Odd Lots - This Is What Happened to the Meme Stock Mania

Episode Date: April 28, 2022

Spring of 2021 was peak meme mania. GameStop was going nuts. AMC was going nuts. And in general, the big cohort of traders that entered the market in early 2020 was riding high. Since then, though, things have turned south. Volumes have dipped significantly. The memes came back to Earth, and a lot of the growth stocks that were riding high have gotten absolutely killed. So where do things stand now, and what happened to all the new traders? On this episode, we speak to Lily Francus, director of quantitative research at Moody's Analytics, as well as Kyla Scanlon, a popular financial commentator across social media (as well as the founder of a new financial education company) to understand what happened, what's changed, and how the last two years have permanently altered financial markets as we know them. See omnystudio.com/listener for privacy information.

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And welcome to another episode of the Oddlots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. Tracy, you know it was really fun last year was GameStop. That was a really good time, wasn't it? Yeah, plus a land war in Europe that we haven't seen for many, many decades. But yeah, retail mania was this big thing that happened in early 2021. And I'm just looking at the chart of GameStop. that was sort of the flagship stock for Mian stunk mania. And it looks like, if you zoom out now, it kind of looks like an earthquake, which in some sense it kind of was. Like, it was this thing that just shook up the entire market.

And people at the time were saying that this was like the end of capitalism as we know it. Yeah, it does. It definitely feels like so much has happened over the last year. I mean, we've had a pretty big sell-off in areas of the market that are really hot. it's been a long year. So many different things have happened over that time. So many new narratives, obviously tons of focus these days on inflation and so forth. That whole period, it really seems like ancient history, but honestly, it was really not

that long ago. I think Matt Levine has had some columns saying things that, like, oh, if GameStop is still trading above 103 months, I have to retire because all of markets are broken. And I think it was still there or it definitely lasted a long time. And that's kind of the other weird thing about these manias, which is that you can identify them as a mania sometimes in real time or say, oh, this is ridiculous. This is overvalued. But it's really hard to call them at the time. It's really hard to time the trades.

Yeah, I think that's right. But there was also this aspect of GameStop where people were treating it, you know, not necessarily as there were plenty of people treating it as a speculative bubble. But there were some people who just said, I like the company. or I like whatever this stock represents to me and I'm going to buy it, almost using it as sort of like go fund me for the business. And I'll say one other thing that I think is really important in all this, which is that, you know, at the peak, you know, it got started in spring of 2020.

Like, that's really when it kicked off. That's when we had the explosion of new people trading. A lot of people who were staying home, either they were working from home, people had lost their jobs. And so you had this explosion of people who are getting into retail trading, options trading, opening up a Robin Hood account. And for the first time, I guess really since the late 90s, since the dot-com bubble, it was the first time in basically 20 years

in which it felt like stock trading was part of the environment, part of the culture, and something that people were just talking about, their individual stock holdings in a way that really, yeah, I don't think had been the case for at least 20 years. Right. I mean, I remember there's a dormant who works at a hotel in New York, who I know who was asking me about Tesla options around that time. And that, you know, like, it's verging on the famous J.P. Morgan Shushine boy kind of thing

when the doorman starts asking you about what options you should be buying for Tesla. But yeah, it definitely was a cultural event. Right. It was really a cultural moment. And so I'm really interested in what became of that. And I have my suspicions. You know, my guess would be that a lot of people have now lost their money. They lost their gains.

That they experienced during the pandemic. maybe they're disillusioned. We know that trading volume is down. But I also have to imagine there's at least some people that have done well. You know, they've used this moment perhaps to learn more, wanted to further their own education, become deeply interested in how the markets work, how options are priced, how trading works, how to evaluate an investment. And so I suspect that at least some decent percentage of people got excited about the market from spring 20 to 21, 2020 to 2020, have stuck around and really,

further their knowledge to quite a degree. Yeah, absolutely. And this is something that you see on, you know, the classic message board for a lot of the retail training, which is Wall Street bets. A lot of the posts that go up on there are incredibly sophisticated in training strategies. And a lot of them aren't, I have to admit, but you can learn a lot by reading some of that. No, I think you make a really important point. Like, some are, they're not great. Some are extremely great. Some people have learned quite a bit. got really smart. Some were much smarter than anything I know about, much more knowledge of market mechanics, how to price volatility. So I think we don't know yet the final chapter of this story

and what's this new cohort of traders and what became of them that really started the beginning of the pandemic. I'm really excited we have two guests, two great commenters who we've followed for a long time, going to give us different perspectives on the world of what happened to all those meme stocks, what's going on with retail trading. We're going to be speaking with. We're going to be speaking with with Lily Frankis. She's the director of Quant Research at Moody's Analytics. And we're also going to be speaking with Kyla Scanlan, fantastic content creator, founder of a new finance education startup. It's awesome on Twitter and Instagram, TikTok, her newsletter, all great stuff. So Lily and Kyla, thank you so much to both of you for coming on. Yeah, thanks for having us. So what do we kick it off? You know, let's just both of you, but such great commenters over the last year, over the last couple of years, building up significant audiences. great insights into the world of meme stocks, retail trading, the sort of new cohort of investors.

