Traders Keep Losing Money Buying Vol Because Economists Keep Predicting Market Crashes That Never Happen
Market Crash Warnings Can Prevent Market Crashes
Traders keep losing money betting that the market will crash—all because they’re listening to economists who cry wolf over and over again.
Here’s what happens: An economist warns that a recession is coming. Traders panic and buy protection against a market crash (like VIX calls or UVXY). But the crash never comes. Instead, their investments slowly bleed money while they wait for disaster that never arrives.
Economists Can’t Predict Crashes
The numbers are embarrassing:
In 2023, 85% of economists predicted a recession. The economy actually grew 2.5% and stocks went up.
A study looked at 153 recessions across 63 countries from 1992-2014. Most weren’t predicted beforehand. Even the 2008 financial crisis wasn’t flagged until it was already happening.
For traders betting on crashes, this means: You buy expensive insurance based on scary headlines. The market stays calm. Your investment slowly loses value.
Predicting Doom is More Profitable
Fame and attention: Scary predictions get clicks, interviews, and book deals. Boring predictions like “things will probably be okay” don’t get attention.
Better safe than sorry: If an economist misses a recession, they look terrible. But if they predict a recession that doesn’t happen? No one really remembers. So they default to pessimism.
Media loves drama: “MARKET CRASH INCOMING” gets way more views than “Market will likely continue with normal ups and downs.”
There’s a joke: “Economists have successfully predicted 53 of the last 2 market crashes.”
The Real Problem: Not Enough Data
Economics isn’t like physics or chemistry where you can run the same experiment thousands of times. We’ve only had 12 recessions in the U.S. since World War II. Each one was caused by different things—a pandemic, a housing crisis, an oil shock, etc.
Even famous recession indicators are shaky. The researcher who discovered the “inverted yield curve” signal admits: “We only have 8 examples since 1968—that’s nowhere near enough data to be confident.”
Traders lose money when they bet big on these unreliable signals.
Market Crash Warnings Can Prevent Market Crashes
Here’s the kicker: When everyone warns about a crash, people get cautious. Companies hold more cash. Investors diversify. Traders hedge their bets. This careful behavior can actually prevent the crash from happening.
So the warning becomes a false alarm—and traders who bought crash protection lose money.
Bottom Line
Stop betting on market crashes just because economists sound the alarm. They have a terrible track record, bad incentives to be dramatic, and not enough data to make solid predictions anyway.
In trading, especially volatility trading where time is literally money, skepticism beats fear. Let the actual market data guide you, not scary headlines from “experts” who are almost always wrong.