Robots and stock traders were left pointing fingers at each other last week, according to a post on the ZeroHedge.com website.
At a live, televised news conference, Treasury Secretary Steve Mnuchin indicated that the US and China had been about 90% of the way to a trade agreement before talks hit a snag. This was not good news.
The CNBC broadcast of the news conference ran captions at the bottom of the screen. One of these misquoted the Secretary to say that a trade agreement between the two sides “is” about 90% complete. That looked like very good news.
The story was automatically picked up and reported by the Bloomberg news service. CNBC automatically repeated the news on Twitter.
The automated trading systems of Wall Street firms “read” the news reported by their brother bots and bought stock futures aggressively. Prices jumped.
The error was corrected within minutes, but it took quite a while longer for prices to come back down. It looked as if the automated systems were acting much like their error-prone human masters, reluctant to admit a mistake.
This is plainly another example of a market acting irrationally, something that academics tell us can’t happen because prices are set by cool-headed investors who carefully weigh all the facts available to them.
Recall that the news conference that prompted all this was presented live. Anyone listening could have heard what the Treasury Secretary said and realized that there was no cause for celebration. Plain common sense was overwhelmed by trading systems that simply assumed the truth of what was flashed on a screen.
Barry Dunaway, CFA®
America First Investment Advisors, LLC
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