Skynet ‘s Terminator is happening now
Oct 6th, 2011
Every morning, day after day, we see rough market data, large volatility, brutal drops, sudden heaves.
Some companies are seeing the market capitalization play yo-yo several times a week, if not daily.
For example:
Dendreon & Diebold shares most likely have been “victims” of computer programs that search out financial information, analyze it and “high-speed trade” it without any human involvement. Similar wider scale events occurred on May 6th when a massive sell-off erased 862US$ billion market capitalization in less than 20 minutes.
Algorithmic trading is the use of computer programmes for entering trading orders, with the algorithm deciding the timing, location, price and/or quantity of the order.
Crisis preditction 2008 economic downturn recession
Algorithms are at war for profits against each other, Riskope’s Crisis prediction 2008
and Humans are just a casualty of war, small useless bystanders.
Of course one can still believe that markets’ sways occur because of manual trading, consumer confidence etc., but the truth is that we are no match to machines in an industry that executes transactions by the millisecond. At Riskope we have stopped using stop losses for our own investments: they are way too hazardous when executed at “investor’s speed”. By the time our stop-loss might be activated the stock may be down to the center of the Earth! We have come to the conclusion that we can tolerate the volatility, when we believe in the long term good sense of a stock position. We will not be enslaved by machines.
Reportedly the SEC recently proposed a $4 billion system to track unusual market events and suspicious trades in real time….please read …in milliseconds…..
As the matter of fact, the use of software to analyze and trade within milliseconds on news from press releases, headlines and news stories has taken off only recently. Software are reportedly based on algorithms processing historical data, events or keywords that have pushed stock prices up or down in the past. Temporary price fluctuations have led some firms to install software that looks to profit by buying at the low point of a swing, which explains the sharp turbulences of intra-day pricing.
SEC reportedly plans to implement countermeasures such as halting trading when a stock rises or falls more than 10% in less than 5 minutes. Do you now how many milliseconds there are in five minutes? Just imagine what a machine can do in five minutes, and you will see why we, Humans, have to find different strategies for survival in our war against machines.
The London Stock Exchange has recently said its new Linux-based system is delivering world record networking speed, with 126 microsecond (that’s roughly 1/10th of millisecond) trading times. The LSE had indeed long been criticised on low speed and poor reliability, grappling with trading speeds of several hundred microseconds (gee, that slow, hey?).
The 126 microsecond speed is “twice as fast” as its main international competitors, BATS Europe and Chi-X, two dedicated electronic rivals to the LSE, which are reported to have an average latency of 250 and 175 microseconds respectively. But many of the LSE’s older and more traditional rivals offer speeds of around 300 to 400 microseconds.
Beware, Humans, the new LSE Linux system will go online, on November 1st . Is that the day the “Collective” (remember Terminator’s Collective?) will launch its offensive?
This all looks quite like a science fiction movie, but it is not.
After predicting that the crisis would be long-lasting and deep, consequences would hit public services, public officers, generate high jobless rates, and finally lead to riots, we are now seeing “indignados” on the Brooklyn Bridge, Zuccotti Park, protesting at Wall Street (October 1st) and other financial districts even in the Almighty USA.
Jobless people against light-speed machines making decisions for a few “human owners”, or for themselves? Well these machines do not shoot flames and bullets like the ones in Terminator, but they will kill people for sure: depression, hunger, hopeless lives….and the machines and their masters (meanwhile there are some) will get richer and more powerful.
As you can see in the picture above, our 2008 crisis depth and duration prediction showed:
- the most probable scenario was a crisis lasting until now and 20% chances (1 in 5) it would go on for quite another bit.
- 55% chances the crisis would lead to “critical evolution of disservice” described in our 2008 paper to be exactly what we see now in the media…
If we were to scientifically update our predictions now, based on factual data and new evidence, we would most likely find out a significant increase of the probability the crisis will last even longer.
Tagged with: algorithme, crisis, decision, development, economic, Financial, indignados, riots, sustainability, Wall Street, zuccotti
Category: Consequences, Crisis management, Hazard, Probabilities, Risk analysis, Risk management
Thanks Franco. You may be interested to cast your eye over this example of quantitative “Crisis Anticipation”: https://www.box.net/shared/2hdmisy4i9
David
Dear David,
Thank you for your very interesting paper. How do you select the parameters you use (for the subprime you used 56…), and how sensitive is the result to the selection of parameters?
Kindest regards,
Franco
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