The S&P Merval Index plummeted 48% Monday, the second-largest single-day drop in any global stock market since 1950, according to Bloomberg. The Argentine peso also declined, losing 15% of its value against the US dollar Monday and falling further Tuesday to a new low. This is what a financial implosion looks like, and it wasn’t supposed to happen. In fact, we are being told that there was only a .006% chance that such a sell-off would take place…

There was a 99.994% probability that an event like Monday’s sell-off in Argentina wouldn’t happen. But it did. And it served to underscore the need for investors to protect against extreme events that look very unlikely but can have outsize impact if they do occur. Argentina is considered to be an “emerging market” and many fear that this sell-off in Argentina could spark a wider emerging market crisis.

And that could definitely be the case. Many other emerging market countries are also up to their eyeballs in debt, and some investors may start dumping assets just out of fear that a broader sell-off could potentially happen. When there is fear in the air, a lot of times rational behavior goes out the window. At the first whiff of panic, many investors want to make sure that they get to the exits before anyone else does. And some people are already using the word “contagion” to describe what we are potentially facing…