Who wouldn't like to be able to predict the future? That way you could avoid mistakes and even catastrophes. Unfortunately, neither Nostradamus nor anyone else has been able to do it consistently.
Do you know the term “black swan”? Well, we’ve experienced a few and now we’re immersed in one. Don’t worry, keep reading.
What is the black swan theory
A black swan is a metaphor for an unlikely event , which normally no one has been able to foresee and which occurs by surprise. An example of a black swan would be the attack on the Twin Towers in New York in 2001 or, more recently, the global COVID-19 pandemic.
The term black swan and the entire black swan theory were developed by economist Nassin Nicholas Taleb , today elevated to the status of financial guru and best-selling author.
In his work "The Black Swan: The Impact of the Highly Improbable ", written in 2008, Taleb explains how until his arrival in Australia, Europeans believed and claimed that there were no black swans. It was something that did not exist and, furthermore, was impossible, until it became so with the sighting of the first bird of this type.
This metaphor is later used to explain how there are events that are difficult to predict, almost impossible, but that can still happen.
When is an event considered a 'black swan'?
In his book, Taleb sets out the three characteristics of a black swan. Any event that is classified as such must meet the following three requirements:
• It is an unexpected event. For example, before Covid, an author proposed a novel that dealt precisely with a similar event and it was discarded as implausible. In short, it is an unforeseeable event, but not impossible.
• Have a major impact, both in its immediate scope and on a global level. Again, COVID-19 would have already had consequences if it had been limited to China, but it escalated globally. Along the same lines, when the Ever Green ran aground in the Suez Canal (something possible, but unlikely), it had an impact on global maritime transport.
• They are retrospectively predictable . This means that, at the time, they were seen as very improbable events. However, once they happen, it is possible to see signs of why they happened and even warnings that they could happen.
Events that meet these conditions are considered black swans. It's not that they cannot be foreseen, it's that the probability of them occurring is so limited that it often doesn't pay to prepare for them.
Here are some examples from throughout history. Among the best-known black swans in the economic and social sphere we find cases such as:
• The Great Depression, which began with the crash of 1929 in the United States...
• Black Monday in October 1987, when the stock market fell by 22.61%.
• The attack on the Twin Towers in 2001.
• The bankruptcy of Lehman Brothers and the 2008 crisis.
• The global COVID-19 pandemic , which was even warned about in a 2007 World Economic Forum Global Risks report using the example of a disease that emerged in Asia (it was fictitious).
• The recent bankruptcy of Silicon Valley Bank , the effects of which are yet to be seen, but which has caught markets off guard.
What black swans have there been in mortgages?
Mortgages are no strangers to the emergence of black swans. In fact, they were at the centre of the 2008 crisis due to the massive default on mortgage loans in the United States and the crisis in the real estate sector.
They are now back at the centre of what cannot yet be considered a mortgage black swan , but is certainly an anomalous or unforeseen event: the sudden and drastic rise in interest rates in the United States, first, and now in Europe, which has resulted in a rise in the Euribor.
In reality, rather than a black swan in mortgages, we can speak of collateral damage from another series of more or less predictable events that have ended up causing inflation to rise, which is what has forced the European Central Bank (ECB) to raise interest rates to combat it, which in turn has triggered the Euribor and the interest rate on variable mortgages and new fixed mortgages.
And what are the events that have led to this situation?
On the one hand, there are the embers of the COVID black swan event, which forced central banks to reduce rates to encourage growth and further overheated the economy and prices (more money in circulation equals more consumption and price increases). COVID has also been the cause of some of the problems in the supply chain, which has also contributed to the shortage of certain products and their rising prices.
On the other hand, the war in Ukraine has caused energy prices to skyrocket, contributing to rising inflation.
These events are what have led to the rise in interest rates and the increase in the cost of mortgages. First, the variable rate mortgages that had to be renewed. Second, the new mortgages, which also reflect this increase, although there are still interesting mortgages that fit your needs.
