Understanding information with will power is the key to crisis evasion

Back in October 2008 in the first days of the blog and in the midst of a Second Great Depression talk, I wrote a post in which I said such an event was highly unlikely.  Among the reasons I gave for this were the:

• greater understanding of both fiscal and monetary policy
• increased speed of data reporting, and
• increased transparency of data collection

All three of these address the greatest challenge of investing: understanding information.

I bring this up right now because of the economic and financial crisis that has unfolded in Europe.  Financial markets were pricing in a doomsday scenario that just is highly unlikely given the three conditions I named above.  The only thing that seemed to be missing in averting the eurozone crisis was will power on the part of finance ministers in Europe.  The activity over the weekend seems to have demonstrated that the information of the crisis was understood and that it would be acted upon.

My point is that going forward this is a powerful heuristic for assessing economic and financial crisis:

1.  Is the information about an economic and financial crisis understood?
2.  If there is, then is there will power to do something about it?

In the run up to the most recent United States recession, there was a widely held belief that the real estate market was a massive bubble.  So the information was understood.  However, there was no will power to do anything about it until, unfortunately, it was too late to take preventative actions.  Instead, in the midst of crisis will power was suddenly manifested.

Going forward, let’s hope that policy makers and regulators are more demonstrative of their understanding of information and take preventative action.  Crisis should not be the only source for force of will going forward.

Lastly, because of the three reasons why a Second Great Depression seem impossible to me I have been a bull in both of the most recent economic crises.  It’s also my opinion that investors still do not fully appreciate that those points are permanent arrows in the quiver of regulators and policy makers.  They will not be easily forgotten.

Jason