This page has been archived and commenting is disabled.

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

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 11/05/2012 - 16:23 | 2949604 Precious
Precious's picture

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

Mon, 11/05/2012 - 16:30 | 2949628 ratso
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.

Mon, 11/05/2012 - 16:33 | 2949644 Spastica Rex
Spastica Rex's picture

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

Mon, 11/05/2012 - 16:36 | 2949661 El Viejo
El Viejo's picture

Are you MDB in disguise??

 

Mon, 11/05/2012 - 16:36 | 2949665 Spastica Rex
Spastica Rex's picture

I was being droll.

Mon, 11/05/2012 - 16:39 | 2949675 francis_sawyer
francis_sawyer's picture

90% of market moves are half mental...

Mon, 11/05/2012 - 17:20 | 2949819 JPM Hater001
JPM Hater001's picture

BY YOUR MATH WE ARE INSANE GOOD SIR!

Mon, 11/05/2012 - 17:57 | 2949924 francis_sawyer
francis_sawyer's picture

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

Mon, 11/05/2012 - 18:26 | 2950003 flacon
flacon's picture

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

http://www.youtube.com/watch?v=TjGlzbn_L98

 

Mon, 11/05/2012 - 20:18 | 2950356 Catflappo
Catflappo's picture

83.48976% of statistics are not accurate

Tue, 11/06/2012 - 00:29 | 2950941 crusty curmudgeon
crusty curmudgeon's picture

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

Tue, 11/06/2012 - 03:15 | 2951100 savagegoose
savagegoose's picture

115% of statiticians, are full of shit

Mon, 11/05/2012 - 20:56 | 2950450 stocktivity
stocktivity's picture

Thanks Yogi

Mon, 11/05/2012 - 17:06 | 2949701 Muppet of the U...
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..

Mon, 11/05/2012 - 17:47 | 2949898 dogbreath
dogbreath's picture

wow, thats interesting.  what do you think of man made global warming

Mon, 11/05/2012 - 16:48 | 2949693 crusty curmudgeon
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.

Mon, 11/05/2012 - 19:16 | 2950171 Umh
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.

Mon, 11/05/2012 - 16:36 | 2949658 vast-dom
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.

Mon, 11/05/2012 - 16:39 | 2949676 Spastica Rex
Spastica Rex's picture

Perpetual foolery.

Mon, 11/05/2012 - 16:48 | 2949710 vast-dom
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.

Mon, 11/05/2012 - 17:14 | 2949793 SheepDog-One
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! 

Mon, 11/05/2012 - 17:25 | 2949838 vast-dom
vast-dom's picture

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

Mon, 11/05/2012 - 18:02 | 2949938 Al Huxley
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.

Mon, 11/05/2012 - 17:20 | 2949816 ratso
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.

Mon, 11/05/2012 - 16:24 | 2949607 CClarity
CClarity's picture

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

Mon, 11/05/2012 - 17:22 | 2949827 JPM Hater001
JPM Hater001's picture

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

Mon, 11/05/2012 - 17:42 | 2949886 JuliaS
JuliaS's picture

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

Mon, 11/05/2012 - 16:27 | 2949616 madcows
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.

Mon, 11/05/2012 - 16:54 | 2949736 Yen Cross
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...

Mon, 11/05/2012 - 17:54 | 2949919 Bob
Bob's picture

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

Mon, 11/05/2012 - 16:31 | 2949620 Kitler
Kitler's picture

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

Mon, 11/05/2012 - 16:39 | 2949678 timbo_em
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.

Mon, 11/05/2012 - 19:20 | 2950182 Umh
Umh's picture

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

Mon, 11/05/2012 - 17:15 | 2949797 zorba THE GREEK
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.

Mon, 11/05/2012 - 17:28 | 2949832 Kitler
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....)

Mon, 11/05/2012 - 17:38 | 2949877 Dead Canary
Dead Canary's picture

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

Mon, 11/05/2012 - 17:41 | 2949883 Kitler
Kitler's picture

Sorry. No Scientologists to vote for in this election.

Mon, 11/05/2012 - 16:29 | 2949624 Duke of Con Dao
Duke of Con Dao's picture

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

https://www.youtube.com/watch?v=flNq72oTF_0

Mon, 11/05/2012 - 16:29 | 2949625 w00dmann
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?

Mon, 11/05/2012 - 16:36 | 2949643 Kitler
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.