But what do you just give us your perspective? Like, how does right now in spring 2022 feel different than a year ago? Yeah, sure. So I'll take it first. And then, I'll pass it off to you. For me, so I wasn't really in the, I was still working at an institution back when GameStop kicked off in February. But I think you have noticed a little bit of a downturn, whether that be, from people, you know, participating in discussions on Twitter or on Reddit.

But I think the people that you see who have stuck around, they're even more impassioned than they were back in February 2020, April, 2021, February 2021. So I think that you're seeing a decline in the number of people who might be participating, but the people who are still around are incredibly into AMC, GME, and you still do see these stocks continue to tick back up. And I also think that you're starting to see people get a little bit more interested in monetary policy. Jerome Powell has become a household name. And I don't think that was the case maybe two or three years ago where people knew the Federal Reserve president name.

So I think that's a big one as well. Yeah. Lily, what do you think? Yeah. So I want to echo Kylo's sentiment here. Essentially, I mean, you could see this pretty saliently in, you know, Google trends or app Annie. if you've looked at those about the rise and fall of Robinhood. I mean, fundamentally, you can't talk about the mean stock episode

without thinking about Robin Hood's impact on the options market in particular. I mean, in my own data, you can see fundamental differences over time in the growth of options with a pretty dramatic change in their volumes as well as impact the pad on the markets when Robin Hood essentially announced the trading of zero cost, zero transaction options. So I think that, you know, you can see now that there's definitely a decline in retail participation, especially in the options market. I think as, you know, I discussed this was something I speculated back in January 2021, that when you look at these mean stocks based on the fact that fundamentally they're trading

well disconnected from stuff like fundamentals or even, you know, kind of an understanding of future value of the company itself, then what you're seeing really is the evolution of something that kind of looks like a cult. And I don't even mean this in a bad way or a good way, but you have this passionate core of people who believe fundamentally in this truth that is extremely heterote, I can never get that word right, heterodox. Heterodox. Heterodox. Heterodox.

Heterodox. So what happens is that no matter what you throw at them, whether it was Robin Hood, you know, turning off the buy button or whether it was new earnings reports and GameStop, or whether it is the macro environment we're in now, you're still going to have these people who have faith in this narrative that over time becomes a pretty dominant force. I mean, you see this in cryptocurrencies. You saw this 10 years ago in Apple. You saw it with Tesla.

That fundamentally, this group of people is a capital base that the company, if they do play their cards right, can draw on to eventually, hopefully create value for their investors. So this is something that I've thought a little bit about. But it's almost like, you know, you talk about the. disconnect between the fundamentals and the share price. And it's almost like the price becomes a token that is representative of an idea or people's idea of what that company or that business or that cryptocurrency or whatever actually stands for. And I wonder,

what does that kind of meme trading or stonks? Like, what does that actually mean? What does that mean to you. How would you define it? Is it that idea of, you know, a sort of a belief system getting wrapped up in a tradable token that people are willing to throw their support behind? Or how would you define it, roughly? Everything that trades fundamentally is an agreement for someone that this is the value and I will be willing to buy it from you. That is the only arbiter of price of any asset is that someone is willing to buy it from you at that price in the future or now. I mean, if we're talking about market and small prices. So there are institutional means. I mean, when you think about fundamental analysis, there is no law of the universe like a law of gravity that

says stocks should trade a 20 times PDE. Obviously, we have models which kind of give us mathematical certainty that allows us to look at how the market is reacting and say we disagree with it. That's where you get the idea of theoretical versus market pricing. But at the end of the day, you know, even those models, the models of fundamental analysis, they largely depend on either our assumptions being correct or the adoption of the model itself. And this is something that Emmanuel Derman, for example, the famous option one has talked about. as well, with the advent of black shoals in option pricing, you see that the assumptions of black shoals start dictating market structure. And, you know, fundamentals is obviously probably the most

cohesive and long-lasting meme of the markets in the sense that we all agree that a company should be trading at a certain discounted cash flow evaluation. But it doesn't mean it has to, Because at the end of the day, if I go to you and I'm saying, look, I will buy this from you at a value wildly inflated, you know, that is my prerogative. You know, that is the market price at that juncture. And you see this with a higher susceptibility, especially for these smaller companies, like a GameStop, because realistically, with a GameStop or an AMC, retail, especially if they're highly dedicated as well as newly enriched by, you know, the recent bubble and what we call the stock market, they have enough force that they could own a significant fraction of the float. And when that happened, you know, obviously you can have short sellers who can interact with the markets and try to restore what equal efficiency. But at the end of the day, there's a reason why GameSop is still trading in $150 a share. We're talking now a year and a half later.

