A 21% Chance Of A 50% Plunge In The S&P 500?

Tyler Durden's picture

Investors' perceptions of risks, both normal (volatility) and tail (event), have intriguingly run to both extremes at the same time. 'Normal' volatility has been so suppressed by Central-Bank action as to become an almost useless indicator (or at best contemporaneous) - or as Artemis Capital notes "volatility has become a shadow currency" with the USD (safe-haven) becoming considerably more correlated with volatility. Extreme volatility concerns are where the 'unintended' consequence has appeared. In a somewhat stunning market realization, options markets currently suggest a 1 in 4.7 chance of a greater-than-50% drop in the S&P over the next year. That is more likely than the lifetime risk of a heart attack. The question then is, are tail-risks over-priced? Or are investors willing to overpay for that kind of 'deflation' insurance since we now know that the impossible is possible!


[look at the skew of the distribution of returns since 2008 - the light blue section - show upwardly biased it has become...]


and through time... the chart below shows the chart above through time, and the rise in extreme tail risk pricing since the crisis began...


Source: Artemis Capital Management

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Precious's picture

Imagine that.  Just about the time everyone runs out of savings.

ratso's picture

Turns out the prudent investor already knows this.  A 20% down move at any time is always in the cards - but this is followed by a stronger recovery if you can wait it out.

Spastica Rex's picture

Now is always the best time to buy. Stocks only ever go up, long term.

El Viejo's picture

Are you MDB in disguise??


francis_sawyer's picture

90% of market moves are half mental...

JPM Hater001's picture


francis_sawyer's picture

One good look at that 3-D chart confirms your thesis...

flacon's picture

Can I go long adrenaline? This is going to be the age of panic!



Catflappo's picture

83.48976% of statistics are not accurate

crusty curmudgeon's picture

92.175% of all statistics are made up on the spot.

savagegoose's picture

115% of statiticians, are full of shit

Muppet of the Universe's picture

ACtually today was a great time to buy.  I kept saying buy, and making fun of zh b/c I just know they have tons of s&p put options options.  They got mad at me again.  :/

I would say it is a good day, b/c I think this is the bottom for aapl, the end of the bond weakness, and the return to that retarded, upward waveey chop.  Followed by dull upward fed manipulated drag.  But this time far weaker, and shorter, and after this?  Who knows, maybe market will PZlata!  Still I'd say there is a 20% chance of a 400 pt dow drop and a 5% chance drop of a 1000 pt drop, and 3% chance of 50% drop.  20% 50% drop?  LOL, they must think ppl are idiots.. o wait...  Even still QE is pretty much out of steam, and everyone knows it.  There is still a strong chance that market will fall less dramatically b/c market is heavily monitored by ppt and hft.

What I'm worried about is the huge distortion between aapldaq and es/ym

The entirety of today wreaks of manipulation.  Bonds skyrocketting 3-4am for on a weaker signal, then forcing the market's hand, and artificially keeping it up there.  Then the nas explodes past other indexes like its bull market times again...  All when aapl is finding support and bonds are getting bullish?  Someone centrally planned today..

crusty curmudgeon's picture

I think I know MDB well enough to say that this is what he'd tell us:

Only fools worry about stock prices.  Buying and holding is the best strategy for long-term growth.  Fret not about little ups and downs.  Make sure you exercise your right to vote for Rep or Dem and don't waste your vote on a 3rd party.  Best to support the candidate that believes in job growth and responsible government and the one that will fight for the working man.  Then he'd point out that the stock market is up right now and that proves all of this to be nonsense.

Umh's picture

He's counting on inflation. If I had the money I have now in 1929 I'd have been a rich guy.

vast-dom's picture

yeah yeah yeah and i've got bobby boy's SP chart at 800 by Sept of 2 MONTHS AGO. We could levitate like Japan or we could crash. We could print QE hopium prop up SP for years or we could 21% 42% 83% 12% % % % % % % % % % % % % % 

Flip a fucking coin. No one knows in rigged ponzi HFT greater fool of seemingly limitless pool of fools centrally planned oligopolisitc lack of markets markets.

vast-dom's picture

see today's market levitation, on nothing but good cheer?


i had the crash Sept of last year. but i did not account for QEternity starting really with QE1.

SheepDog-One's picture

It really is such a huge 'face-palm' for so many people....we've had all these economists and all that nonsense for decades and all we really had to do was just IMAGINE up as much money as we need and it all just runs perfect forever! 

vast-dom's picture

I ever tell you about the guy who shat more than he ate? He was considered a marvel of science.

Al Huxley's picture

That's right, if only somebody had discovered that the obfuscated under-the-table monetization of huge and ultimately unpayable debt is completely without negative consequences, they could have done this years ago.  But I guess it just took the brilliant minds running the FED and the other western CBs to come up with the magic formula.  Maybe they can get to work on perpetual motion next.

ratso's picture

Turns out the prudent investor already knows this.  A 20% down move at any time is always in the cards - but this is followed by a stronger recovery if you can wait it out.

