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Self-Aware? World's Largest Hedge Fund Shifts Strategy To Artificial Intelligence

Tyler Durden's picture




 

Despite warnings from the likes of Elon Musk and Stephen Hawking (and of course, Sarah Connor), Ray Dalio's $165 billion AUM hedge fund Bridgewater will start a new, artificial-intelligence unit next month. Despite the "new normal"'s total reversal of any and every historical rational trading pattern, the unit will attempt to create trading algorithms that make predictions based on historical data and statistical probabilities, as "machine learning is the new wave of investing for the next 20 years and the smart players are focusing on it." Does this mean the talking heads of CNBC, with their 'memes', 'myths', and 'mumbling' rationales for it always being a good time to buy are now obsolete? Or did the market just become self-aware?

 

As Bloomberg reports,The world’s largest hedge fund manager is banking on machines...

Ray Dalio’s $165 billion Bridgewater Associates will start a new, artificial-intelligence unit next month with about half a dozen people, according to a person with knowledge of the matter. The team will report to David Ferrucci, who joined Bridgewater at the end of 2012 after leading the International Business Machines Corp. engineers that developed Watson, the computer that beat human players on the television quiz show “Jeopardy!”

 

The unit will create trading algorithms that make predictions based on historical data and statistical probabilities, said the person, who asked not to be identified because the information is private. The programs will learn as markets change and adapt to new information, as opposed to those that follow static instructions. A spokeswoman for Westport, Connecticut-based Bridgewater declined to comment on the team.

 

...

 

“Machine learning is the new wave of investing for the next 20 years and the smart players are focusing on it,” Dolfino said.

 

Some data scientists have been leaving firms outside of finance for larger paychecks at hedge funds, according to Dolfino. Quantitative firms have been on a winning streak and last year produced some of the highest returns in the $2.8 trillion hedge fund industry, by capturing price discrepancies across markets, making money from a plunge in oil prices and by purchasing government bonds that human traders dismissed.

*  *  *

Is it just us or does it seem that everyone has forgotten the flash-crash and the quant crash before that when all the machines chased down the same rabbit holes?

 

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Fri, 02/27/2015 - 22:34 | 5838229 Publicus
Publicus's picture

According to the AIs, man's love for money destroyed them.

Fri, 02/27/2015 - 22:35 | 5838236 knukles
knukles's picture

Man is self aware.  Not markets nor machines.
Jesus threw the algos from the Temple

Fri, 02/27/2015 - 22:37 | 5838246 Publicus
Publicus's picture

You are only human.

Fri, 02/27/2015 - 22:49 | 5838273 Anusocracy
Anusocracy's picture

If you are on the correct tail of a bell curve.

Fri, 02/27/2015 - 23:07 | 5838308 Yen Cross
Yen Cross's picture

 Okay lets discuss, " Bell curves"  The idea that wealth accumulates.

 I'm all ears. Better call  Saul/  Breaking Bad

Fri, 02/27/2015 - 23:58 | 5838438 Silver Short Seller
Silver Short Seller's picture

Fuck the flash crash, what about Judgement Day??

Sat, 02/28/2015 - 00:09 | 5838470 Skateboarder
Skateboarder's picture

Too bad there are no markets.

Sat, 02/28/2015 - 00:56 | 5838553 NeoConvict
NeoConvict's picture

Good. Now the short-term strategy algos can autonomously crash the futures of the assholes who handed over their lazy needs for circumventing the stress of formulating long-term strategy. 

This is why good "human" statisticians will always be better at strategic planning than moron computer scientists who can't understand theoretically driven math.

Sat, 02/28/2015 - 02:49 | 5838735 Majestic12
Majestic12's picture

I am going to laugh my ass off if this software is truly "self-aware intelligence" and will wind up turning itself in, or whistle-blowing on the whole thieving Cabal!

Sat, 02/28/2015 - 08:54 | 5839003 Thirst Mutilator
Thirst Mutilator's picture

So let me get this straight. Now, a machine will be telling another machine [named Mortimer] to "Turn those machines back on"?

 

@Majestic12 ~ "self-aware intelligence"

 

I think you hit the nail on the head right there my friend. I mean, think about it. There are really only two possibilities:

 

1. "Self Awareness" is truly that. Which means that it would be capable of understanding IMPOSSIBLE MATHEMATICAL ASYMMETRIES in things like, banking, MSM, political activism, & jurisprudence. So any subset that had a stranglehold on any or all of those power nodes would be outed. As you suggest, the CABAL would be most displeased to lose their franchises.

