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jerryking : nyse   7

Passive investing is storing up trouble
August 2, 2018 | Financial Times | by Megan Greene.

I was recently informed by the owner of an artificial intelligence fund that markets do not listen to economists any more. .....A fundamental shift in market structure towards rules-based, passive investing over the past decade means a lot of trading is no longer based on fundamentals. But just because some markets do not pay attention to economists, it does not mean economists should not pay attention to these markets........AI quant funds are not waiting on tenterhooks for analysis of every non-farm payrolls report, Fed press conference, Donald Trump tweet, or earnings report. Instead, they look for trading strategies that are succeeding and adopt those strategies until a better one comes along, regardless of the underlying fundamentals. But what happens when the strategy suddenly becomes to sell everything? Will the computers find the buyers they need?.......ETFs, often set up to mimic an index, have to buy more of equities rising in price, sending those stock prices even higher. ETFs similarly ignore fundamentals.....This creates a piling-on effect as funds buy more of these increasingly expensive stocks and less of the cheaper ones in their indices...Risks of a bubble arise when there is no regard for underlying fundamentals or price. It is reasonable to assume a sustained market correction would lead to stocks that were disproportionately bought because of ETFs and index funds being disproportionately sold.

But again, in a crisis will the ETF managers find liquid markets? ....Passive investors and quant funds could also threaten the economy by making markets vastly more complex, noisy and opaque. They send mixed signals to active investors about what the fair value of a stock is. That could cause a significant misallocation of capital.

The danger is exacerbated by the speed at which trading is now done. The average holding period for a security on the New York Stock Exchange has fallen from two months in 2008 to just under 20 seconds today.......Systemic failures, misallocation of capital and dried up liquidity could cause a bear market, dragging on growth when the economic backdrop is already lacklustre......So even though passive investors ignore economists, economists should pay attention to risks posed by the shift in market structure they represent....This is not to say that index funds, ETFs and AI quant funds are necessarily bad. But the real test will come when there is a sudden crisis followed by a sustained bear market.
active_investing  artificial_intelligence  bear_markets  economists  ETFs  holding_periods  index_funds  investing  liquidity  misallocations  NYSE  passive_investing  piling_on  risks  systemic_failures  rules-based  bubbles  quantitative  market_fundamentals  crisis  dark_side  pay_attention 
august 2018 by jerryking
Prepare for a New Supercycle of Innovation - WSJ
By John Michaelson
May 9, 2017

Things are about to change. Consider information technology. Today’s enterprise IT systems are built on platforms dating from the 1970s to the 1990s. These systems are now horrendously expensive to operate, prone to catastrophic crashes, and unable to ensure data security. The cloud only made this worse by increasing complexity.

Corporate CEOs complain that they are unable to get the data they need. These rickety systems cannot easily accommodate data mining and artificial intelligence. Evidence of their deficiencies is seen daily. The New York Stock Exchange stops trading for hours. Yahoo acknowledges the compromise of one billion user accounts. Airline reservation systems go down repeatedly. The pain level for users is becoming intolerable.

Each decade for the past 60 years, we have seen a thousand-fold increase in world-wide processing power, bandwidth and storage. At the same time, costs have fallen by a factor of 10,000. Advances in these platforms, in themselves, do not produce innovation. But they facilitate the development and deployment of entirely new applications that take advantage of these advances. [jk: The Republican intellectual George F. Gilder taught us that we should husband resources that are scarce and costly, but can waste resources that are abundant and cheap] Amazing new applications are almost never predictable. They come from human creativity (jk: human ingenuity). That is one reason they almost never come from incumbent companies. But once barriers to innovation are lowered, new applications follow.
10x  artificial_intelligence  CEOs  creativity  cyber_security  data_mining  economic_downturn  flash_crashes  George_Gilder  Gilder's  Law  innovation  history  human_ingenuity  incumbents  IT  legacy_tech  Moore's_Law  NYSE 
may 2017 by jerryking
Market Shift Leads NYSE To Sell to ICE -

The New York Stock Exchange, the cornerstone of American capitalism for 220 years, agreed to be sold as part of an $8.2 billion takeover by IntercontinentalExchange Inc.

If regulators and shareholders approve, the combined company would own 14 stock and futures exchanges and five clearing operations that serve as middlemen between buyers and sellers of futures and other contracts, doing more things in more places than any other rival.
mergers_&_acquisitions  stockmarkets  bourses  trading_platforms  NYSE 
december 2012 by jerryking
Crovitz: Exporting Wall Street -
* FEBRUARY 28, 2011

Exporting Wall Street
An unfriendly U.S. regulatory climate put the NYSE at a disadvantage.

L._Gordon_Crovtiz  Wall_Street  mergers_&_acquisitions  NYSE 
march 2011 by jerryking

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