Gordon, Do you read science fiction? Imagine if there was a replicator that could make anything you wanted and there was, essentially, an inexhaustible supply of anything because the technology was advanced enough to turn any type of atomic arrangement into some other atomic arrangement. Then ask yourself what the most basic principle of economics is -- the allocation of *limited* resources where a virtually inexhaustible *demand* for those resources is present. If something is in great supply, and demand is less than that supply, that something is cheap. If there is great demand for something with little supply, it is valuable. The only thing humans really need to stay alive is proper nutrition, water, oxygen and a suitable environment. We don't *really* need toilet paper, laptops, cell-phones, ice-cream, chairs, gold, AOL stock, etc to survive. The premise is that the Earth only has so much supply of certain materials for everyone to share -- so you have people in society with various monetary means to jockey for a good position to get the more scarce supplies. Everyone wants a mansion and an expensive car, but unless you have the monetary means to achieve those things, you cannot have them. However, if we were able to exist in some type of a matrix within a computer, where our minds were entirely hooked into a system that could feed all of our senses information while some rudimentary external was created to keep our bodies fed and alive, you would then be within a world where things could be created from nothing -- since it is all just a computer simulation. The Matrix, when you think about it, is not a true economy -- at least not in the film. The only thing Neo has to do is ask for "guns" and suddenly he's presented with isles of different weapons to choose from. He does not have to pay for them because they are, in essence, inexhaustible in supply. However, in the "real world" we all want the same thing -- to be rich. Since there is only so much metal to make cars and only so much manpower to design the nice ones, we have to compensate the suppliers of the materials and the laborers who design and produce the "stuff" that we want. In reality, economies are limited (and even defined) by a limited supply of material and labor. At some point, computers could totally supplant our external reality and you could exist in a virtual world with inexhaustible economies and therefore the issue of whether computers would take-over the stock market is a mute point. People would rather have the computers take over their external reality.
would ? It has began already, 30% of volume on the NYSE comes from computers programs. In France many floor professionals have been wiped by the new electronic market: some never return to it having lost millions or dozens of millions. Computer program don't change the market in structure it accelerate it: it consumes the "life" of the market more rapidly. You must think about interests of the market (in fact who organises this for what): speculators especially professionals were needed before electronic, now they are useless so the the law could change so that less and less traders could enter the market and concentrate money in funds. It doesn't only concerns traders but brokers. The biggest brokers will eliminate the smallers ones since with centralisation of electronic no intermediates are needed any more except just affiliates. It is the monopoly game. Speaking about the monopoly game here's a funny link about the original inventor of Monopoly (in fact a woman) whose game was stolen by Parker Brothers and the story goes on : General Mills, Procter and Gamble and the Manufacturers are all coalitioned against the heirs who launched the antimonopoly game http://www.antimonopoly.com
Harry's right, these changes are already taking place. Trading pits are being replaced by ECN's, pit traders are being put out of work. The same thing is starting to happen to daytraders. People are finding the market so difficult to figure out that they are giving up on trying anymore. But it's not efficiency that is causing this. The market is not becoming more efficient, it's becoming more random. The computers are running the markets, creating their own inhuman forms of logic, and it's becoming harder and harder for us humans to interpret what the hell is going on. Most likely, I predict the markets will either end up being left to run on their own incomprehensible algorithmic systems, or the whole thing will end up getting scrapped when societies are forced to realize that nothing constructive is coming out of this system anymore. If it's all about providing venture capital to companies so they can get going producing whatever it is they're intent on producing, there's got to be a better way for society to provide that.
I think the exchange/order execution function will go all computer eventually. This will reduce the friction-cost of executing a trade to the lowest common denominator. Think Wallmart. As far as guessing the direction of the market - I think it will be human judgement assisted by computers forever. The market reflects human emotion. If you take human emotion out of the equation, then the market wouldn't fluctuate. Instead it might be long flat-ish trends following some price-earning model. IMHO
Anyone ever read "The Predictors"? These guys out in New Mexico developed several 3D neural net and AI number matrices to "auto-trade" the markets. Apparently it worked for a while... It was a cool book nonetheless.
Aphexcoil "However, in the "real world" we all want the same thing -- to be rich." could not contradict more. there is more to human life. more precise: to each human's life. What you describe is not the "real world". The "real world" starts where you realize that being rich was actually never the reason why you started to want it. initial question. the problem shifts. you will have computers modelling and earning tiny little pieces over commission and somebody will find an innovative way to trade those programs doing so. And so forth. At the same time it will be much more difficult to find an edge as it is much more easier to program&execute&andSoForth. The challenge has always been and will be the same. You need to be slightly ahead. peace