MACKENZIE UNIVERSITY

MacKenzie Investments, a well established Canadian mutual fund company, sponsored a one day seminar at the Toronto Convention Center this week and I took Tuesday off and attended with about 1,800 other sales reps. They had an excellent menu of guest speakers/presenters including lawyers, accountants, tax experts, economists, fund managers, self motivation experts, etc. I mention this because after the convention is finished one gets a sense about the conventional wisdom and general outlook within the financial community for future stock market performance. It should be noted that the TSX was up about 33% from its March 9th low while this conference was being conducted. This fact alone would lend a positive backdrop to the event.

The mood was fairly upbeat and the consensus outlook was cautiously bullish. It was clear to me that the case for recovery was clearly the most popular opinion.

As I have come to learn, conventional wisdom and group consensus is not at all useful for making money in investment markets while unconventional wisdom has much greater potential. I'm reminded of last years MacKenzie University at which we were treated to a 90 minute presentation by Martin Feldstein phd. (well known Harvard educator who served as Chief Economic Adviser to President Ronald Reagan). Feldstein logically and clearly explained the problems being encountered in the US housing/mortgage markets and how, because of securitization, they would have dire macro economic impact beyond the borders of the U.S. Thus the MacKenzie University attendees were getting a perfect explanation in early May of the financial disaster that subsequently unfolded in September. We had a four month window of opportunity to reposition our client portfolios and avoid the calamity that befell global stock markets.

Did any of us react to this knowledge? Our reaction at the meeting was initial profound depression eventually followed by disbelief. After all, conventional wisdom was that the U.S. housing and mortgage crisis had been documented and debated for about a year and markets had already performed poorly. The conclusion, based on conventional wisdom, was that this information had already been fully discounted in the markets.

What is Martin Feldstein saying today? Google "Martin Feldstein 2009" and his recent public pronouncements will be made available to you. Check out: http://paul.kedrosky.com/archives/2009/03/martin_feldstei_1.html.

Since May 2008 he has joined Obama's economic advisory team and is a bit more politically careful in what he says but his message is wonderfully clear. The Obama stimulus plan is not efficient in terms of direct benefits to GNP growth (perhaps 40-55 cents for each dollar spent will find its way into the economy). Secondly the stimulus plan is not sufficient to fill the gap caused by the housing, manufacturing and foreign trade meltdowns. The Obama plan calls for $400 billion for 2 years of which $200B/year might find its mark. The calculated macroeconomic stimulus need, according to Feldstein, is $800B/year, suggesting the Obama plan is 75% short.

Today's conventional wisdom says that it is time to get on board the stock market rally. Unconventional wisdom says otherwise.