- Lily Francus compared the meme stock frenzy to the tech stock bubble in the early 2000s.
- The quantitative researcher dismissed the idea that retail investors were leading GameStop and AMC’s short cuts.
- Some young people are turning to crypto and meme stocks out of desperation, Moody’s analyst says
- See more stories on the Insider business page.
Lily Francus likened the memes stock boom to the dot-com bubble, warned traders not to get greedy, and explained how retail investors have transformed the business outlook for GameStop and AMC in a recent RealVision interview.
The director of quantitative research strategy at Moody’s Analytics dismissed the idea that retail traders spearheaded short squeezes earlier this year. Additionally, she advised them to treat memes stocks as risk bets, and argued that young people buy cryptocurrencies and other speculative assets because they are disillusioned with income inequality.
Francus is best known for creating the Net Options Pricing Effect (NOPE) indicator, which assesses the impact of options trading on the stock market and helps predict volatility.
Here are the 11 best quotes from Francus from the interview, slightly edited and condensed for clarity:
1. “It’s striking how similar the trend in memes stocks is to what we saw during the period 2000-2001 with tech stocks. “
2. “Assets like Tesla, Ark, bitcoin, GameStop – they have a lot of uncertainty about their future value. There’s this idea that maybe this asset is trading for $ 4 a share, but you secretly know that it could trade at $ 3,000 a share later. These tend to be powerful drivers of financial bubbles. “
3. “I don’t think this ‘options mania’ is primarily a retail phenomenon. The volumes are very high. In some cases, the number of options contracts traded is just not realistic for you. a retail trader. “
4. “If you are bullish on these stocks, it’s a very good sign to see a stock offer. This means that the company is actually relying on this new base of price-insensitive buyers to pay down debt, to invest in R&D, to actually do business. While this means dilution for the investor, it also creates fundamental value. “
5. “When you see these meme cutbacks, asset volatility increases dramatically. But the ability to capitalize on these equity offerings in the market really wins out in the end. Our forecast of expected default frequency over the course of Next year are completely gone In the dumpster. At its peak, we were actually recording that the probability of AMC defaulting around November was one in two. Now it’s less than one in 100. “
6. “The longer the bubble lasts, the more your risk increases, because a bubble is really that detachment from the core value of the company. Even though fundamental value increases through stock offerings, that doesn’t mean your risk has decreased. does not mean that the fundamental value of the post-share offering will be close to the current price. “
7. “My favorite strategy when playing these memes stocks is to treat them primarily as risk bets. or 20 of them because one of them could be 100x and you will get all your money back. “
8. “Millennials have, I wouldn’t call it a YOLO mindset, but there is such a widening of income inequality as well as asset inequality. They have been essentially excluded from housing markets. Ma generations and beyond view the markets as their means of social movement that traditional careers or traditional asset appreciation do not, and may never offer again. ”
9. “You see these games of desperation. If you’re on your last dollar you put it on the market and all of a sudden it’s 100x then you’re rich. If you lose it, you are still poor. is not going to be considerably worse spending it to gamble on the market. “
10. “Bubbles are dangerous. Most people will lose money because of memes actions and speculative betting. are there.”
11. “Most of the dangers in bubbles are forgetting that you are in a bubble, letting go of risk aversion and jumping into greed. There are ways to appropriately size where you get a good exposure and you won’t be broke if this breaks out. “