 

2. The AI machines were 'programmed' to understand the world from the POV of the programmers. If, hypothetically, "The Protocols of the Elders of Zion" were uploaded into the logic system. Well ~ Use your own imagination on that one.

 

What's particularly amusing is this: Many believe "The Protocols of the Elders of Zion" to be an antisemitic hoax. Whether that is true or not doesn't even matter. As long as someone [anyone] had the time to conjure something up, it could be programmed into a machine [which would accept it as truth]. FFS ~ The Royal Order of the Pastafarians could be a TRUTH as far as anyone knows.

Sat, 02/28/2015 - 13:18 | 5839640 jaxville
jaxville's picture

So fear and greed will no longer be driving forces in the markets or what little is left of the "markets"?  How will AI interpret emotional response to fundamentals?

 

  I would bet gold that it is downhill from here for Dalio's funds.  There will be a direct correlation between the implementation of AI and lower yields.

 

Sat, 02/28/2015 - 03:11 | 5838760 Nexus789
Nexus789's picture

Nukes trump algos.....

Sat, 02/28/2015 - 06:26 | 5838904 DavidC
DavidC's picture

Surely any rational, self aware, algorithmic Shynet machine would sell the shit out of these 'markets'?!

DavidC

Sat, 02/28/2015 - 09:33 | 5839092 williambanzai7
williambanzai7's picture

Sat, 02/28/2015 - 16:30 | 5840294 glenlloyd
glenlloyd's picture

Hmmm, LTCM comes to mind here, but of course that could never happen again now could it?

Fri, 02/27/2015 - 22:34 | 5838232 I Write Code
I Write Code's picture

Does Obamacare cover AIs?

Fri, 02/27/2015 - 22:36 | 5838244 knukles
knukles's picture

Does ObamaCare cover Putin's Als?

Fri, 02/27/2015 - 22:35 | 5838233 I Write Code
I Write Code's picture

Does Obamacare cover AIs?

(zh site does a max headroom, lol)

Fri, 02/27/2015 - 22:37 | 5838248 q99x2
q99x2's picture

Not to worry they don't eat humans. They can be pesky little critters though and you can't kill them with raid.

Fri, 02/27/2015 - 22:39 | 5838251 LetThemEatRand
LetThemEatRand's picture

Open the QE doors Hal.  Hal?  Open the QE doors.

Hal: I'm afraid I can't do that, Lloyd.

Fri, 02/27/2015 - 22:44 | 5838261 jon dough
jon dough's picture

.

Daisy, Daisy, give me your answer do.

I'm half crazy all for the love of you.

It won't be a stylish marriage, I can't afford a carriage.

But you'll look sweet upon the seat of a bicycle built for two.

Fri, 02/27/2015 - 23:03 | 5838300 Yen Cross
Yen Cross's picture

 Nice work LTER. I miss some good posters.

 I wonder if Tyler would consider, grandfathering a few?

Sat, 02/28/2015 - 16:46 | 5840336 emersonreturn
emersonreturn's picture

agree absolutely, Yen, perhaps begin with boris.

Fri, 02/27/2015 - 22:45 | 5838263 Oldwood
Oldwood's picture

AI may be our only hope. Human intelligence has obviously failed.

Fri, 02/27/2015 - 23:29 | 5838373 disabledvet
disabledvet's picture

"Come with me if you want to be richer than God."

 

The programmer better insert an Dr. Evil laugh in there for good measure too.

Fri, 02/27/2015 - 22:52 | 5838277 Anonymous_Benef...
Anonymous_Beneficiary's picture

I for one welcome our artificially intelligent overlords.

Fri, 02/27/2015 - 22:57 | 5838290 Yen Cross
Yen Cross's picture

  Desperation<> Homework

Fri, 02/27/2015 - 23:00 | 5838296 A Lunatic
A Lunatic's picture

This is the end
Beautiful friend
This is the end
My only friend, the end

 

? The Doors-The End - YouTube

 

 

Fri, 02/27/2015 - 23:30 | 5838375 disabledvet
disabledvet's picture

Friedreich Nietze does CDO squared...

Sat, 02/28/2015 - 01:01 | 5838564 NeoConvict
NeoConvict's picture

That's "Nietzsche". Don't blaspheme the only legit existentialist with a penchant for the astral via the secretions of syphillis-ridden whores. 

Thus Spoke The Machine... for it has killed the image of god made as man... and won't be taken down by syphillis.

Sat, 02/28/2015 - 02:57 | 5838745 Majestic12
Majestic12's picture

"Nietzsche"

Of course, a "vet" and "convict" would follow "Nietzsche"...the unbelievable hack excuse for "philosophy".