Mon, 11/05/2012 - 16:36 | 2949663 blunderdog
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

Mon, 11/05/2012 - 17:24 | 2949835 Urban Redneck
Urban Redneck's picture

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

Mon, 11/05/2012 - 17:35 | 2949869 Kitler
Kitler's picture

Dennis Hopper - Apocalypse Now.

http://www.youtube.com/watch?v=h5JXrP8yv8o

Mon, 11/05/2012 - 16:35 | 2949655 TrumpXVI
TrumpXVI's picture

You're not alone, w00dmann.

Franz Kafka would have understood, too:-)

Mon, 11/05/2012 - 16:37 | 2949666 BoatDrinker
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.

Mon, 11/05/2012 - 16:38 | 2949672 Karlus
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.

Mon, 11/05/2012 - 17:00 | 2949755 ParkAveFlasher
ParkAveFlasher's picture

Nicely put. 

And may I add, keep stacking.

Mon, 11/05/2012 - 17:03 | 2949760 Kitler
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.

Amen.

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

And it will happen...

Mon, 11/05/2012 - 18:27 | 2950008 fonzannoon
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.

Mon, 11/05/2012 - 16:42 | 2949690 SMG
SMG's picture

Yea, hang in there.  Just prepare yourself and friends and family that will listen.  (Not all do, but don't sweat it at least you tried.  If you really like these people, maybe get some extra for them too.)

If it does come, survive, rebuild, make the world better for the future.

The collapse may never come, but it is far better to be prepared and not need it, than not prepared and need it. And if it dosen't so what,  any truly informed resonable person knows a collapse was always a real possibility.

Till then (maybe never), smell the flowers, go fishing, watch and enjoy a funny show, hug your family, try something new. 

Life's a journey, not a destination right?

Mon, 11/05/2012 - 16:53 | 2949733 NotApplicable
NotApplicable's picture

The collapse will come all right, precisely on 12/23/13.

Even more precisely, on 12/23/1913.

Thing is, it's been happening our whole lives with each incremental, infinitesimal event adding to the one before it in an effort to control the damage so that they may maximize its gains. What some refer to as the upcoming collapse is really the inescapbable hard-landing that most fear, yet they do not feel the pain they've endured every day from millions of "soft" ones.

This is the history of the muddle-through school of thought. We fear the future, for we fail to account for the past.

Mon, 11/05/2012 - 20:49 | 2950434 silverserfer
silverserfer's picture

I think soon it will become aparent that the creation of the FED was to accumulate ass much of the worlds gold as possible. It was always about the gold. Ft knox, NY FED, london, all depleted. Most now is in hidden PRIVATE vaults. I wonder if there was a secret bet made on Jeckyl Island as to who's family could accumulate the most gold in 100 years. We are about to find out.

Mon, 11/05/2012 - 16:46 | 2949705 crusty curmudgeon
crusty curmudgeon's picture

Follow the white rabbit.

Mon, 11/05/2012 - 16:48 | 2949713 rosethorn
rosethorn's picture

Agree with you.

Mon, 11/05/2012 - 17:06 | 2949771 vix is for kids
vix is for kids's picture

W00dman, the best advice that I ever heard was "Quit your job as general manager of the world".

Just focus on those factors over which you have control: your education, skills, health and attitude. Awaiting a societal reset, or a financial calamity, however probable, is a distraction from maintaining control of your own destiny, and personal happiness.

Mon, 11/05/2012 - 17:57 | 2949928 Itch
Itch's picture

How long is a peice of string? 

Mon, 11/05/2012 - 18:12 | 2949965 bunnyswanson
bunnyswanson's picture

http://www.ubergizmo.com/2012/10/hidden-surveillance-camera-use-given-nod-by-court/

 

It's news like this and the NDAA which leads me to believe preparations are being made for an event that may result in the need to cordon citizens who are not murderers, rapists and drug dealers, but malcontents who oppose govt policy and attempt to create a force in their community which will impact decision making - potential leaders.  OWS crowd, aside from a few unruly juvenile delinquents, was met with brutal force in light of their harmlessness, and this is why I am concerned.

 

The days when I make myself stay away from articles confirming my fears are my best days but staying tuned is important if for no other reason that being the last one out of the burning building.  It sucks any joy out of my life, I know.  I am tense all of the time even during long walks in the park, watching amusing movies or even after attempts to dull my senses with a few drinks.  This is what it is like, I believe, when you live in an unstable country.  Going into Canada, once upon a time, gave me an idea what a sound country felt like but that has since gone.  This is global.  I am terrified and it's my conclusion we are facing a life we did not bargain for.  This is someone else's movie and we are in it, as my friend describes it.

