AI Models about to BREAK the markets
Let me explain why this has incredible ramifications and implications for all of us.
1. It is possible to predict the stock price. Not of every stock and not of every moment. However, if you are looking at 500 stocks and you fully understand technical trading you can identify the 5 stocks that you will have a very, very high probability of being able to predict the next peak or valley. For example, the stock might be trading at 26 and I have a very high confidence level that this will trade up to 28 before coming back down to 25. In order to do this you have to sift through all 500, a lot of work for one person but very doable for AI. Generally speaking these predictions can be very good if you are only talking about the next five days of trading.
Now you should reasonably be able to ask why this is since it seems to violate the basic premise of a free market. The reason is simple, many stock prices are manipulated and if you are keenly looking at the evidence you can see this.
Well if you are not easily fooled you would follow this question up and ask how can they get away with this since you have many professional traders and day traders? That is a fair question, the answer is simple, stupid money opens the door for lots and lots of manipulation. Most of the money pouring into the stock market is from 401k and IRA and Pension funds. They have picked certain investments and every two weeks buy more. Also a lot of money goes into index funds. So yes, if every single investor was carefully watching the performance of each and every stock in their portfolio on a daily basis and they were well educated, then this would be next to impossible.
You might ask, isn't market manipulation illegal? The answer is yes and no. But even if it is illegal the real question is will they prosecute? Watch the movie the Big Short, what was going on with the real estate market was clearly illegal. No question about it. It was criminal. Did anyone in the US get prosecuted? No. The people in that movie made incredible profits, but only because they were able to spot the manipulation and take advantage of it. But even so, look at the incredible risk they took. One guy lost all of his clients. Another firm was strong armed into selling and had to go up against everyone to keep from selling their holdings until they had made a full profit. The third group was two little guys who were terrified that the people who owed them money would go bankrupt and not be able to pay them, they had to act desperately, putting all their holdings up for a discounted sale before they could off load them. So yes, high risk can equate to high reward. But most fund managers are very happy making a million dollars a year without taking risks. If you go with conventional wisdom and lose money you won't get sued, but if you go against conventional wisdom and lose you will be sued for all you are worth. So even with fund managers few want to look for manipulation and capitalize on it.
But that leaves day traders who obviously are looking for this. They are usually small fry. Warren Buffet could never be a day trader. He is managing $1 trillion. He is a buy and hold investor. Day traders are like flies bothering a cow. The second disadvantage that day traders have is you pay a higher capital gains tax rate. The third disadvantage is that you pay a transaction fee for every buy and sell. Those add up discouraging you from taking advantage of small moves up and down.
But now with AI able to go through every stock on the NYSE and every stock on the Nasdaq and look for signs of manipulation, this is a game changer. No doubt there will be some hedge funds that will make this their strategy. But here is the problem, manipulation is how the elites stay rich without having to work. If you take that away from them, well you won't be able to take this away from them without a really big fight. Already AI is able to trade stocks and do it better than humans. I don't mean it is smarter, only the combination of brute force in evaluating every single stock and the ability to make rapid fire trades, and rapid fire calculations, there is no person who could do that five days a week. I would expect every single firm with a trading platform (like Charles Schwab) to set something like this up since they make money on every single trade. AI has the capability to replace "stupid money" with very intelligent money. In a 401k or Roth IRA you don't have to worry about capital gains tax (yes you pay tax when you pull the money out, but you could trade for twenty years without paying any tax so you don't have to pay the short term capital gains tax rate). The elites are not going to allow this. Therefore they have to put an end to the free market, and do it very soon.