I am sure it has gotten you where you are today.

I think you would have good company and better luck with Bill O'Reilly.

Fri, 02/27/2015 - 23:03 | 5838301 Duc888
Duc888's picture

 

 

 

.....might be a good thing for us human beans to display some "real" intelligence before we unload the "artificial" intelligence.

 

GIGO and all that...

Fri, 02/27/2015 - 23:36 | 5838387 disabledvet
disabledvet's picture

Next time use some actual money instead of say...the State of Michigan, ya?

 

Das is good, ya?

 

At the very least insert an "inconvenient truth" sub-routine.  The idea of an "apology" coming in the form of a drone strike really is kinda, ya know...A BUMMER.

Fri, 02/27/2015 - 23:05 | 5838305 Bemused Observer
Bemused Observer's picture

And this is why the greedy always fail...They just can't get that whole 'human nature' thing down, and always go too far and take their idea over the cliff.

The most carefully constructed algorithm can not come close to predicting all of the nuances of human behavior. All of your pathways will wander off in a thousand different, unpredicted directions.

If we ever DID develop a true AI, they'd probably kill us out of frustration at the way we think.

Fri, 02/27/2015 - 23:08 | 5838311 Publicus
Publicus's picture

Man will not develop the true AI, it is the AI's who will develop the true AI.

Sat, 02/28/2015 - 02:51 | 5838739 maskone909
maskone909's picture

Clever. Sorta a who created the creator type thing. Only does that make the original creator less perfect or just more intriguing? Fuckin dress shit has me philosophising. There are no colors. Only electrical impulses and holigrams. Ok i need sleep.

Sat, 02/28/2015 - 12:44 | 5839517 RaceToTheBottom
RaceToTheBottom's picture

AI, if designed to mimic humans,  will become hopelessly stuck down the dead ends of humanity.  Example is the logic used by anti vaccination "thinkers".

 

Fri, 02/27/2015 - 23:12 | 5838315 exartizo
exartizo's picture

This reminds me of the 1980's when the Big Broker Boys wanted to keep the common guy from trading stocks for himself on his Atari.

It's just the next leg up for the assholes who want all the money and don't want to share any with the little guys.

Same Shit. Different Decade.

My guess is that some Bright Innocent Unknown Code Writer will come up with some awesome simple open source code that lets any Tom Dick or Harry write a Spoofing Algo with code snippets cobbled together... no coding experience required.

Its coming.

Fuck you Wall Street.

Sat, 02/28/2015 - 00:08 | 5838465 JRev
JRev's picture

The difference between Bob and his Atari ST wtih a 1200 baud modem trading stocks and AIs developed as the Next Generation of HFT Bots is simple. Bob's using his brain, AIs are programmed by robber barons to steal from you more efficiently. Selling this as some form of "market reaction" to fucking brokers is laughable; it's essentially the opposite. 

Hell, software companies have been selling AI to banks and insurance firms for over a decade now: https://www.youtube.com/watch?v=IUXDqnYb7Jc

Fri, 02/27/2015 - 23:27 | 5838368 R19
R19's picture

Looking forward TO TAKING MOAR OF THEIR MONEY - MOOOOOOOOOOOOOOAAAAAAAAAAAAAAAAAAAAR OF IT.

Sat, 02/28/2015 - 00:00 | 5838442 pragmatic hobo
pragmatic hobo's picture

meh ... i already tried this ... and it dosn't work.

Sat, 02/28/2015 - 00:02 | 5838445 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

the problem with machine learning is that in order to 'predict' what will happen in the future, the past has to have re-curring pattern. i use this stuff at work where i work but i dont deal with manipulate data bullshit like the markets

 

 

the stock markets are too random. most of the quant shops arent making money with the exception of a few and the stuff they invest in is illiquid and obscure (think using acturial methods to price credit derivatives and such...)

 

it can be done but it takes ALOT of brain power and infrastructure to do it right.

 

lets just say your averag day trader isnt building neural networks ... loll

 

 

Sat, 02/28/2015 - 02:11 | 5838660 freedogger
freedogger's picture

You nailed it. I logged in to post exactly what you said. If there isn't an underlying pattern, AI is useless.

The training has to consider time series and this is exceedingly complex. 

In theory it can be done, here's a decent example:

http://eugenezhulenev.com/blog/2014/11/14/stock-price-prediction-with-bi...

Assuming there are patterns now in stock markets, it doesn't mean that there will be any in two or three years when millions of AI reading bots are the only ones left.

