J.D. DURKIN: Good morning, members, and a very Happy St. Patrick's Day to all of you watching at home. AAP team member STEPHEN "Sarge" Guilfoyle joins me now on this Friday morning to share his take on the markets after a volatile week, to put it lightly. Sarge, good morning. Thank you for being here. And as a reminder to those of you watching at home, Sarge's views may not perfectly always align with Chris Versace's. Keep an eye on your Alerts for what Chris is watching as we enter the final weeks of the quarter.
Now that we're about a week out or so from the first time we heard Silicon Valley Bank and collapse used in the same sentence here, Sarge, what is your read on the situation, as well as the impact on the broader market, more or less one week later?
STEPHEN "SARGE" GUILFOYLE: Well, for the short term, everybody's doing everything the way they should have. The regulators, the Fed, the FDIC, they've all put the band-aids on the wounds to stop the bleeding for now-- sort of. Treasury's doing their part. I just don't know how deep these problems really go now that you bring up those failures, and just how systemic they are, how much they impact other markets like oil.
So I am of the belief we're probably much closer to a recession than most economists are probably willing to admit right now, although a lot are starting to admit it. And I really don't know how aggressive you want to be going into this recession, although you want to play the game. You want to play the environment, provided, I still am much heavier cash than I normally am. And much of that cash is in T-bills. So I'm part of the problem, I guess, because it's not at a bank earning 0%.
So that's pretty much my take. I'm still being aggressive where I think I should be, but more on a short-term basis. I'm still heavy in Nvidia and AMD, stocks like that which I normally have a presence in, and thankfully because those stocks have really saved my portfolio of late. But I don't ever remember being this heavy in cash. I mean, this is-- if I did the math, I'm probably like 60% cash right now.
J.D. DURKIN: Sarge, just a quick follow up there. Are you more confident of a recession given what we've seen in the last week? Or has this more or less been your view for quite some time?
STEPHEN "SARGE" GUILFOYLE: It's been my view for quite some time. I'm the guy that was calling for a recession probably towards the end of Q1 start of Q2 going back for six months. In most of my televised appearances, and this seems to play into that timeline, but I had started to believe I was wrong for maybe a month or two. I started to believe that maybe the soft-landing or no-landing scenarios were quite possible. So this-- I don't want to be right, trust me. I want to be as wrong as possible on this. But it looks like that when they date the start of this recession, when they get around to doing that six months or nine months down the road, it really could be right around this time of year. I'm pretty confident.
J.D. DURKIN: With all the attention-- and thank you for that follow up-- Sarge, with all the attention on the banking sector is there anything else that you're watching that may be kind of getting lost a little bit in the mix, given there are so many other things that we're talking about?
STEPHEN "SARGE" GUILFOYLE: Well, one area I have not reduced, although it's not doing well of late, are my defense contractors. They dominate my industrials right now. General Dynamics, Lockheed Martin, Northrop Grumman. Lockheed and Northrop really haven't done well at all lately. Raytheon Technologies. Those four names are key to my thesis that we're going to have to defend ourselves, or be prepared to defend ourselves from the likes of China and our allies in that region.
We're probably going to have to keep supporting Ukraine in what is really a proxy war for NATO now against Russia, against the Russian Federation. And we'd like to keep it a proxy war, but that's still going to be expensive. We're going to have to resupply US stockpiles because they are severely depleted. I think we might have a hard time taking on two conflicts in two different parts of the world right now if we had to use our own forces to do so. And that play as kind of into Chris's whole infrastructure play thesis. Because I think defense is certainly going to have to be at least as big a part as it has been in government spending if not more moving forward.
J.D. DURKIN: Sarge, taking a look at ahead here. The Fed has quite the cocktail of catalysts, to say the least, to consider heading into next week's FOMC decision. Talk to me about your expectation for the central bank and what you will be watching over the course of the next few days.
STEPHEN "SARGE" GUILFOYLE: All right. I'm kind of in the consensus I think they're going to have to raise the Fed funds rate target by 25 basis points because that's part of their credibility play. I don't think they should at this point. I think they should say, hey, we have-- obviously, we have serious problems here. Not that we think it's the end of the world, but we think it is time to take a pause and to let the economy catch up a little bit. Let's see if there are any other cockroaches in the cupboard that fall out of this banking crisis. And it's probably just a poor time to make any changes to monetary policy.
So I think they would be wise to leave it alone. I don't think they will. I think they want to get the top end of the range to 5% and maybe even 5.25% because inflation is still a problem. But they may have to choose between fighting inflation and staving off some kind of economic catastrophe, which we, I guess, we would choose inflation, but I don't want I don't want either.
J.D. DURKIN: Sarge, we cannot rely simply on luck, even though are 100% Irish, as I just found out. But we could use your expertise certainly in this type of environment. Any advice you can help share from your decades of experience for people that don't have that experience, Sarge?
