Will AI Kill Financial Markets?

“Watcha gonna do when they come for you? Bad bots, bad bots…”

This morning we wander from Big Data, and Fat AI to the concepts that may birth Thin AI and then venture into some speculation about how that may impact future markets.

But first a few headlines, including Housing Starts, and why Ures truly didn’t execute his sell order Tuesday and remains long the market…

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Comments

Will AI Kill Financial Markets? — 13 Comments

  1. Haven’t you heard George, AI is passe. “Machine learning” is the next big boogyman.

  2. ISTM the real popcorn & peanut gallery event will be when the corporate AI, geared toward maximizing the profit of an individual listing on an Exchange, goes head-to-head with the trading AI. The trading AI, if given a personality, would be a pure psychopath (i.e. absolutely devoid of conscience or morals, or limitations) and its function would be to maximize profits, in aggregate, across all Exchanges.

    The trading AI will not have an issue with “HFT-oscillating,” very rapidly trading up and down, to drive a company, or a thousand companies simultaneously, out of business, to grab a few mills (that’s 1/10s of a cent, for you young’uns) per share, option, or speculation, per trade, in both directions, millions or billions of times per trading day, per Exchange.

    The Corporate AI would have to riposte every Trading AI thrust into its territory. A single failure could mean insolvency. When the geeks writing the Trading AI incorporate parry and counterthrust routines to combat the Corporate AI, this electronic fencing match will be over in nanoseconds, and all we ‘po folks will ever know about it is the news blurb that suddenly, Berkshire (or Microsoft, or one of the other big players) is worth a quadrillion dollars, and this is the final news broadcast, ’cause this, and every other network, is now defunct…

  3. “If you can make 1/10th of a cent per share with high frequency trading it suddenly becoming a $300 million per year business – and that is before you get the other goodies – like being able to sense market turns before the masses.”

    A cute story.. A really good friend of mine.. he and his wife inherited a lot of land not to mention stocks in proctor and gamble where the parents bought several thousand shares of it at two dollars a share I think he said.. anyway..
    My friend bought invested in a computer program With a wonderful background in success.
    He kept calling me.. you have to check this out.. so far I am just doing a little bit of trading but averaging a couple of thousand a week..
    then it happened.. he went to have breakfast and didn’t put some sort of limits on it.. when he got home.. a couple short hours later.. he called me all excited and said you are not going to believe this.. I just made 65,000.00 while eating eggs at the restaurant ( commodities ) he said this program is fool proof.. I said.. god I am not rich enough to take that gamble steady does it is my motto.. of course those that gamble high have the highest chance of winning high….
    well it was over a year before I had heard back from him.. well to be quite honest I heard from his kid that told me to go talk some sense into him.. come to find out.. he had mortgaged everything his home which was paid off.. loaned himself to the hilt the farm.. everything.. and lost it all.. He still hasn’t said to much.. I am sure he doesn’t want me to lecture him or say the old I told you so.. play with the big boys you need to have big boy playing capital..
    I guess my way of thinking is yes AI is good and can make some really intelligent decisions all on probability..But .. can you really trust it.. My father always told me.. when he bought stocks he bought what he liked.. do you like Pepsi coke etc.. pick what you like.. if they have a sound product.. you love the way they display it.. has it been around for a while.. then buy it.. and leave it alone.. similar to buying an electric cord.. sure there are all kinds of people that make and sell electric cords.. but what about the connector.. who mass produces the majority.
    similar to a casino.. the odds are in their favor that they will win.. I had a friend that was my boss anyway when I was a kid in the military I was going to go to Vegas god.. this was going to be great.. he wanted to play poker on our regular penny ante poker night and we started to play.. god I was a winning.. it was great.. then he chuckled and said.. I have to start winning this money back.. all of a sudden I started to loose.. not all the time but enough just to keep me thinking I was going to win big again.. after I had lost my money and was going to leave he came over the proud winner of most of our money and handed the money back to each of us playing.. we asked why.. His answer was.. I use to be a dealer in Vegas years ago.. and wanted you kids to know that at any time they can and will get your money.. how he did it is still a mystery to me at least.. the same thing with the power ball.. did anyone else notice that the winners run in a pattern.. or is that me just finding an obscure pattern in something random

    • Oh.. my friend lost everything.. his retirement his home the inheritance everything.. he is now living in a 14 by 70 nightmare..

  4. this is the central point of a heated argument
    So be careful what you wish for thoughts have wings

  5. George, you had given the Aug 21 date as a turning point for the blow-off top. Does that at all coincide with or take into account the Solar Eclipse of Aug 21st?

