Financials Matter

"It's Not Just About Finance"

Is AI Powering the Markets?

Jeff from Steubenville, Ohio emailed us with the question:  Is AI powering the markets?

Well, Jeff, in a word…yes.

And this has been one of our main concerns with Artificial Intelligence (AI) from the get-go.

Because there seems to be a big temptation to just offload things, lots of things, to AI with very little oversight.

And trusting this tech (or any tech) to not need its work checked is insane.

We admit that AI offers anybody from Anywhere the opportunity to get massive amounts of data crunched in a heartbeat.

That in itself is very promising.

But as we are wont to say:

 

History always repeats because the passions of man never change.

 

Cue Up:  May 10, 2010…AKA the Flash Crash

 

During trading the trading hours on May 10, 2010, the markets dropped 10% within minutes with some stocks dropping over 50%.

And it wasn’t related to any news, economic data, or any Fed policy decision.

Panic was an understatement as the markets were shut down to prevent further panic.

With much egg on their face the U.S. Commodity Futures Trading Commission (CFTC) blamed it by saying, “a large sell order on E-Mini S&P 500 futures, executed by a mutual fund and triggered by an algorithm, was the culprit.”

And with a straight face they likened the mistake to a “FAT FINGER” staying too long on the sell button.

And then used the excuse that the sell order triggered other high-frequency trading (HFT) algorithms to follow suit and sell.

Not surprisingly, the public believed them.

But we know better.

 

Algos Gone Wild

 

Ironically (or NOT) before the 2010 Flash Crash, algorithmic trading was limited.

However, since then, it has become the dominant form of trading.

But remember, algorithms caused a flash crash in just minutes, with no clear fundamental cause.

And as AI use grows, many models may develop similar thinking patterns and responses.

This groupthink could raise the risk of a flash crash or surge.

 

And more recently, the rise of AI has become a key element in powering trading market algorithms.

As a result, AI is powering markets.

And ALL THE MAJOR PLAYERS ARE USING IT.

 

And if that doesn’t disturb you then you will likely end up being a victim of AI sooner or later.

 

We are not haters of AI per se, because there are many wonderful inventions, technologies, and improvements that will result from its use in the future.

 

 

And if properly controlled, AI could be the best co-pilot the markets have ever had.

But if we let it drive, don’t be surprised when it misses the exit ramp and crashes through the guardrails…taking your money with it.

The question many people are asking is:

 

To AI or Not AI?

 

Find out the answers in our upcoming August edition of Simplifying Wall Street…In Plain English” (HERE).

 

Share this with a friend…especially if they are old, widowed, never owned tech stocks in the past, but are now contemplating buying AI stocks…because “all their friends are making soooo much money in AI.” They’ll thank YOU later.

 

And tell them:

 

We’re Not Just About Finance

But we use finance to give you hope.

“And you shall know the truth, and the truth shall make you free.”

~John 8:32~

 

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