STEPHEN "SARGE" GUILFOYLE: Yeah, well, stay narrow. Stay thin. Stay within your ability to think straight. Don't get overextended. By no means do anything on a gut feeling. Have a plan. Even if you're wrong, have a plan. I think those folks who saw my Adobe write up yesterday, I suggested a short. But I gave you an out and a panic point. And so right now I just shorted Adobe at $354. It's going up towards $357. I wrote in the piece I'm not willing to lose more than 2% on this position. So when Adobe crosses that threshold, I have to use my calculator cause I'm not bright enough to do it that quick in my head, when I hit a 2% loss, I'll cut my losses in Adobe. I'll say that's enough.
I think you have to have a target price and a panic point as well as add points for every single position that you plan to hold more than a day. If you're not a day trader or a short-term trader, if you are an investor, you need to have these things played out in your head ahead of time. Otherwise, you leave yourself susceptible to emotional decision making, which 39 times out of 40 will fail you.
J.D. DURKIN: On Tuesday, AAP bought some shares of B of A amid the broader banking sector challenges, a name you recently bought and discussed over on Real Money. Was the timing right for long-term investors, you think, for Bank of America?
STEPHEN "SARGE" GUILFOYLE: It's a tough one. It's one of them. Bank of America is one of my core banking holdings. I wrote a note last week, early last week, where I said I was cutting 50% of my banking holdings across the board. Doug Cash wrote a note the same day, saying he was cutting his banks completely. Both of us turned out to be 2 days ahead of what came after. He was smarter than I in selling it all. I hung on to half of my positions in these stocks.
Bank of America and Wells Fargo, I held on to these two because I consider them more to be traditional bankers more so than investment bankers or traders, although B of A does that. But they're not Goldman-Sachs. They're not Morgan Stanleys. So if the net interest margin were to prove to be a profitable item, these two would probably come out on top. And they're both domestic, which I like.
However, as we know, every bank, in order to retain their deposits, is going to have to start paying consumers and businesses a reasonable interest rate on their deposits. So the net interest margin game is not going to be a good game probably for quite some time. They're all probably under some water in their bond portfolios, although what we saw at with SIBB was an extreme example. They're probably better diversified and they have more risk management in place at most of these larger shops, and even a lot of the smaller shops, too. SIBB was just careless or inexperienced.
So yes, if you have to be in banks, my picks right now are Wells Fargo and Bank of America. And I have a core holding in each, which is half the size it was a week and a half ago. And I will trade around the core in both of those. I just, I'm uncomfortable going down to no exposure to the banking space, although I don't see a lot of-- I don't have a lot of optimism for the space, especially with what's going on with Credit Suisse in Europe.
Let's face it, a lot of Americans don't know about Credit Suisse. Credit Suisse is a systemically important bank in Europe, and they have a pretty large US operation as well, so this does matter. And this matters a lot, as a matter of fact. Credit Suisse could take down a chunk of the global economy if they don't unwind properly.
J.D. DURKIN: Much-needed context. I wonder, are there any other stocks that stand out to you, even if they're not actively in the portfolio? Any other names that you like, Sarge?
STEPHEN "SARGE" GUILFOYLE: I like Dollar Tree right now as a retailer. I'm in the stock. I'm down small. It's where I think consumers are going to go as we go into a tougher economic period. I'm recently back in Meta, which I'm-- not back in. I played it through the options before. I've never been long the equity before.
I've never been a fan of Meta for their poor management, really, and because I don't really like Zuckerberg all that much. But the stock is technically right. They just passed a pivot point of mine, which I'm trying to look right here and see what it's doing today. The pivot was $197. I bought the shares at $198. It's trading at $199, a little higher yesterday. So this one's-- I'm not claiming victory on this one now, but it has moved past a technical pivot point, where I think Meta is going to be quite all right.
Microsoft has become something of a safe haven. I've mentioned the semis, AMD and Nvidia are my favorites. I'm not crazy about software. I told you I had shorted some Adobe. I am long some Salesforce. I still don't think I should be getting out of the cybersecurity stocks. The longs there are Palo Alto, SentinelOne and Crowdstrike. That I think is almost as important, cybersecurity probably is maybe the most important area in software and as far as tech goes. It's right up there with artificial intelligence and the data center.
J.D. DURKIN: A great conversation for wonderful context. That's going to do it for the week. Thank you so much for taking the time to join me here, Sarge. Happy St. Patrick's Day to you, and I can't help but notice what I believe is a Ulysses S. Grant book over your shoulder. The first president to ever visit Ireland, though was after his term in office if I'm not mistaken.
STEPHEN "SARGE" GUILFOYLE: Yeah, and he was also with the fighting 69th. The New York Fighting 69th is a very famous New York National Guard unit. They were part of the Army of the Potomac that served under Ulysses S. Grant during the Civil War and have been continuously in service to the US Army ever since. And I served for three years in that unit, so it's a big day for the Irish. It's a big day for the Fighting 69th.
J.D. DURKIN: And thank you for your service as always, Sarge. And thank you for being here and thank you for the context. You and I could chop it up and talk history any time we want to slightly step away from equities or the bond market and talk a little political history. I'm a big fan of it. Sarge, thanks a lot. Enjoy the holiday. Members, those of you watching at home, Chris Versace and I will be back on Monday to get ready for a very busy week. Don't forget it's Fed day next week. Have a great weekend. Have a great St. Patrick's Day and we'll see you Monday.