CClarity's picture

50% chance of a 21% plunge in the S&P 500 for just about any reason or none.

JPM Hater001's picture

You offer a good question: So what is likely in the 50% chance range?

JuliaS's picture

There is a 12% probability of me thinking with 33% certainty that this 6% specific article is 68% true.

madcows's picture

I'm all for it.  Such a plunge would confirm everyone's suspicions that the current state of the market has been massively impacted by the FED's actions.

Besides, I'm thinking we'd see a few Goldman Sax-ers jumping to their death.  And, that would bring a smile to my face.  May they reap what they have sown.

Yen Cross's picture

We don't need a market plunge to confirm the Bernanke put. Just look at "Q-3 earnings" and "Q-4/ forward", guidance...

Bob's picture

We also don't have to wait for the Gold Sackers to jump.  Just sayin.

Kitler's picture

98% chance of a 100% ass-raping after November 6th.

timbo_em's picture

But both nominees promised to cut the deficit, keep taxes low or even lower taxes and increase spending and either one wants to create 12 million highly paying jobs over the next four years. And you say there is only a 2 percent chance of that happening?

However, if one also considers the Fed's monetary policy, even 98 percent seem to be overly optimistic.

Umh's picture

Obama promised to get us out of the middle east too. All my Democrat friends seem to forget that bit.

zorba THE GREEK's picture

Sorry Kitler, I like your avatar, but I think you've got the odds wrong.

IMHO it's a 50-50 chance.

50% We get ass raped by a Democrat

50% We get ass raped by a Republican.

Kitler's picture

50% + 50% = 100%

Same owners... Ass rape is guaranteed.

(There is a 2% chance of a giant meteorite etc. striking the planet however. We can always HOPE....)

Dead Canary's picture

I'm still holding out on conquest and enslavement by aliens.

Kitler's picture

Sorry. No Scientologists to vote for in this election.

Duke of Con Dao's picture

I think future Bishop of America Mitt Romney predicts this in the following vid: 


w00dmann's picture

Over the past year or so I have been feeling a bit like a zombie, kind of like Christopher Walken in that movie Dead Zone - I feel as if I know what the future holds, that some sort of World War III will soon be unleashed upon mankind, and that I seem to be the ONLY PERSON on the planet who knows this. I watch people go about their daily lives, smiling and joking, going to work, buying their lattees and iPads, not a care in the world, utterly oblivious to the impending financial disaster that seems sure to hit like a tsunami and ruin our lives. And yet...

Life goes on as before. The collapse never comes. Everything seems normal; even banal. And I start to question my perspective; will the collapse actually hit? Perhaps it is merely a mirage, and the governments of the world will somehow be able to do what they say and spare us from the devastation of a global credit reset?

In other words, how can there be such calm, peace and complacency in this world if the eye of the storm is threatening to barrell down upon us like a million tornados; perhaps the storm doesn't really exist?

It's like living in bizarro world, and it's driving me crazy. Things that you know MUST be true are obfuscated by a Great Hand. Anybody else feel like this?

Kitler's picture

< Economic collapse is in our future

< Happy Days will go on forever

I have harbored the same thoughts for years now as well. Fortunately the precious metals and farmland porfolio I have assembled has been extremely kind to me.

blunderdog's picture

"This, this, THIS is how the fuckin' world ends, man!  Not with a bang but with a whimper!  And with a whimper, I'm gettin' the fuck outta here!"  --some photojournalist somewhere

Urban Redneck's picture

TS Eliot did it better, but original thought and journalism are mutually exclusive these days anyway...

TrumpXVI's picture

You're not alone, w00dmann.

Franz Kafka would have understood, too:-)

BoatDrinker's picture

w00dmann....probably one of the most poignant comments i've read on any comment section, relating to any subject matter.  but i suppose that is driven by the fact that i completely agree with your statement.

Karlus's picture

Dude, I was like that last year. Got in to crazy prepping, mad bullets and the like. Then I got married and made a nice killing in the market.


You need to go outside and walk in the park. Listen to some birds. Get laid (prostie or otherwise)


Staying on ZH all day long will skew more than your normalcy bias, it will get in your head.


Stay balanced, brother.

ParkAveFlasher's picture

Nicely put. 

And may I add, keep stacking.

Kitler's picture

You need to go outside and walk in the park. Listen to some birds. Get laid (prostie or otherwise)

 Staying on ZH all day long will skew more than your normalcy bias, it will get in your head.

 Stay balanced, brother.


But nothing can give you peace of mind more than being prepared for when shit happens.

And it will happen...

fonzannoon's picture

It's one thing to get acclimated to a collapse. It's another entirely to think that this could be decades of financial repression that wipes people put one at a time. That is tough to prep for.