What is this? The Matrix? Machines taking over everything, i don't think so. Even if his theories come true and our knowledge becomes subordinate to computers there will always be an alternative, something else would come along that would give us the edge.
Its not that another computer can't take the other side. It's that historical "relationship" that the supercomputer finds, merits only taking one side. A simple example would clarify the situation. Let's pretend that the price of gold and the price of japanese bonds have been correlating inversely at a very high degree. When one goes up the other goes down and vice versa. What is implied here by Eckardt is that "supercomputers", smarter than humans will exploit this divergence in prices quickly and this "nonlinear relationship" will cease to exist. The prices will no longer diverge. The trade will no longer be there. So where's the market now? Trade both of them together. The computers no matter how smart can only like one side. Either they are taking the divergence trade or not. Sure the more programs, the quicker the gap closes, the smaller it will be. What he fails to notice is that once program trading closes on door, another opens.
Forever debate about randomness. Markets are basically random and they have always been. Philosophically speaking, there is a reason why it is possible to extract profit from markets and it has nothing to do with whether markets are random or not. Please read POWER OF GOLD by Bernstein, in futures chapter he fucking explains it. I truly feel like genius any time I encounter this issue because I have yet to know one fucking person who understand this simple stupid fact that theoretical profitability of futures trading has nothing to do with randomness(or non-randomness) of the markets. Dr. William Eckhardt is an idiot who is unable to see beyond mathematics. The article is so freaking stupid.
I cannot believe that person trained in math can write such a gibberish(not sure about pronunciation)
Eventually artificial intelligence devices, superior to any human researcher, will effectively uncover all exploitable nonlinear relationships of price to price. Artificial intelligence device=GOD
For every loser there will be a winner, it is the nature of the market to cause the cycle of pleasure and pain and it is the cycles of pleasure and pain that will morph the market... not math.
Well - the market is a giant processing machine continually spitting out a stream of price data, which really are operating instructions for the economy. If price of copper increases week after week, the market is telling the world we need more copper, and as the price of copper rises, more and more marginal mines become profitable and get re-opened by operators. Prospectors start looking for new mines. The world also starts to look for copper substitutes - can we make do with another alloy? And conservation to improve material efficiency - scientists start looking into ways to reduce copper usage. In this way, the price of copper is the operating instruction that tells the world how to mobilize it's resources accordingly. Information theory tells us that if a stream of data is delivered in an inefficient manner, then there is some predictability in the stream of data. A perfectly efficient delivery system for information would appear to be completely random, without pattern. Now, while computers might continue to get better and better at attacking patterns there are a few factors that won't go away. I'll try and name 3. 1) the cost of capital will ensure that the arbitrage opportunity will remain at a positive spread to the risk free rate. Thus the average spread on arbitraging between say cash SPX and the futures can never converge to zero because even if a computer could do it, the computer and its maintenance costs some capital, and that capital must earn at least the risk free rate + a premium or else we would unplug the machine, sell it on ebay and put the cash into T-bills. 2) mimicry is endemic to human nature. as infants we learn by mimicry. as adults, we see what others are doing and we might copy. as such, ideas in society tend to gain momentum - whether it's a trend, a meme, a sea-change in opinion. This creates positive feedback mechanisms in all things human. People come around to an idea at different speeds, thus creating momentum and arguably trends. 3) the statistical properties of price time series data are linked to human behaviour. our reaction to the pain of losses and the overconfidence of wins is deeply rooted in human nature and will find expression in how we behave in markets. Fear and greed will always colour price movement and the interaction between weak hands who sell in a panic and strong hands who wait for such a moment to take advantage of the weak has such primal roots and might explain the volatile ie regressive nature of bear markets.