Mon, 11/05/2012 - 18:13 | 2949970 Bob
Bob's picture

Fuckin A.  You're shilling for Obamney in the wrong place, buddy. 

Mon, 11/05/2012 - 20:53 | 2950444 silverserfer
silverserfer's picture

No hes just flipping daffy.  

Mon, 11/05/2012 - 16:31 | 2949633 A Man without Q...
A Man without Qualities's picture

All this is telling you is there are a lot of people willing to buy very expensive tail risk hedges.  

Mon, 11/05/2012 - 19:08 | 2950142 donsluck
donsluck's picture

Or that if the market fails, it fails BIG. Otherwise...no worries!

Mon, 11/05/2012 - 16:34 | 2949640 JustObserving
JustObserving's picture

If the stock market falls 10%, the Fed will start buying equities in addition to the $40 billion a month in MBS.

The Bank of Japan is buying equities.  The Fed will not be far behind with its infinite stimulus.

If there were a serious chance of a 50% fall in equities, the VIX would be at 50 not 18.

Never short a manipulated market.

Mon, 11/05/2012 - 16:34 | 2949652 Smiddywesson
Smiddywesson's picture

My point exactly. The banks are well past the point of no return, and will continue until they can't.  Then all hell breaks loose.

Mon, 11/05/2012 - 16:32 | 2949642 Smiddywesson
Smiddywesson's picture

Well, I sure can't read the intent of the central bankers and their henchmen in government, but if they stop blowing into the the balloon, it has to collapse because they are the only ones keeping it inflated.  And you can forget about a mere 50% drop.  When this sucka goes, it's going to lose 80% or more.

Mon, 11/05/2012 - 17:48 | 2949893 Dead Canary
Dead Canary's picture

At some point, all the central bankers will convene an emergency meeting and in a coordinated effort pump enormous liquidity into the markets to stem the panic.

This is when you leave your job, pull your kids out of school, go home and hang on to your butts.

Mon, 11/05/2012 - 16:33 | 2949648 buzzsaw99
buzzsaw99's picture

investors, lulz

Mon, 11/05/2012 - 20:58 | 2950455 Muppet of the U...
Muppet of the Universe's picture

some guy told me he was investing in acompany on his own, so when I asked him what the name of the stock was he didn't know...  & then I asked him whta the market cap was, and he didnt know what the meant, and then I realized why ppl lose money in the market...  & then my life got flipped turned upside down..

Mon, 11/05/2012 - 16:34 | 2949649 Shizzmoney
Shizzmoney's picture

The Election Cycle is insufferable.  I can wait til its gone and the ads go away.  All of this money that has been set on fucking fire.......how it could of actually helped people......instead, and thanks to Citizens United, it's a god damned ad every 5 minutes.

After nov 6th, the world goes back to reality, and the Baby Boomers at my job who think voting is the most important thing ever can just go away and shut the FUCK up.

Mon, 11/05/2012 - 16:45 | 2949698 vix is for kids
vix is for kids's picture

Shizz, go and vote down all of the tax increases and bond issues that you'll find on your ballot.  Stick it to us Boomers.

Mon, 11/05/2012 - 17:26 | 2949837 rhinoblitzing
rhinoblitzing's picture

Shizzz you Silly Little Dreamer - Don't you know the 2014 race for Congress is about to begin! And don;t forget that Bill is looking forward to seeing the White House Chef again on a daily basis!

Mon, 11/05/2012 - 16:35 | 2949656 leadingmarkets
leadingmarkets's picture

Down she goes! I refuse to invest in the broad stock market, i just go with stock alerts from the pros! Get in and get out with your $$$ http://pennydreamers.com

Mon, 11/05/2012 - 16:56 | 2949743 NotApplicable
NotApplicable's picture

So, what's your opinion on stock broad markets?

Mon, 11/05/2012 - 16:36 | 2949660 Karlus
Karlus's picture

What are the odds on a 40% drop or a 25% drop? I bet better than 1 in 4.7

 

That said, if this was really accurate, then hedgies would sit in cash and just wait for the fall. They dont.

Mon, 11/05/2012 - 17:48 | 2949667 falak pema
falak pema's picture

the nov 6 deadline could be a rubicon for the stock market; either way.

look at that EurUSD rollercoaster : 1.2790 

KASS: The Four Cliffs Affecting Stocks - Business Insider 

Powerful forces pushing S&P up even if they are flash in pan.