And you see these companies that I wrote it off, everybody else wrote it off, we were wrong. You know, it doesn't mean that the market and fundamentals are dead in any way. but at the end of the day, everything that trades, trades on someone's belief. Yeah, I would say that's a core driver of what's going on. Like, I think GME, AMC, all of that, it was, it's really emblematic of like a bigger thing, in my opinion. Like, it's not just about obviously a video game company or a movie company. It's, you know, dissatisfaction with the institution or being upset about how things are

playing out. And we were in the middle of a pandemic during that time. And I guess, I don't know. out of it yet. Who knows? But I think there's this big loss of trust in traditional institutions and GME and AMC somehow were able to capture that and they were able to, that's like the premium that they sort of end up reflecting is like people being like, well, actually I'm pretty mad and I'm going to buy this company to try and prove to you how mad I am. And that's why it's still going up is because I think that narrative of this loss of trust in institutions or in like

traditional structures is continuing to play out. And somehow, AMC and GME and other beamstomks have sort of captured that narrative. And I also think that we are in the era of memeification of everything, where Elon Musk buying Twitter, for example, or even that idea coming through, where everything is sort of meant to be laughed at. Like, nothing is real. Like there's a lot of financial nihilism.

And so I think GME, AMC, etc. Like this is, you can't really quantify that, right? Like this is all just speculation. But I think that that is also an element of what we're seeing where people are just like, okay, what's going on? I don't know. So let me buy the stock because nothing makes sense anymore. What's interesting is it kind of harkened back to the idea of credit. You know, when we look at firms that are very close to, let's say, a default point, then fundamentally, you know, the basic model that we

all kind of understand is the Meritan model, where we treat the equity value as an option on the firm's continued survival. And a lot of a way is, you know, that is the basis of how I view the mean stock trade where you have these stocks which, you know, fundamentally maybe worthless or close to worthless or as I joke last year, I think at one point AMC had negative shareholders equity. But at the end of the day, you know, you treat the core reason that one buys a stock is a belief that they will make money from doing so. It isn't based on some ethics. It isn't based on true financial calculations. And as you see these squeeze more and more, you know, you could almost treat these

as an option on the continued meme value of this equity or of this asset. And I think, you know, one of my practical realizations from that is that there are disruptions to this meaming, which you could say are stuff like earnings, where you kind of get this pressure to go back to reality. But then you see an asset like a Bitcoin, which has no form. fundamental value. There is no equivalent of a Bitcoin earnings. There is an equivalent of something that will directly imply a market price that can be arbitrage downwards. And that's when you see the longevity of these memes. How do memes die? I don't know how memes die. I think that you

see market cycles and it becomes really hard for memes to hang on during that time where, as Lily just pointed out, like you have earnings reports and if all of a sudden the company that you're putting all your net worth into. It's like, oh, maybe it's not a company. It's actually just like a, you know, a holding company per se. It doesn't really have any underlying value. Like, that can be really difficult. So I think like everything sort of boils down to this idea of collective belief. And so if all of a sudden the collective belief behind whatever the asset is goes away, if people stop saying, if they just stop believing and whatever that ends up looking like, like you're going to see the stock price end up going down. Like, I don't know if Robin Hood's not really

a meme stunk, right? But like, you're starting to see people. sort of rotate away from that because collective belief in whatever they were meant to do sort of rotates away too. So I think that's what I would say is collective belief begins to die out. But humans naturally like will just go meme another thing. So it's like as long as the meme cycle continues, they're just going to move on to something else. I think there's a joke on Twitter especially that I treat everything kind of in the lens of option theory because once you once you have a hammer, everything looks like a nail. But, you know, you're looking at the attention economy where fundamentally, you know, all of these stocks, especially once they don't

have a fundamental basis on what to trade on, are really based on this idea of future liquidity. Or you could say it's the greater fool theory or, you know, whatever kind of derogatory term of Ponzi scheme, those are all kind of analogous to each other, these zero-sum games where you you assume that at the end of the day, someone is going to be holding a bag. I've argued, you know, previously last year looking at credit analysis, that it's a bit more muddied in the sense that, you know, once you have these stocks that mean, if they have a base that's essentially rabid enough, they can actually conduct at the money offerings, which will turn into capital for the firm,

which, assuming a good management and, you know, management that's actually aligned with the vision, you could maybe see a pivot. You could actually rescue a firm that way fundamentally just because they have this new capital injection when they wouldn't have been even in the market for refinancing their debt before. But memes inherently are time limited and sense that attention is fleeting.