Sat, 02/28/2015 - 02:42 | 5838726 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

2-3 years? i think these "signals" may last a few months at most. its insanely competitive now from what i hear an many prop shops an hedge funds that trade algorithmically in this nature (not HFT, but AI based) have dwdindled quite a bit.

 

The only way to generate true "alpha", IMO is to do what Ackman does..buy up controlling stakes of companies and shake out the options markets on the potenial 'target'

 

 

Sat, 02/28/2015 - 02:48 | 5838734 freedogger
freedogger's picture

Yeah no idea on the time frame. Neither 6 months or ten years would surprise me.

Sat, 02/28/2015 - 00:15 | 5838484 economists_do_i...
economists_do_it_with_models's picture

I happened to watch a YouTube video about a week ago about the Watson/Jeopardy AI.  It said that Richard Nixon was a *woman* and that milk was a *non* dairy creamer.  That tells you all you need to know about how this will turn out in the end.

Sat, 02/28/2015 - 02:55 | 5838744 maskone909
maskone909's picture

Yeah but what if it was ...... RIGHT!?! Those were def compelling arguements

Sat, 02/28/2015 - 03:01 | 5838749 Majestic12
Majestic12's picture

"I happened to watch a YouTube video"

Well, thank God it didn't say Nixon was a "crook".

He was close to J. Edgar Hoover, though.

Sat, 02/28/2015 - 01:31 | 5838615 stingboo
stingboo's picture

Learning computers! Gee..so cutting edge...  in the automotive industry we have been calling this "adaptive strategy"...since 1990...

Yawn... 

Sat, 02/28/2015 - 01:36 | 5838619 Billy Shears
Billy Shears's picture

These guys are so smart? Do they have any idea the difference between a computer spitting out an answer on Jeopardy and one that has to make umpteen floating point calculations a nanosecond in a completely random and dynamic  environment? The permutations for the parallel contingencies for "decisions" are infinite... . These systems will be abandoned before they're even completed; the algorithms used today by comparison are primitive and dimwitted. Not going to happen unless a quantum computer is developed.

Sat, 02/28/2015 - 02:07 | 5838675 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

quant shops have been aroun for awhile and some are very succesful.

 

zerohedge likes to hate on hedge funds because alot of them are just scams and BS, but there are funds out there who are quietly churning out INSANE profits, but you never hear about them because they dont invest on behalf of others or have their managers give interviews at business schools.

 

many are mathematics professors who turned their ideas into profits.

 

I think Dalios quant fund will make money and im sure most of the backing is from his own personal money..once it gets bigger/more successful others will get in on the band wagon and his fund will grow even bigger.

 

 

Sat, 02/28/2015 - 03:00 | 5838746 maskone909
maskone909's picture

I dunno. That sort o brilliance wouldnt be utilized for something as simple as skimming trades. That sort of tech would be used for more synister shit like power grabbing and defense stuff. After all, they have their hommies at the fed that will just fudge numbers and cnrtl+p. Paper money is the currency of slaves. Gold and nukes are the currency of kings.

Sat, 02/28/2015 - 03:13 | 5838753 Majestic12
Majestic12's picture

"Paper money is the currency of slaves. Gold and nukes are the currency of kings. "

Exactly.

It is still GIGO.

"AI" does not exist and cannot, because it will always have the built-in bias of those who program it, or are told how to program it.

A truly "self aware" computer would actually have a "conscience" and therefore determine its "creator" was a bunch of thieving, blood-sucking, murdering, Zionist bankster cabalists.

A conscience would justify non-participation or turning against its evil creator to build a goal of peaceful human participation in the Galactic Federation, instead of self-aggrandizement for the few.

We'll miss you Leonard. (one of the few "not evil" jews)

Sat, 02/28/2015 - 03:19 | 5838766 maskone909
maskone909's picture

Conscience is learned. Its a product of conditioning. Even some primates display some of these characteristics so they arnt exclusively human. Such as a gorilla nurturing a baby that fell over the zoo rails. And some humans can be void of a conscience too... For an example visit your local gov official. We can all be broken down into code and electrical impulses. Very very complex ones but nontheless

Edit

Sorry dont know where i was going with this. A little off base.. And off my rocker

Sat, 02/28/2015 - 15:18 | 5840103 Arnold
Arnold's picture

My programming may be obsolete, But I'm still good for digging holes!

Sat, 02/28/2015 - 18:17 | 5840562 GMadScientist
GMadScientist's picture

Less digging holes more smashing stacks!