Mon, 11/05/2012 - 16:39 | 2949674 vix is for kids
vix is for kids's picture

The implied volatility of medium and long dated S&P options is currently about 24%, which has been about the long-term average for years.  Of course, the market could (should?) collapse, but the listed options are nowhere near pricing in a 21% chance in the next year.  I call "data mining bullshit" on Artemis Capital.

Mon, 11/05/2012 - 16:41 | 2949686 slaughterer
slaughterer's picture

Posted at the exact moment when the ES is spiking.  ZH: the contrary indicator.  

Mon, 11/05/2012 - 17:18 | 2949807 Smiddywesson
Smiddywesson's picture

I predicted the last ten collapses that didn't happen.  There's a 95.25% chance I'll predict the next one.

Mon, 11/05/2012 - 16:42 | 2949692 Ben_Dover_Bernak
Ben_Dover_Bernak's picture

Kool-aid colors man....

Mon, 11/05/2012 - 16:43 | 2949697 PUD
PUD's picture

This is what widows and orphans study before they "invest"

The whole thing should be burned to the ground.

Mon, 11/05/2012 - 16:44 | 2949699 slaughterer
slaughterer's picture

Silver bitchez (sort of)

Mon, 11/05/2012 - 16:45 | 2949702 slaughterer
slaughterer's picture

Oh, yeah, AAPL ramp strategy re-used once again.  

Mon, 11/05/2012 - 16:46 | 2949706 q99x2
q99x2's picture

Something like that could have been in store but the market indexes no longer represent anything like values of stock prices. So no there is zero chance of a 50% correction unless central bankers choose to make that adjustment.

Mon, 11/05/2012 - 16:51 | 2949724 Duke of Con Dao
Duke of Con Dao's picture

for my vid mash on Romney's 'David Koresh' moment I get 10 Nays on ZeroHedge

yet I have but 1 view on YouTube... YouTube - Mormon Bishop Mitt on the Importance of the Show Me State: Missouri

...

condemn if you wish but watch it first! 

Mon, 11/05/2012 - 16:59 | 2949751 NotApplicable
NotApplicable's picture

Sorry, I accidentally started it not noticing it was one of your creations.

The condemnation? Well, that's due to your incessant thread spamming.

Mon, 11/05/2012 - 16:56 | 2949727 hedgehog9999
hedgehog9999's picture

Just give me 1416 motherfuckers, I think i figured out your game!!!

 

 

 

Mon, 11/05/2012 - 16:53 | 2949732 TideFighter
TideFighter's picture

The biggest bonuses are for those than can keep the DJIA daily +3 to -3 range going.

I've named it the Possum Fix, it just lays there and ptends to be dead.

Mon, 11/05/2012 - 17:04 | 2949766 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

King Dollar!

Mon, 11/05/2012 - 17:17 | 2949799 SheepDog-One
SheepDog-One's picture

20% odds? I wouldnt put money on it....the FED has more imaginary dollars and computer programs than anyone can outlast. They'll crash it next when it best suits them to do so.

Mon, 11/05/2012 - 17:18 | 2949801 orangegeek
orangegeek's picture

50% plunges takes us to about 700 to 750.

 

http://bullandbearmash.com/chart/sp500-weekly-closes-week-week-lot-worse/

 

Should be much further - QE's are duds now and Barry emptied the till with Tim, so there shouldn't be much further interference from these two.

 

SP500 was around 400 in 1992.

Mon, 11/05/2012 - 17:23 | 2949829 vix is for kids
vix is for kids's picture

If ever there were a graph with a bogus data point, that first one in the article is it. It shows a 3% chance of a 45% decline, but a 21% chance of a 50%decline.  If the data were true, any hedger would lock in a guaranteed profit going long the 45% decline and short the 50% decline, and get paid to do it!

Mon, 11/05/2012 - 17:30 | 2949854 jonan
jonan's picture

the tails, they are phat...

Mon, 11/05/2012 - 17:33 | 2949860 MeelionDollerBogus
MeelionDollerBogus's picture

BULLISH!

for vxx shares & calls

JPM puts anyone?

Mon, 11/05/2012 - 17:46 | 2949892 Uncle Remus
Uncle Remus's picture

And yet, there is no cacophony from the stacks of bullion, nor from the boxes of bullets or cans of beans.

Just conceptual continuity.