Obviously, you have individuals like Elon Musk who are very, very talented at staying in basically the new cycle. And I do think fundamentally that a significant fraction of Tesla's value is due to the fact that Elon can command this attention continuously. I think you're seeing that when we thumb our noses that individuals like Elon and be like, why is he doing these crazy stuff? ICC should come get him, et cetera. But you're seeing that the Overton window of how CEOs interact with the environment has shifted toward him, not away from. from him. You could argue this kind of started with basically the Tea Party and Trump as well, but at the end of the day, it's become a powerful force in the capital markets, even with this

macro environment that's become more unfavorable. So I actually want to ask more about the politics. So I remember, you know, thinking a year ago and when all of this was reaching a fever pitch, and I'm totally cool with it, I have no problem with people trading or speculating or gambling with their own money. I'm pretty laissez-faire. It's cool to do. what you want. If you want to have fun trading, go for it. I don't have any issues with it. If you want to be part of a club, that looks fun. It

looks fun to be part of the GameStop Club or the Apes. All that honestly look really fun to me. I think, you know, and you mentioned the sort of financial nihilism aspect. I totally get that. The only part that kind of offended me, and maybe there's just being old-fashioned

or what, the only part that sort of like bothered me was the wealthy, successful influencer is telling their followers on Twitter and elsewhere, and I won't name any names, but telling their followers on Twitter and elsewhere that buying AMC or buying GameStop is itself a political act. Like, oh, if you want to stick it to the man,

buy shares of AMC. Everyone buy shares of AMC. And as you say, you sort of breathe the life back into this company and like, okay, that's great for AMC. Maybe some traders made money. But it's not obviously other than, you know, some great strike against elite institutions. other than maybe one or two hedge funds that lost a lot of money.

And so it kind of bothered me at the time, these big-time influencers, telling their listeners that buying these stocks was a powerful political act. But I'm curious both of your perspectives about the political logic behind it. Yeah, I can go first and then, I'll pass it up to you. But I mean, it's super difficult, right, to, like, figure out what exactly it was or what sort of people were thinking. I think there was a lot of a rug pulling to use that term, people saying,

okay, everybody goes and buys this. I can sell some of my shares. I think that to the point of like, okay, this is going to be a way to stick it to the van. This is a way of representing politics. This is a way of conveying your beliefs to the broader world. I think that that, like this gets into the idea of crypto sort of being religion, right? Like a lot of people treat Bitcoin kind of as a religion. And I think that you sort of saw that with AMC and GME and you still sort of do.

to Lily's point around not a cult, like a cult essentially, right? Not that religion is always a cult, but there's threads between all of that stuff. And so I think to your point around like why would wealthy influencers say like, hey, you know, go and buy this. I do think there's this horrible trend that's always existed where people are like, oh, you go and buy this thing. It's like essentially a pyramid scheme. Like you go buy this thing and then I'm going to sell it once you buy more and then I'll

make money off of you. But I also think that it was this thing where, people thought that they could sort of make a difference. And so I think a lot of people probably got wrapped up in that in terms of like what it represents from a political perspective. I don't know. I think it was mostly a money grab though. Yeah. I mean, I'd add to that. I mean, look, there probably is a contingent which and you know, excuse my language. I mean, to give an example, you know, the Soviets used to call them a useful idiots where there are some people who probably did believe that it was this true battle. And I'm not.

trying to, you know, discount what they viewed it as. But fundamentally, I've talked to institutions. I've talked to traders and prop traders that day. They made a lot of money off of people. Like, realistically speaking, I think maybe you could argue Melvin Capital had a really bad border on it. But at the end of the day, most hedge funds as well as prop firms jumped into the mess, made a lot of money off of retail backs primarily.

I mean, paying spread. I remember in January, the spreads were abysmal when, you know, trading GME, especially on the option side. And it was kind of co-opted by this contingent of grifters. I mean, we know some pretty famous ones who basically took this, you know, retail cause celebrate and made it about them. They basically encouraged what was essentially a manicurricular. frenzy without regard for, you know, consumer protection, without regard for thinking of people who

could lose money off of this. And I do not wish those people well. I think that, you know, that is kind of one of the lowest forms of operation. You know, it isn't to say that there weren't true issues that were en masse by the GME debacle. I think, you know, I was one of the first people, to my knowledge on Twitter to break the news that Robinhood turned off the buy button because I was actually informed by someone in one of the trading groups that I was part of. And I said, this is really bad. I do not understand why they did that. And, you know, that is a true issue. But at the end of the day, I don't think that the individuals involved in those decisions were punished in any way. In fact, you could argue that Robin Hood had a fantastic order due to

the GameStop and Jamie frenzy and made quite a bit of money off of, again, normal people. So speaking of people taking advantage of retail traders, how do we feel about CEOs and companies themselves tapping into the meme phenomenon? And, Kyla, you already mentioned Elon Musk, but, you know, AMC, for instance, has done phenomenally well by playing to, a certain base and really like leaning into memes and stonks and crypto and all of that. Is that the smart thing to do in a market where memes can lead to actual inflows of real money? Or is that taking advantage of, you know, a certain fandom or base? Yeah, I think it's sort of a tough one because theoretically it's just free marketing, right?

