Yahoo Finances Brian Sozzi, Julie Hyman, and Myles Udland break down todays market action and outlook with Julian Emanuel, BTIG Managing Director & Chief Equity Derivatives Strategist.
MYLES UDLAND: Let's talk a bit more about everything that's going on in the markets right now. Let's bring in Julian Emanuel. He's the managing director and the head of equity and derivatives strategy over at BTIG. Julian, it's great to speak with you. I'd love to just start the conversation. We were chatting very briefly before we came on the air about the meme stocks, the YOLO trades, everything happening in the market. How are you thinking about these dynamics which are so unique and have come into the market seemingly overnight?
JULIAN EMANUEL: Well, it actually hasn't come in overnight, Myles. If you look back-- in fact, this was an appearance that we made at the end of 2019 on Yahoo Finance where I had a conversation with Charles Schwab himself in the green room, and we were basically talking about-- they had announced a week earlier-- the start of zero fee online trading, and that conversation just galvanized our thought process to the fact that this bull market, which is essentially been going on since 2009, was one that the public has never really been enthusiastic about.
All of a sudden, you have zero fee online trading. The public begins to get interested in stocks in January and February of 2020. We all know what happened after that. But incredibly enough, the public came back stronger than ever in the summer of 2020. And in an environment where there's the kind of liquidity that there is, when people ostensibly have more time on their hands, and the interest in asset diversification and investing in a world where yields aren't very attractive, just something that has continued to proliferate.
And from our point of view, when you look at the evolution of bull markets, the fact that we're in a much more speculative stage right now, I wouldn't yet call it any sort of mania. Could we get there? We could. But the fact is that the public has taken a lot of knocks in terms, especially new investors, and has come back stronger each time, and we're seeing it again this week in the cannabis space. It's really a testament to the resilience and the stick-to-itiveness of this new generation of investor.
JULIE HYMAN: I well remember your Charles Schwab encounter, you talking about it, and how excited you were about that, Julian. So I'm glad that you got some sort of actionable insight out of that as well besides just being psyched to meet him. Julian, you know, there seems to be this sort of attitude on the part of most people we talk to that these retail investors are going to get burned, that all of this is going to end badly, but what you're talking about, this sort of stick-to-itiveness and people still coming into these trades suggests maybe it won't end that way? I mean, is there an alternative ending to all of this?
JULIAN EMANUEL: Over the long term, it is likely to be a very significant net positive because, again, this generation of new investors has been under-invested as a percentage of assets. That's a research that's very well known. In the medium term, there's no question about the fact that we are setting up for the potential for this kind of extreme speculation to become more intense, such as what we saw in 1999 and 2000.
And, obviously, that ended badly for several years, but then we think about it and the NASDAQ-100 topped at 4,800 in March of 2000, and here we are 13,014, 14,000. And so, really, what it does is likely going to be at some point a learning experience with regard to the idea of short term trading, but a more retainable experience on the benefits of long term investing.
BRIAN SOZZI: Julian, look, just given the flow that we've seen into equities that have pushed the Dow to record highs here, comparing that, let's compare that to Bitcoin. Just given how everybody is now invested in the market, would you make the case that Bitcoin is under-invested in? And then, by extension, is it undervalued even though we've seen prices really go through the roof the past month?
JULIAN EMANUEL: Well, look, Bitcoin and blockchain itself, and obviously all the other cryptocurrencies, are in what we would call the price discovery phase. It is essentially a new technology, a new way of looking at the world. And from our point of view, again, we think about it in terms of it's a 70 volatility asset, very, very volatile.
When we launched coverage of cryptocurrencies in late November, Bitcoin was at 18,000. We had a $50,000 year end 2021 price target. People thought we were quite aggressive. The same people are now telling us that we're probably not aggressive enough with this price target.
So the truth lies somewhere in the middle in all likelihood, but when you think about all the incremental buyers coming in, the interest that's building, and, on the other hand, the likelihood that the government is going to begin to look at cryptocurrency more carefully from a regulatory aspect, the long term picture looks very, very sound, and we do think that it is a secular bull market, but there are always pullbacks in secular bull markets.
BRIAN SOZZI: Julian, what's your current price target on Bitcoin? Are you looking to raise it?
JULIAN EMANUEL: We think at the moment, frankly, when you think about the news of the incremental very large buyer that we saw at the beginning of the week, that that type of news was something that the market probably was aware of when the chatter started on social media a month or a month and a half ago.
And so from my point of view, again, similar to what we felt in January when Bitcoin first traded over 40,000, we think the market has come a very long way very quickly. So we're going to watch. We think, actually, it's one of these times where a bit of sideways activity is likely to be healthy in preparation for another leg higher.
JULIE HYMAN: And Julian, you can't say it for compliance reasons, but I can. You're talking about Tesla, of course, when you're talking about that big buyer. In addition to looking at all of these assets on the face of it. You're a derivatives guy, too. So you look at the options market. We have seen also it hasn't just been action and straight up equities.
We have seen a lot of action through options at this time. Does that limit retail investors' downside? And how then does this big surge in options activity, how does that play out through the market?
JULIAN EMANUEL: So it actually does limit retail investors' downside because if you buy a put or you buy a call, it is by definition limited risk, theoretically unlimited reward. But what it does potentially do is, because of that profile, encourage the average investor, certainly if they've had a degree of success, which many of them had the last several months, to trade more than they might otherwise normally.
So the structure itself limits potential losses, but because of all the trading activity-- and the call volumes have been absolutely breathtaking. There's no other way of thinking about it, and option prices themselves, particularly on a lot of these meme stocks, have become very expensive because the volatility started moving. So you really have to think about it in a more balanced perspective.
What we would say is, as an investor just pick your spots carefully, understand what you're doing, and hopefully think about the risk reward aspect of it, and let the market work for you, and know that you have limited risk to the downside in those kinds of structures.
MYLES UDLAND: You know, Julian, before we let you go, is this the most interesting market that you've seen in your career? Because I'm just thinking about the arc of this conversation. I mean, this is, like, this is fascinating stuff that we're discussing here that's very different than what the textbook kind of suggests financial markets are like.
JULIAN EMANUEL: So I've been doing this quite a while. I was a proprietary trader in 1999 and 2000. And, frankly, I thought that I had seen it all at that point, but there's no question about the fact that the last year and in particular the last three or four months have been absolutely fascinating, and the benefits of living in the same house with a 23-year-old and a 20-year-old who are actively engaged in social media and investing themselves have been incalculable in my ability to understand it.
MYLES UDLAND: There you go. That is some good old-fashioned sector level channel checking going on there in the Emanuel household. All right. Julian Emanuel, always great to get your thoughts, chief equity and derivatives strategist over at BTIG. I know we'll talk soon.
JULIAN EMANUEL: Thank you.
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