Benn Eifert On The Mania That Was Even Bigger Than Meme Stocks

Tracy Alloway (0:09)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, there's been a lot of crazy stuff that's happened over the past couple years.

Joe Weisenthal (0:21)

Oh, you think, I don't know. What makes you say that?

Tracy Alloway (0:24)

Well, okay, the most-

Joe Weisenthal (0:26)

Besides literally everything.

Tracy Alloway (0:27)

Besides everything.

The most remarkable thing is, when I think about this year and the bottom falling out of a whole bunch of stuff, is that this is exactly what everyone, or what a lot of people said would happen, right? People looked at tech stocks, people looked at crypto, and they said, this looks unsustainable. It looks like a bubble, or it looks like a mania. Why in the world are people buying this stuff?

Joe Weisenthal (0:54)

Well, you know, it's funny thinking back to the top of the meme market in early 2021, and people are like, this has gotta be the top, right? So GameStop, and it turned out to be exactly the top, and that never happens. But I guess if you say, this has gotta be the top enough, then eventually it will be. But if you look at some of those measures, Morgan Stanley puts together this great chart of the cumulative P&L of Robinhood traders since the start of the pandemic, and it basically peaked right in February 2021, and then it's been downhill ever since. So it really was the top.

Tracy Alloway (1:27)

Right, I think retail investors basically erased any gains that they made from 2020 to 2022 So looking back, with the benefit of hindsight, it seems inevitable that all of this would turn out this way, but as we were describing, there are still people who jump into these things, right?

Joe Weisenthal (1:46)

Totally, in the grand scheme of things, it's like people always joke like hindsight is 2020, but I've never actually believed that's true, and we know that's not true because we look at history all the time and dispute what actually happened, right? And so there's never actually any agreement.

Nonetheless, with this sort of like cycle, having played out of all these people on during the market, getting excited about some of the craziest stuff there is, everyone calling it a top, and then a downturn, it's probably not too early to start asking the question, like what did we learn the last two years about how markets work?

Tracy Alloway (2:17)

Yeah, I think that's right. And obviously some stuff is still shaking out, but I think we have enough here to at least do a review of everything that we've seen over the past couple of years and how investors can avoid some of the mistakes they may have made in that period.

Joe Weisenthal (2:33)

It's time to start learning.

Tracy Alloway (2:34)

Yes, okay, the learning hour on Odd Lots. Well, I'm pleased to say we have the perfect person to discuss this. We're gonna be speaking with Benn Eifrt, who has been on the podcast a number of times talking about retail investing, talking about derivatives, the impact of retail getting into derivatives on the market. He is of course a managing partner at QVR Advisors, which is a boutique hedge fund that specializes in volatility derivatives. So, Benn, thank you so much for coming back on Odd Lots.

Benn Eifert (3:05)

Tracy, Joe, it's so nice to be back. I missed you guys.

Joe Weisenthal (3:08)

It's been way too long.

Tracy Alloway (3:09)

So, maybe to begin with, there are so many crazy things we could start with, but what do you think was the craziest thing that you saw on the market over the past couple of years? Was there a moment where you were just like, I cannot believe this is happening?

Benn Eifert (3:25)

The absolute, that's a, the craziest moment of the last few years is a really, really, really tall order, right? I would say, actually, I found the sizes of the unsecured loans that very large, and you might have thought sophisticated investors in credit organizations were giving to 3 Arrows Capital, two and a half billion dollars from Genesis alone with like no collateral, right? I mean, you come into this just thinking, look, these are big boys.

These are wealthy people who've created a tremendous amount of money, and they wouldn't just do completely, obviously crazy stuff like that, right? And then it turns out that the answer is no, of course they do.

Joe Weisenthal (4:08)

Well, that's such a great answer, and I'm glad you said that because obviously we did this intro and we talked about like, oh, the retail craziness and people buying AMC in GameStop on Robinhood, but of course you're right. Like, actually, these were pros. These were people who are like very successful and essentially like building an industry and lending billions of dollars unsecured to a crypto hedge fund that we know in retrospect was not doing anything particularly sophisticated.