Like if you try to memeify your stock, you're just doing marketing. But I think the difficult part becomes when you sort of encourage behavior that might not be very good for the people who own your stock. Like, oh, hold no matter what, even if like the company isn't doing very well. And I think that kind of gets into this whole thing where the stock is sort of separate than the actual company itself. Like there's AMC the company and then there's AMC the stock and they don't seem to be the same thing. And so I think that, you know, people can do whatever they want with their money, but there is this aspect where you have to be an informed consumer. And I think that CEOs have a responsibility to tell people the information, both good and bad. And, you know, they can lean into the memification of things because that's just how life is. And Elon Musk doesn't have a PR team for a reason because he theoretically does all his own PR on Twitter.com. And it seems to work okay. like Tesla is the OG meme stonk. But I do think that there is a level of responsibility that I wish was, you know,

underscored a little bit more sometimes from leaders of companies when they try to become meme stonks. Again, I'm going to be a bit more, I guess, sharp with my criticism here. Before I begin, you know, this is my own personal views. I'm not speaking on behalf of, you know, either my employer or anybody else here. but I'm just a very complex how we have a long history of laws on consumer protection. We have accredited investor laws. And it's just mind-boggling to me that because it trades on the secondary markets, that these CEOs can get away with us.

You know, I think realistically, there's a line between informing the public and presenting unbiased facts and, you know, doing something like, you know, basically making me. about, you know, I forgot. I think one that I remember in 2020 was the short shorts that Tesla started selling. Oh, yeah. Or you saw the stock as well. And it's just like, you know, look, I'm a 26-year-old. I am aware that there's been periods of froth in the markets. But what are the regulators doing here?

You do see basically that small fishes are being prosecuted for pump and dumps. Because that's pretty much well established to be on the side of not okay in the markets. But, you know, it's just, it's impressive to me that you have ETF providers and funds that are more regulated on what they can say to the general public than the CEO of some of the largest companies on Earth. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day.

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So I actually want to pivot just a little bit and talk about the cohort of people who are trading, who started trading maybe two years ago and what they're doing. doing now. And of course, Kyla, you're launching a new education, founding information company. Lily, for a while, you ran this really great discord where extremely sophisticated conversations about trading. I used to lurk of there. I was super impressed. But I'm curious, like, where do you see the people now? Like, where do they go and what's changed? And I've been out of the woods on the retail side for a couple months. So I couldn't say specifically what's captivated the retail mindset.

I would say that, you know, I do have found good knowledge from individuals still in the face that there is still a pretty dedicated cohort of traders. I think that everybody just assumed that, you know, when the tide washed out with liquidity from bond yields going up, that, oh, retail would be destroyed instantly. You know, I'm sure a lot of people lost money. I mean, realistically, I've seen portfolios. I've seen the. carnage and gross stocks, but I do think that a lot, you know, what makes it different, and that's

always saying this time it's different is the perennial, you know, usually the top of the market in a lot of cases. I mean, look, you're still seeing crypto, especially in the private markets, command insane valuations. You're also seeing that we have a new generation of traders who are natives to the internet, they're experts at getting new information and news. And you're seeing the advent of tooling that previously, if we're talking 10, 15 years ago, wasn't really available nor financially, you know, within reach of all but the richest retail investors. So you're seeing that with this democratization of information, it isn't to say that retail isn't playing with negative edge still, but you are seeing that.

it is becoming more and more possible to be competitive in the markets. And, you know, there was a recent paper that actually Matt Levine mentioned where, you know, you could see that there was a correlation between retail interests and stock performance. So fundamentally, it's hard to argue that retail investors didn't see success in the 2020-21 period. I think a lot of people assume the tide would wash out just like 1990. 2009, 2000, from my own perspective, I am seeing people hanging on to money. I am seeing a lot of people who became Nouveau-Rish, and they are getting more and more sophisticated.

My conversations and even my background started in these trading discords very much similar to the old days of, let's say, like a nuclear finance where you see these dedicated, quantitative people start taking their talents from, you know, CS, from mathematics, from other fields that demand pretty similar skill sets, and start looking at the markets and saying, hey, why don't I try this? And I think that a lot of them will give up eventually. I think the turn rate is extremely high, and I've observed that myself. But I do think that this is the market that is going to birth a new generation of traders

and a new generation of funds that will look pretty different than the previous generation. Yeah, I totally agree. And anecdotally, I post on TikTok every single day. So go into the throes of the devil, right? And the questions that I get asked and the comments that are left are completely different than they were about a year ago. People are a little bit more attuned into like monetary policy, as I mentioned a little bit earlier. And they're just sort of thinking about the broader financial universe. So like I don't have as much insight on what traders are doing. But it just seems anecdotally. that people have become really interested in, which they have the right to be. Like, we're all economic entities and like we should all kind of be interested in what's going on economically and in the markets because it does impact us. And so I have seen people like really become interested. I get a lot of like really, really good questions. And to Lily's point about the paper that Matt Levine mentioned, like there's over 21,000 discord investing servers. And so the idea that, you know, 21,000 servers are just going to shut down because all the

sudden, you know, the Fed's going to raise rates, inflation is like all that stuff. I don't think that's necessarily going to happen. I do think there's an element of stickiness to this. And people are just genuinely interested in sort of this like big being that that is the financial markets. And I think, you know, the way that it sort of entered into, because I'm like the cusp of Gen Z, so I'm a zillennial, I guess, the older edge of Jin Z. And Jin Z is like the way that they learn is sort of through watching TikTok videos or doing different things like that. And I think that we've had sort of the gamification of finance. And that really allows people to become a little bit immersed as well.