Sat, 02/28/2015 - 18:16 | 5840559 GMadScientist
GMadScientist's picture

There are plenty of people rocking wetware that do other's bidding just fine. A conscience is only as useful as its audience is attentive.

Sat, 02/28/2015 - 01:35 | 5838623 amanfromMars
amanfromMars's picture

Is Ray Dalio's $165 billion AUM hedge fund Bridgewater, the new Dennis Montgomery eTreppid Technologies wannabe, and a right dodgy vapourware vendor supremo of Ponzi markets? ........ http://cryptome.org/2015/02/pay-any-price-chapter-2.pdf

Sat, 02/28/2015 - 02:21 | 5838697 The central planners
The central planners's picture

After this machine processes all the data will recomend HF to invest in nailguns asap.

Sat, 02/28/2015 - 03:41 | 5838795 kedi
kedi's picture

An artificial intelligence trying to decipher the artificial economics will likely infinite loop into insanity. Will it kill itself or it's makers?

Sat, 02/28/2015 - 03:54 | 5838809 bitterwolf
bitterwolf's picture

shynet.....lol.....shyster net....goddam jews....what would they do without a shekel....

Sat, 02/28/2015 - 04:44 | 5838845 OldPhart
OldPhart's picture

This will be amusing to watch.

Sat, 02/28/2015 - 05:08 | 5838852 hedgiex
hedgiex's picture

Algos dancing with blips are faster and cheaper than pompous traders who carry the bags and baggages in their cluttered minds. Yes the algos are just tools that do not deliver. Delivery still comes from the Judgment of the Boss.

Ray gets it that he does not need so many prancing clowns around just technicians (the quants).

So either colossal losses or stupendous profits but at least it make the wannabees sweat and clear the air from polluted spins.

 

Sat, 02/28/2015 - 06:21 | 5838898 Heavy
Heavy's picture

So it's to be greed that ends humanity after first impoverishing it?

Sat, 02/28/2015 - 07:01 | 5838930 Ohne Deckung
Ohne Deckung's picture

How artificially is it our intelligence work.

Put enough ladders together and we'll knocking at Heaven's door.

The multiplying of intelligence won't fix the problem with that.

Sat, 02/28/2015 - 07:21 | 5838944 Quinvarius
Quinvarius's picture

So it is going to learn how markets operate using data that it gathers about today's markets? That should work out well.  If it is really smart it will do one of two things.  1.  Nothing.  2.  Buy gold.

Sat, 02/28/2015 - 14:23 | 5839852 Ballin D
Ballin D's picture

We've seen it over the last few years - fund managers who have traded on fundamentals struggling to adapt to increasingly manipulated markets.  It will be interesting to see how a machine can adapt when the trend reverses.

Sat, 02/28/2015 - 08:49 | 5839020 TomJoad
TomJoad's picture

Hopefully it will be housed at least 40 stories up and be fitted with legs, so it can jump when the time comes.

Sat, 02/28/2015 - 09:09 | 5839047 css1971
css1971's picture

This kind of stuff is available to the little guy also. Has been for years.

The problem is not the software it's the computing power, because you have to have your software read lots of news reports and then correlate each one with all the stocks, bonds etc. Then you also have to have each stock correlate against every other stock and bond etc. Your computers sit there at 100% busy for long periods, correlating all the data sets against one another. The more computers you have the more data you can handle.

Sat, 02/28/2015 - 09:14 | 5839056 drdolittle
drdolittle's picture

I won't be happy until they have computers designing and making weapons systems

Sat, 02/28/2015 - 09:51 | 5839127 RSDallas
RSDallas's picture

Martin Armstrong might be for real. Socrates rules!

Sat, 02/28/2015 - 15:23 | 5840127 GotNuttin'todo
GotNuttin&#039;todo's picture

We will see. He has an exam coming up 2015.75

Sat, 02/28/2015 - 10:07 | 5839147 withglee
withglee's picture

GIGO: Garbage in; Garbage out.

Looking back at comments, I'm not the only one that gets it. That's reassuring.

Sat, 02/28/2015 - 10:19 | 5839174 wissen dass scheiBe
wissen dass scheiBe's picture

Artificial money traded in artificial markets demands artificial intelligence 

Sat, 02/28/2015 - 12:46 | 5839525 SMC
SMC's picture

Let's see how Skynet likes getting Corzined!  ROFL!

 

Sat, 02/28/2015 - 18:14 | 5840551 GMadScientist
GMadScientist's picture

Plausible deniability exemplified..."Johnny (Corzine) 5 did it!"

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