Do You See A Black Swan On The Horizon?

The economy across the pond is slowing considerably, and the dollar is at its lowest point for some years – and yet the Dow Jones is reaching record-breaking milestones.

Here in Britain, the Bank of England advises prudence as the stock market continues to gently rise. And why should it do otherwise? After all, there is rapid growth in the world economy and, here at home, the profitability of our corporate sector remains good.

But do you see a ‘black swan’ on the horizon? A black-swan event, according to Nassim Nicolas Taleb (author of The Black Swan), makes reference to the Australians’ surprise discovery of swans that were black in colour instead of white. It makes reference to the fact that people in general are astonished by the unexpected because we simply think the ‘unexpected’ is ‘impossible’. Because it lay so far outside the realm of our expectations, the impact of a so-called black-swan event is often seismic in proportion.

So far as I can tell, the commonly-held view is that the markets are presently awash with white swans – but, if you squint your eyes, might that be a black one on the horizon?

Good News If You're In A Saving Mode; Not So Good If You Aren't

Many are predicting that interest rates will rise to 5.5% in May. But with the Retail Price Index now running at 4.8%, even the very best savings accounts do little to protect savers. It’s said that a basic rate taxpayer would need to earn 6% just to break even, and for higher-rate taxpayers that figure stands at 8%.

But if you aren’t in a saving mode, inflation may yet rear its ugly head. With the Retail Price Index suggesting that the real cost of living is rising at 4.8% per annum, the outlook might be bleak. It’s fair to say that Britain has enjoyed a fair few years of cheap debt, and many predict further increases as interest rates adjust to head off inflation. In America, Japan and across the rest of Europe, inflation appears to have subsided now that oil prices have stabilised, whilst British figures appear to be following another trajectory altogether, driven not just by oil and gas figures but also by the rising cost of consumer goods and services.

If you’re in the black, none of this may be cause for personal concern. But if you’re in the red, it might be worth forming a view on how you see your circumstances in the medium term. If wages start to struggle to keep up with the trends, it may yet be the case that our record house prices are built on shaky foundations.

But if being in the red means you’re now ‘sweating’, remind yourself that most banks don’t have a problem with it. So much so that barrister Tom Brennan has filed a suit against his particular bank for ‘abuse of power’, after they charged him £2,700 in fines and interest for going over his credit limit. His argument is that such penalties are ‘disproportionate’ and therefore illegal. The test case, at the Mayor’s and City of London County Court, could lead to millions of similar claims. Watch this space.