So I don't think that you see sort of like the same level of frothiness. But I do think that you see people who are sticking around and are just genuinely interested in what the markets are doing. I was going to add, you know, because I've been more cleared into the crypto landscape, especially over the past six, seven months. And, you know, there it's interesting because it's almost. native for their trading mindset to be clued into retail chatter. You know, I think fundamentally, if you look at a crypto trading role, obviously there's systematic strategies, but when I've talked to traders, especially for smaller funds, there's a role now for individuals to essentially just sit on Discord and telegram all day.

It's whether they're involved in the NFT space. You know, part of me is wondering, I'm like, when you tell me that, I'm like, well, this is kind of an anomaly in time, and I don't know how transferable those skills will be later. But the other part of me is like, is this kind of just a paradigm shift where you see that historically retail has been trying to get the crumbs of what the institutionals are giving off. And now you're seeing the converse where you're seeing institutions go on these niche trading discord just to get some insider information before that, you know, a token goes 100x. Yeah. I mean, I've actually written this or about this before, but like if you think about something like crypto, if it's driven purely by sentiment, which it is and by flows, then actually, you know, the person who's sitting in the discord chat or the guy who's like sitting in his mother's basement spending all his time on the internet is probably going to have a better handle on where that's going than an institutional investor in, you know, a white tower bank or something like that. That said, one thing that's interesting to me is that, you know, at the height of the meme

investing phenomenon, people were getting really, really upset. And we mentioned this in the intro, but people were like, oh, this is the end of capitalism. All our markets are going to stop working. They're making fun of fundamentals and the financial industry and all of that. But actually, it seems like the two groups of financial, you know, traditional. finance and the retail investor slash crypto, it feels like they're sort of coming together or at least taking bits of each other and incorporating them into their behavior. Because the other thing that's happened this year is you see a lot more crypto people talking about the Fed. And what do bond yields mean for Bitcoin? And, you know, this is sort of all, well,

and on Wall Street bets, you see lots of people talking about the Fed and what's going to happen with interest rates and things like that. So it kind of feels like that body, that group has moved more in the direction of Wall Street. Yeah, I would agree that they, I think there's a knowledge that you kind of have to have a broad understanding of, or it's at least good to have a broad understanding of everything that's going on. And I think to Lily's point earlier about like all these different tools that are being developed, you can kind of get a lot of information that was previously only allowed to Wall Street, like their sites like Quiver quantitative, which are really valuable. You can get different subscriptions to different news outlets or different data aggregators.

And so I think that maybe the two are starting to converge, but I also think the resources and the toolings that they use are starting to converge. And that's sort of reducing the information asymmetry that used to exist. Yeah. I mean, I think that, like I said, it's really hard to, with a crystal of all see what the longer term impact will be here. I do think that there is culturally, and this could be tied almost to this idea of a failure of capitalism, although this is probably ironically the most capitalist thing that could happen, is that more people have been, you know, clued in, especially with inflation and the growth of wages to income inequality in the country. And, you know, I've kind of, I touched on this briefly last year, but it's kind of worth restating.

that what you're seeing is this almost nihilistic tendency, especially among those who are younger, who are less enriched by the traditional system, where they're kind of like, F it, you know, I'm going to gamble my money here because it is my way to cross the chasm from, you know, a diminishing middle class to the land of the rich. You know, you kind of see this.

I think someone brought up, that this happened in Iran as well, where you saw that a lot of the population started day trading. And I do think, you know, on one respect, people are getting more informed about the financial markets and economics on average, which could only be beneficial for us as a society. I think that obviously the world at large is dictated by the flow of capital, despite how people want to believe, you know, it's different. and it's never different. And being more informed about how the markets work and how markets interact with governmental policy, international policy,

is fundamentally important to being successful in life. So I do think that is a benefit. The downside, of course, is you're seeing this occur because of an erosion of trust in traditional, you know, intermediaries, like the news, like banks, like these, basically cornerstones of what we considered a functional society. So I don't know how basically it ends, but it is kind of concerning and sad in the way that this is kind of the ethos that has been adopted, especially by my generation. I guess, I don't know if Kyle had technically

different generations. It's people kind of treating stocks and crypto like lottery tickets, right? If you don't think you have that future income growth, well, why not just spend your money on a chance to get it? You know, something and Tracy, something you've talked a lot about is like China and this gigantic ball of money, like the trading speculation in China. And, you know, you have day traders and housewives buying iron ore futures and stuff like that. There's basically nobody retail in the U.S. trades. But I guess, you know, I'm interested in this idea that if there's, the perception that the economy is rigged, that you're never going to be able to buy a home,

