A few weeks ago, Stephen Hawking opened the world’s eyes to the dangers of Artificial Intelligence (AI), warning that it has the potential of outsmarting humans in the financial markets. But few people realize that we are already in imminent danger of this happening.
The stock market is a system for assigning value to companies through the buying and selling of stock. It’s a human-based system, assigning human value, to corporations owned and operated by humans. Well, at least that is how it was supposed to work until the machines started taking over.
In the 1960′s, an average share of stock was held 4 years. By 2000, average ownership dropped to 8 months, and in 2008 it dropped even further to 2 months.
Today the average share is held a scant 20 seconds and within a few months, it will drop to less than 10 seconds.
At the center of this rapid buying and selling of stock are a series of high-frequency trading machines run by the quants, the math-whiz kids who are a type of hackers only on Wall Street.
Without having people at the center of these trades, we have lost the core ingredient, our ability to accurately assess value.
The invasion of high-frequency trading machines is now forcing capitalism far away from anything either Adam Smith or the founders of the NYSE could possibly find virtuous.
We’re not about to let robots compete in the Olympics, driverless cars race in the Indianapolis 500, or automated machines play sports like football, basketball, or baseball. So why is it we allow them to play a role in the most valuable contest of all, the world wide stock exchange?
With crude forms of AI now entering the quant manipulator’s toolbox, we are now teetering dangerously close to a total collapse of the stock market, one that will leave many corporations and individuals financially destitute.
Here is why this should be ringing alarm bells all over the world.