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Inflation data was good yesterday. Again, regarding the numbers: if you dig deeper, I mean really delve into them, I wouldn't put too much weight on them. They have some stability month over month, but in terms of the metrics themselves, I think Kevin Warsh is right when he says: let's see how it all adds up, what they react to, and how you weigh and balance them.
I wouldn't be a buyer, and part of the reason is interest rates: even if inflation were 2%, a 10- year bond would probably be at 4.5%, or between 4% and 4.5%. And the short-term rate should be, you know, 3.25% or 3.5%. And today they are almost at that level. So I don't understand what the benefit is here, even if you think inflation will fall to 2%, and by the way, it has been above 3% for almost 5 years.
And, you know, it recently jumped to four because of lower fuel prices. It may well go down a bit, but as an economic historian, I can't get out of my head what happened after the Great Recession of '74 . Deficits were smaller, because the Vietnam War was over, the era of "guns for butter" was over.
And it grew, you know, from 3.5% to 5%, to 7%, to 9%, to 11%, yes. You could say that oil is a big component. There was the oil crisis in 1973, and then in 1980. Yes, that's true. You know , trade unions were more influential back then. All these reasons, but it did not stop inflation. This is Wilfred Frost speaking with JP Morgan CEO Jamie Dimon on his Master Investor podcast.
The full episode, by the way, will be released on Tuesday. The episode will last about an hour. But Wilfred is with us now at post # 9. We were lucky to discuss this. He is also a Sky News presenter, CNBC contributor and our long-time partner. We missed you. We are so happy you are back. Thanks for the invite, guys.
Honestly, I always feel like I'm coming home. So, you talked to Jamie Dimon. That's right. And what are your conclusions? That topic, that phrase, said last week after the report—that it couldn't get any better , these stunning profits. I think he applied it to the stock market in general. Perhaps there is a bullish signal for Micron.
Um, what do you think, Joe? What's your deal here? Example of a Micron deal. Yeah, you know, that brings us back to the question of whether we've hit rock bottom. And in my opinion, I think there 's a strong possibility, at least in the short term, that we've seen a short-term bottom. That doesn't mean we ca n't break through it.
And this does not mean that expected volatility has decreased significantly. It is still at the 75th percentile in terms of the current expected volatility rank. So there are a lot of premiums to sell here if you are willing to take that step. And as I said, it probably makes sense for me to keep these positions small because of these sharp fluctuations.
I mean, look, earlier today we were up 4%, and now we're down 4.5–5%. This is 10% of the movement up and down. So these are markets with sharp fluctuations, especially for a memory chip manufacturer. So I was looking at the option for a few weeks ahead. This is the August expiration, the 21st , for your regular monthly expiration.
This is a vertical put spread of 730/720. So, look at the sale to get a credit of about $270. I just checked. You can probably get a little more, maybe around $3. But at the same time, when you sell a put spread, remember that the risk is limited, and the credit you receive is the maximum you can earn, which is $270.
The risk is the difference between the two strikes minus this credit. So that's about $730. So just keep that in mind when considering the risk-reward ratio. But, in essence, you are providing yourself with a pretty good margin from the current price. The only thing I will say is that with the kind of price volatility we've seen, stocks can move that much in a day or two.
We've seen this, and I think that's why expected volatility remains high. Yes. Joe, let's break this down because I was just looking at your trade: you can follow the directional trend without being too aggressive, and that's what Joe's trade suggests. This is a bullish sentiment, right? But this is a neutral-bullish sentiment, right?
This gives you a higher probability of success. The 730 strike put option that you sell on the August 21st monthly options with an expiration in 3 weeks—the value of these “ out of the money” 730 strike put options is approximately $32.50 per option, which is $100 “out of the money” below the current stock price.
So, price discovery is probably justified, as is retaining some risk. But when you have a stock worth $830, using the options market to limit your risk is a good idea, given the volatility and beta of these stocks, as well as their ability to move quickly. Micron's beta is over two, right? The beta coefficient of the S&P 500 is generally equal to one.
So, in percentage terms, it trades twice as actively during a percentage move. So keep that in mind when considering these names, but let's break down Joe's deal. Monthly option on August 21: sell put option 730, buy put option 720, short $10 neutral -bullish put spread with credit of 2.70. So you have about $730 at risk, but you want a high probability that the 730 strike will remain “out of the money” at expiration, right?
This is approximately a 67% probability that the option will expire " out of the money". So, the stock goes up—you make a profit. The stock stays in place—you make a profit. The stock falls but remains above the breakeven point of 727.30, you will still be in the black with this type of trade. The idea is to let them depreciate, right?
It remains above $730. But I think one of the key points is the defined risk. You know exactly what your risk is or what the downsides are in this position. Joe, I also chose defined risk, but a little more aggressive in my example deal for Micron. I used the same weekly cycle until August 21st. They won't have any earnings reports for another couple of months.
So you don't need to worry about the risks associated with earnings reports. And I considered an unbalanced put- butterfly, where I can offset some of the costs. Nvidia's next move may surprise everyone. Wall Street has been asking the same question for the past few weeks . Is the AI investment boom finally losing steam?
Nvidia shares have been acting aggressively, and the chipmaker has been showing volatile swings . Even Nvidia, despite reporting strong business results, struggled to maintain its growth. At first glance, it seemed that investors were preparing for the end of the AI cycle. But if you look beyond the news headlines, a completely different picture emerges.
Companies that are actually spending hundreds of millions of dollars on artificial intelligence are not slowing down. They are accelerating. Amazon recently increased spending on AI infrastructure again. Management acknowledged that even after increasing capital investment plans, they still don't have enough capacity to meet customer demand for the next few years.
Microsoft has demonstrated another quarter of accelerated growth in cloud services, continuing to implement large-scale investment plans in the field of AI. Alphabet remains committed to expanding its data centers, and Meta continues to invest aggressively, despite concerns about rising costs. If demand for AI weakened, compete to build faster, and that's still important.
The demand is not going away. The offer is still barely keeping up with him. So why have semiconductor stocks become so volatile? was not a collapse of fundamentals. It was a reset of positions. For the past few years, traders have been investing in the same AI assets using significant leverage. When the sale began, forced liquidation quickly followed .
Margin requirements triggered new selling, and momentum funds reduced their positions. And quality companies were dragged down along with the others, regardless of their individual performance. And this is not at all the same as a sudden weakening of business. The story with underlying demand has hardly changed.
Memory manufacturers remain a great example. Companies like Micron and SK Hynix continue to negotiate long-term customer agreements, strong pricing, and limited production capacity . Customers are still booking shipments years in advance as demand for advanced memory is essential for AI training and inference.
The construction of new production facilities does not happen overnight. Creating advanced memory capabilities requires huge investments, specialized equipment, and years of construction. Even if competitors announce expansion plans today, significant production may not begin until several years later.
And until then, the supply will remain limited. Another discussion currently taking shape concerns funding. AI infrastructure requires staggering amounts of capital. As interest rates remain high, financing these projects becomes more expensive. Some investors worry that higher borrowing costs could ultimately slow the expansion of AI.
This is a completely justified concern. But there is another side to this argument. The largest cloud providers are starting to show measurable results from their investments in AI. The cloud business continues to grow, and profitability remains at a healthy level. Cash generation improves, and these profits give companies more flexibility to fund future expansion internally rather than relying entirely on external capital.
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