RealVision
- Lily Francus compared the meme-stock frenzy to the tech-stock bubble in the early 2000s.
- The quant researcher dismissed the idea that retail investors led the GameStop and AMC short squeezes.
- Some young people are turning to crypto and meme stocks out of desperation, the Moody's analyst said
- See more stories on Insider's business page.
Lily Francus compared the meme-stock boom to the dot-com bubble, warned traders not to get greedy, and explained how retail investors have transformed GameStop and AMC's business prospects in a recent RealVision interview.
The director of quant research strategy at Moody's Analytics dismissed the idea that retail traders spearheaded the short squeezes earlier this year. Moreover, she advised them to treat meme stocks like venture bets, and argued young people are buying cryptocurrencies and other speculative assets because they're disillusioned by income inequality.
Francus is best known for creating the Net Options Pricing Effect (NOPE) indicator, which gauges the impact of options trading on the stock market and helps predict volatility.
Here are Francus' 11 best quotes from the interview, lightly edited and condensed for clarity:
1. "It's striking how similar the meme-stock trend is to what we saw in the 2000-to-2001 period with the tech stocks."
2. "Assets like Tesla, Ark, bitcoin, GameStop – they have a lot of uncertainty attached to them 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. Those tend to be strong drivers of financial bubbles."
3. "I do not think this 'options mania' is a primarily retail-driven phenomenon. The volumes are very high. In certain cases, the amount of option contracts traded is just not realistic for a retail trader. "
4. "If you're bullish on these stocks, it's a very good sign to see an equity offering. It means the firm's actually drawing on this new price-insensitive base of buyers to pay off debt, to invest in R&D, to actually conduct business. Although it means dilution for the investor, it also creates fundamental value."
5. "When you see these meme squeezes, asset volatility does increase dramatically. But the ability to capitalize on these at-the-market equity offerings really does win out in the end. Our predictions of expected default frequency over the next year went completely into the dumpster. At its peak, we were actually recording that AMC's probability of default around November was one in two. Now, it's less than one in 100."
6. "Your risk increases the longer the bubble goes on, because a bubble is really this detachment from the fundamental value of the firm. Even if the fundamental value does increase through equity offerings, it doesn't mean your risk has decreased. It doesn't mean that the fundamental value post-equity offering will be anywhere near where the price currently is."
7. "My preferred strategy when I play these meme stocks is to essentially treat them as venture bets. You expect most of them will go to zero, or maybe decrease 50% in value. But it really doesn't matter if you do 10 or 20 of them, because one of them might 100x and you make back all your money."
8. "Millennials have, I wouldn't call it a YOLO mindset, but there's such a widening of income inequality as well as asset inequality. They have been essentially priced out of housing markets. My generation and later ones are looking at the markets as their way for social movement that traditional careers or traditional asset appreciation don't offer, and may never offer again."
9. "You're seeing these desperation plays. If you're on your last dollar, you put it in the market and suddenly it 100x's, then you're rich. If you lose it, you're still poor. You're not going to be measurably worse off by spending it on gambling in the market."
10. "Bubbles are dangerous. Most people are going to lose money from meme stocks and speculative bets. That's just how bubbles work. Very few people can actually target and time them properly to get out ahead. But at the same time, those opportunities are there."
11. "Most of the danger in bubbles is forgetting you're in a bubble, letting go of risk aversion, and skipping into greed. There are ways to size appropriately, where you get good exposure and you're not going to be ruined if it pops."