that income is never going to be able to outpace inflation, you're going to have this huge debt burden, that basically markets are the only game in town, the only way to get ahead. And of course, if your perception that stocks are rigged, then perhaps crypto is like the ultimate way, like this is your one shot to get ahead. I just want to add here, and then I'll pass it over as well to Kyle and Tracy. You know, I recently saw a friend of mine who's also of our generation. and she's a 24-year-old, just got her first job as the designer. And, you know, she was telling me when I talked to her,

she's like, my dream is really to own a house. And it's really sad in a way that, you know, this dream of homeownership has become so much insurmountable to the average American where something, you know, dulled adage is what basically a home with a white picket fence and a dog and two kids. It's like, how do you even afford that at this? point. You know, America may be better off even still than other nations, which have seen the explosion of real estate prices even more than what we saw over the past two years. And I think that,

you know, this may be the fundamental check and the fundamental cost of, you know, quantitative easing that started in the global financial crisis basically 15 years ago. At the end of the day, people are looking at the markets right now as a way to, like I said, skip the chasm, where it's like, this is your shot and you're kind of seeing this even in the discord, especially of crypto or discourse of crypto Twitter, where you see this compression of time, basically Buffett or the traditional value investor, the way that you look at investing is at a long time horizon. You are less susceptible to the fluctuations and follies of the market if you are investing for 30 years versus for 30 seconds. And I think that because there's this general

nihilism and unease and we've seen this volatility the past year, people are thinking hand to mouth here with the markets. It's basically, I have this one shot. I need to invest now. You're seeing this deterioration of even doing due diligence, not only at the retail level, but also at the venture level when you're seeing the innovation of stuff now like pre-ide investing. So everybody has kind of adopted this ethos so that time itself has compressed down to years, months, days, and nothing good could come out of that. Yeah, I think we also have this broad problem of economic fragmentation. So I think the leader of the IMF, I don't remember the exact title. came out and was like, yeah, the world is increasingly economically fragmented. And I know Zoltan has

spoken a lot about that where, you know, sanctions, whether that impacts the reserve currency and how the dollar is going to respond to all that. But I think on an individual level, like we sort of experience that fragmentation. And I think a lot of people are trying to sort of get some sort of grip on reality because we keep on having things that it sort of exists in the tail end of the distribution happening like a pandemic, a war. Like a lot of things have happened. And I think a lot people are like, wow, life is kind of crazy. I better go and figure this stuff out and the stock market and this like get rich quick narrative. In some essences, the gambling aspect of it, I think are people just trying to like figure that stuff out because there isn't that promise of, you know,

work 40 years and have a home and have two and a half kids or whatever. That's just not something that is feasible anymore for the average person. And so you almost have to have. You have a home. And so you almost have to like to Tracy's point lean into that lottery ticket of the stock market because otherwise there's not a lot of their options. They say abs are made in the kitchen. Cool, but who has time for three hours of meal prep and a fridge full of Tupperware? That's why I started using Factor. Factor delivers fresh, never frozen, ready to eat meals that are dietitian designed for balanced science back nutrition. No prep, no cleanup. Just heat, eat, and move on. I've got gym days, work days, Super long days, and Factor keeps me on track without slowing me down.

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is going to happen to retail trading over this is such a broad category? But where do you see retail investing going over the next year or so?

Because in some respects it feels like the easy gains are gone in crypto, you know, the idea that you're going to put like a thousand bucks

into Bitcoin and become a millionaire a few years later seems far-fetched nowadays, although maybe you could do it with another coin, who knows. And then you have the pressure of liquidity tightening, interest rates going up, a lot of the growth stocks seem to have gotten the air kicked out of their tires. We're recording this the day after Netflix earnings, and that is down massively, and that was a big sort of pandemic stay-at-home

play. It just feels like there are all these pressures building on typical, on the kind of things that are typically popular with retail investors. How do you think that will end up playing out? I think that we're going to see people still be involved in the market. Like I think the meme, I guess, of long term is like to stay in the market and you'll be fine for a couple of years is going to stick around. But I think like, so we are recording this today after Netflix. I do think that Netflix sort of falling is really interesting because that could be a sign of regime change where one of the fangs is going down, right? Like the tech era is potentially sort of deteriorating. And a lot of people are just throwing money at tech. And that's

kind of like, you know, crypto has essentially become the NASDAQ to a certain extent as well. So you're starting to see all these correlations pop up. So I do think that we're going to see people invest still, but like what they're investing in, I think will be an interesting question and sort of how that P&L plays out over the next 10 years. Like, will the stock market continue its march upwards? I'm not sure. but that it could be interesting. Yeah. I think I'm reminded here of, you know, the story of Mark Cuban, basically who sold broadcast.com to Yahoo in the late 90s,

and he was actually paid in Yahoo stock. And the reason he was still a billionaire after the tech bubble crashed was he was strategic, he bought puts, basically, and he, you know, made out. And now he's still quite a billionaire, you know, he invested in the next generation of tech. And I think you're going to kind of see that. basically from whatever the remains of this bubble period is as well, you're going to see that despite the vitriol of many who have been much longer in the markets, I think a substantial fraction of the new Voishe will hold their net worth from, you know, this current period.