  6. Have You Talked to Your Astrologer Lately?

    Here is a section of this morning’s post from one of my favorite astrologers, Ralfee Finn at http://www.AquariumAge.com. (Note: I like her astrology, not her politics – you’ll see what I mean if you read the entire post).

    August looks challenging, and who else do we know who has been saying that?

    “Uranus goes retrograde on August 3 and remains retrograde until January 2, 2018. When the planet of surprising plot twists makes a “course correction” it’s best to anticipate startling close encounters with the past as well as sudden reversals of fortune in the present—and with absolutely no idea what the future will bring. Of course, reversals won’t happen for everyone. And turnarounds aren’t only negative—some can even be deemed positive twists of fate—it all depends on the condition your condition is in. However, the coming Uranus Retrograde is a doozy, which makes it prudent to start thinking about it now.

    And here’s what makes it extreme:

    For the next two weeks as Uranus “slows” to a crawl, daily life resembles a techno-Mercury Retrograde because Uranus has a close relationship to technology of every iteration, in every industry, and when it goes retrograde, machines somehow feel the shift. What’s more—and not to alarm you—the second Mercury Retrograde phase of this year actually begins on August 13, ten days after Uranus Retrograde begins, as well as five days after the lunar eclipse on August 7, and eight days before the solar eclipse on August 2. Be prepared for the cosmic gears to grind throughout August—it’s a month of dynamic planetary activity, so even though it seems far away, it would be a good idea to start your backups now. And don’t expect any plans—even the best laid—to sail through without a hitch.

    There’s more Uranian activity to talk about but it occurs in the fall, however before any of that could make any sense at all (as if it’s possible to really make sense of Uranus), it’s best to just get through August.

    That being said, there is one more thing about Uranus that’s crucial to note:

    On May 15, 2018, Uranus leaves Aries and enters Taurus, signaling a seismic shift in influence. Taurus is the Sign of money and other resources, which could translate into shockwaves throughout the financial markets of the world. One thing we know for sure: When Uranus changes Signs, we feel that shift in focus quite dramatically. For example: On March 11, 2011, the day of the Fukushima tsunami, Uranus left Pisces, a Water Sign, and entered Aries, a Fire Sign, and the power of the ocean literally transformed into the power of Uranian fire. There’s no telling what next May will bring—and I’m not hedging my bet or being coy. It’s simply impossible know how Uranus will punctuate its move from Aries, a Fire Sign, into Taurus, an Earth Sign.”

  7. I’ve actually wondered about this ‘AI problem’ for some time. With good programming (that is the key!) a computer can take advantage of anticipated price changes and patterns in stock markets to make money and/or take positions on particular stocks. In my mind, while this could be problematic for traditional stock-traders, it could encourage/force traders into new ways of thinking which in the long run is a good objective. Boils down to really understanding ‘your market’.

    • Software is a business, and there is quite a lot of code plagiarism and “code porting” among programmers. I have seen within my industry where movement of designers among several companies has resulted in the products all becoming very similar within a 5 or 7 year period. You can see this obviously in the auto design industry.

      My worry is that the EFT AI will all lean in the same direction, whether thin or fat, simply due to employee migration, similar to what happens in many areas of product design.

      If this is the case, then there will be no market, because the AI will herd in the same direction, just as today’s sedans are all so similar that we need more than eyeballs to sort them out.

      That spells market flatness, or dip and spike. If everyone heads for the exit at the same time, or spends all their money in the same sector, we don’t have much improvement over humans in anything but speed.

      I’m not worried, because the only real advantage apparent today is speed. I do believe, due to the way designers work and move from company to company, that things will eventually reach a balance, a status quo.

      The only way to break that massive status quo will be a human intervening.

  8. Here is an interview (brief) with some of the experts currently working AI. I find it interesting in that they are candid about what it will really require for AI to move forward. They even cite a power usage number of 2% for US data centers – which is a lot of power, and doesn’t take into account the internet itself.

    http://knowledge.wharton.upenn.edu/article/dont-believe-hype-ai-driven-world-still-long-way-off/

    The short version is that there are both physical limits (batteries & processing power) and software limits (humans are far superior) to be overcome for this ‘brave new world’ we keep reading about in the media.

    I found it worth the read.

    • AI and robotics require serious power overall. For not only the running of the AI, but the R&D to make it and maintain it.

      oilman2 – what is your horizon for easy/cheap oil to run out given the proven reserves? AI itself requires our current economy to survive. If oil systems use up the earth’s oil by century end, the bigger problem isn’t AI but rather Venezuela-like political change acrosss the world. Or we all become Amish and live off the land. Except people in cities don’t like manual labor. Oil did it for them.