays, in her view. As are big Internet services, like Google (GOOG), Baidu (BIDU) , and Amazon,Com (AMZN). Global Internet infrastructure is on the verge of creating a new boom, she believes, and while policy will shape that boom, the rise of things like global markets, alternative energy and intellectual outsourcing is inevitable, something we need to adapt to and can't stop.

The best news from Perez, for investors, is that following the current muddled age we will see a frenzy of investment, and growth, coming from these new industries, which will reshape our politics and society in ways that are both frightening and wondrous.

It's a utopian vision, not dystopian, which may be her most important message of all.

Disclosure: I am long GOOG, IBM.