I think they will be the new billionaires that fund the innovations of tomorrow. I think from what you've seen in the tech bubble and what happened later, yes, there was a lot of froth. There was pets.com famously in their IPO. It crashed. A lot of people lost money. But those people who made money and held on funded the next generation of tech companies, which turned into the Googles, the Facebooks, the Netflix's, the I guess Apple and Microsoft were already still there. but you're not going to see this money go away. I think there's going to be demand for retail investors,

especially those who did make it for more sophistication, as well as portfolio managers and wealth management solutions, which are really tailored toward what they're interested in and what they believe in. I think that, you know, and I've talked about this even on Twitter, I think there's a lot of people who are going to have a lot of net worth locked up in something pretty much illiquid, who are looking for the strategic solutions, to protect their wealth to make it last for a long time.

I think they're a lot more savvy on how the market works and how cycles work than a lot of people give credit to. And I think that this market, if there's savvy individuals, especially in those faces, can really be capitalized on. Tracy, I think there's a pretty good place to leave. Yeah, I agree. Yeah. Well, Kyla and Lily, that was a great spot to leave it. That was absolutely fantastic.

and I appreciate both of your perspectives. It's a great conversation. Thanks to both of you for coming on the blog. Thank you guys. Yeah, it was super fun. Thank you. Yeah, that was great. That was really good.

Thank you. Tracy, I thought that was great. It was sort of like unexpectedly poignant in a way. Like I didn't anticipate how that was going to go, but I actually thought that was like incredibly compelling. Yeah, I was ready for lots of meme jokes, but it got kind of dark. I mean, this is also something I've been thinking,

about. So I feel like the lightest way or the most optimistic way to view the retail trading phenomenon or, you know, the meme investing slash stonk thing is as a sort of go fund me for companies. So for whatever reason you like this company, you don't really care about the share price versus the fundamentals. You want to show your support for whatever you think it represents. So you buy into it. at its darkest, I think it's a prone to manipulation, but B also goes to this idea of the economic disparity that both Lili and Kylo were talking about and this idea that people see stocks basically as an escape plan from, you know, a life of of economic dreariness, which is incredibly depressing.

You know, it's interesting. So like, obviously the origin of this moment we identify as being March 12. And that was a time when people were stuck at home, maybe they're laid off. The other overriding thing, it was like a period of, like, March 2020, it was a period of existential dread. People were really worried. And people worried about death and sickness in the way at that time in a way that nobody was expecting. Like, really, you know, like deep depression, great depression levels of anxiety. Stock market had crashed. People were worried about their unemployment prospects. So it's notable that this sort of enthusiastic

financial nihilism came out of a period of extreme economic uncertainty. Totally. And lots of people just rethinking their lives versus the kind of life that they would like to have. This went to a really depressing place. Shall we leave it there? Yeah, let's leave it there. No, I just thought, you know, the other thing, and obviously is negative, but there are some really interesting positives about this idea of equalization. You know, there's the proliferation of newsletters, the proliferation of quantum computing power that used to be something that only people who had access to a mainframe at a major bank would have. So it's not all bad. And there are some really interesting developments.

As Kyla pointed out, you know, people are like getting deeper and they're like deepening their understanding of financial instruments and they want to learn how monetary policy work and the fundamentals of analysis. So it's not all a negative sign. democratization of finance is a terribly overused and misused term, but I think it might actually apply in this case. The idea that you're getting more people into this realm who are learning about it is somewhat heartening, I guess, as long as they're able to sort of... And I guess the other thing I'll just add is interesting. I think Lily made this point about crypto specifically, which is that in crypto, the chat is the signal. So it's not even a matter of can you get the same information as the pros? It's like if you're there chatting, you have the signals.

You have what the pro wants. And so there is sort of like this inversion of the typical relationship of who has the value. Well, this is the old flows versus pros argument, which is that if you have an asset that is driven purely by flows like a meme stock or a cryptocurrency or a token of some sort, then really the guy who's spending all his time on the internet who's, you know, eyeball deep. in memes and on the Discord chats is going to have a much better handle on that sort of sentiment than someone who's not spending all that time. So yeah, in that respect, it is sort of a reversion of power from Wall Street to Main Street. So it's not all bad. There's some exciting things happening in the aftermath of the memes dog mania. Let's leave it there. This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Allaway.

I'm Joe Wisenthal. You can follow me on Twitter. And follow our guests on Twitter. Lily Franca. She's at Nope. It's Lily and Kyla Scanlan on Twitter at Kyla Scan. Follow our producer, Carmen Rodriguez, at Carmen Arman. Follow the Bloomberg head of podcast Francesca Levy at Francesca Today. And check out all of our podcasts at Bloomberg. On to the handle at podcasts. Thanks for listening.