 

Mon, 11/05/2012 - 17:50 | 2949911 Quinvarius
Quinvarius's picture

All market selloffs have been banking panics.  You are betting on a banking crisis that has about a .00001 chance of happening with the printing press running. 

Mon, 11/05/2012 - 18:59 | 2950111 riphowardkatz
riphowardkatz's picture

your a bank and you have no way of going down. short it down, let the market slide show everyone who is boss buy on the cheap working it back up. 

this is in both the central banks interest (tame inflation through oil and other commodities taking a hit) and the banks interests...make money both ways.

 

Mon, 11/05/2012 - 17:54 | 2949918 WhiteNight123129
WhiteNight123129's picture

Simple logic. We have to much debt to GDP, since someone´s debt is someone else´s asset and since Equities are just a redisual claim after debt is repaid, we have too much financial assets to GDP or circulation if you will.

Commodities price are related to the nominal level of circulation divided by hte quantities consumed.

Since we have too much financial assets in nominal quantity to circulation and since circulation nominal level if reflected into commodities. Long real assets short financial assets until the debt to circulation is going to far, then short commodities and long financial assets for another 30 years, rinse and repeat.

 

Mon, 11/05/2012 - 18:11 | 2949941 Democratic koolaid
Democratic koolaid's picture

If the Democrats(socialists) win the presidency I would diversify out of the S&P 500s portfolio. Get into metals which have less to do with domestic buisness affairs within U.S.of A.

Romeny sounds more natural and on the metaphorical "ball" in regards to the spirit of the American dream and it's abilitys to do great things.

Obama just walked onto the stage like he was at a Jay Z concert and pumped the non-class based Idealogy(aka Koolaid) that is at best European.

"if Romney wins buy stocks and if obama wins buy bonds"

Mon, 11/05/2012 - 18:25 | 2950001 Hedgetard55
Hedgetard55's picture

If Jimmy Carter had a son by a black woman he would look, think and act like Obama.

Mon, 11/05/2012 - 19:33 | 2950218 Democratic koolaid
Democratic koolaid's picture

Carter didn't have a son with "a black" women it was an Arab and he got a job as a Pilot in NYC.

Mon, 11/05/2012 - 19:13 | 2950160 donsluck
donsluck's picture

If you carefully read the graphic, it says that if the market fails, it fails big. This small probability is the odds of the fiscal authorities loosing control. I wouldn't worry unless this risk expanded in probability. It offers a chance to risk some fun money on a low probability high return bet.

Mon, 11/05/2012 - 20:32 | 2950375 hedgehog9999
hedgehog9999's picture

This will happen as soon as Morgan Stanley hits the skids. People need to raise cash for the times coming.

 

What happenened to NY City is Child's play compared to what's coming thanks to Bernanke and co.

Mon, 11/05/2012 - 20:40 | 2950410 IMA5U
IMA5U's picture

And in all the rubble, gold and zero hedge would be standing.

Mon, 11/05/2012 - 21:08 | 2950443 Implicit simplicit
Implicit simplicit's picture

The proabability spike at 21% of a 50% drop, yet even with the fiscal cliff, the euro crisis, weak earnings, the mideast etc.. the complacency exemplified by the vix is rampant. According to Luby over at Vix and more, this is the first time in 15 years that the vix has not reached 30....yet.

In general, traders are not buying substantial insurance against even a decent correction, even at theses cheap prices. 

Tue, 11/06/2012 - 00:17 | 2950915 Cast Iron Skillet
Cast Iron Skillet's picture

man, I'd sure like to get one of those graphical tail-risk drawing thingies - that is really cool! thanks for sharing!

... is there an app for that?

Tue, 11/06/2012 - 00:54 | 2950969 sink critically
sink critically's picture

While I agree that a 50% correction "should" happen, I disagree that it will. I put the odds of a correction that large at 0%. Before that would be allowed to happen the hft's would have to unionize and go on strike, the authorities would have to be physically restrained from halting trading completely, and the power would have to go out.

Oh wait...

Tue, 11/06/2012 - 01:57 | 2951037 Ctrl_P
Ctrl_P's picture

You know what they say about million to one chances...  they crop up 9 times out of 10.

 

Props to Sir Terry.

Tue, 11/06/2012 - 06:08 | 2951163 kikk
kikk's picture

Speaking of Standard and Poors..

http://www.bbc.co.uk/news/business-20216638

Do NOT follow this link or you will be banned from the site!