JD DURKIN: And a very good Friday morning members, one and all. AAP team member Stephen 'Sarge' Guilfoyle joins me now on this Friday morning to help break down everything you need to know as earnings season officially kicks off. As always, a reminder to those of you at home that Sarge's views may not perfectly line up with Chris Versace's. Head on over to your Alerts for Chris's take on Lockheed Martin as well as what today's bank earnings mean for the club's position in a name like B of A. Sarge, good morning. Thanks for being here.

STEPHEN SARGE GUILFOYLE: Good morning. Thanks for having me.

JD DURKIN: So, of course, we heard from JPM. We got earnings from Citigroup, Wells Fargo just to name a few. What are some of your top takeaways as we try and figure out what the banks have to say to kick off earnings, Sarge?

STEPHEN SARGE GUILFOYLE: Well, I guess I'm pleasantly surprised. I'm long Wells Fargo. I'm long Bank of America. I'm even long a little KeyCorp. I'm impressed with the CET ratios. I'm impressed with the return on equity with the return on tangible equity, common tangible equity. Revenues are good. Certain spots here and they're, not so good. But I'm impressed with the trading. I'm even impressed with some of the investment banking, which I didn't expect anything from that quarter this time around. Of course, we got a couple of names to report next week.

But from what we see so far, even from P&C Bank, which is regional, deposits really aren't down all that much from the banks that we have heard from. Of course, I didn't look at Citigroup yet. So I can't speak for them.

JD DURKIN: Yeah. That's right. We did see PNC shares at least popping in premarket off of that big jump in profit. You didn't mention there are a few things that maybe don't look as good to you. Are you able to quickly go through some of those highlights?

STEPHEN SARGE GUILFOYLE: I didn't hear the calls yet. But from what they wrote, Charlie Scharf over at Wells and Jamie Dimon at JP, they're both obviously cautious, which is the right way to be. They both see potential for-- I don't think the word recession was used in Charlie's case at all. But they both see probable slowdowns, probable tightening credit conditions, lending conditions. I think they're treading very lightly right now even though their numbers are quite robust. And I don't think anybody expected either one of them to beat like they have. But I think that they're grateful for the quarter they had. They're not exactly frightened moving forward. But they're certainly moving forward tentatively.

JD DURKIN: To take a step back and look at earnings season more broadly, anything in particular on your radar as we head into the weekend? And we'll be able to come out the other side on Monday with more earnings names. What will you be following?

STEPHEN SARGE GUILFOYLE: Well, I don't think what we see today or what we see with the banks really has that much of an impact on the rest of the season. A lot of people say it sets the tone for the season. I don't see it that way. I think that the season is going to be a little bit tough. I think tech, which is one of my core areas-- I think tech is probably going to see the toughest road in the way of numbers in terms of performance for the quarter past. But as always with tech, with guys like Jensen Huang and Lisa Su, to name a couple of CEOs in the semiconductor space, it's more about how they project. It's more about how they set up their futures.

I mean, Jensen Huang pretty much got past the last earnings season for NVIDIA by talking about artificial intelligence. And NVIDIA, which was already overvalued, which I'm grateful for because I'm long the stock, which was already overvalued at that time has really had a tremendous run since. So for some of these groups, these growth groups, especially, which probably are going to have a really tough quarter, it's really a game of setting up investor sentiment or psyche as they move into that. And that's what I'll be focused on.

JD DURKIN: Of course, outside of bank earnings, this week we did get CPI, PPI. We got retail sales data as well, Sarge. That's just earlier today. Putting on your economist's hat, how are things looking when you take into consideration all of those data points? And what do you think that means for the markets?

STEPHEN SARGE GUILFOYLE: Well, I mean, retail sales were quite awful this morning. The PPI was frigid cold. CPI was cooler at the headline. We know that's going to warm up again in April because gasoline prices have gone back up and oil prices have gone back up. The core didn't really cool as much as we would have liked for CPI. Is PPI a harbinger for CPI? It can be.

A slowing PPI could also be a harbinger for recession as we are starting to see a slight or mild-- I mean, it's not slight if it's you, if you're the guy or gal that got nailed. But we're starting to see a slight deterioration in labor markets. Initial jobless claims are up. Continuing claims are at more than one-year highs. Wage growth, as we saw last week, is not even close to keeping up with the rate of inflation even though the rate of inflation is coming in.

And we see the job creation that is there at the very lowest rungs of the income ladder. It's those without a high school degree that are actually making the most gains in this economy right now. So we're starting to see the beginnings of what I think is going to be a recession. I've been calling for one for a while. So that's nothing new to my followers or my readers. But this is the time frame, I actually saw us hitting recession right around now. Late Q1 or early Q2. Maybe I guess delayed towards the later part of the year.

That's what Fed economists are telling you now, although a number of Fed officials apparently don't read their own work, such as John Williams, who will tell you that-- he'll tell you that credit conditions, financial conditions aren't even tightening when the Chicago Fed has a chart that they put on their website that tells you that especially in March, but for 2023, credit conditions are tightened. So, I mean, for a guy like-- I'm going to slam dunk this guy here because for a guy like New York Fed John Williams, who has such an important position in this economy, to not do his darned homework just pisses me the hell off.

JD DURKIN: Yeah. And he is a--


JD DURKIN: --committee member, a voting member at that as well. Please don't apologize, Sarge. This is what we do this for. We want these takes.

STEPHEN SARGE GUILFOYLE: Well, it's unacceptable.

JD DURKIN: We want our members to be well-informed investors.

STEPHEN SARGE GUILFOYLE: It's unacceptable. It's unacceptable for the head of the New York Fed to not do his homework. It's unacceptable for the head of the San Francisco Fed to even have an opinion after not watching over the banks in her own sector. Right now, I'm kind of thinking like a dove even though I'm usually a hawk. Right now, I'm thinking like a dove. And Loretta Mester, who I've always respected, she's a real hawkish member of the Fed. She's the president of the Cleveland Fed. I disagree with her right now.

But I know she does her homework. I know she has reason and thought behind everything she says. So for someone like that who I'm disagreeing with right now, I respect like crazy. No problem whatsoever. But for those that come on with unprepared or after not watching over what they were supposed to watch over, I have no tolerance for it.

JD DURKIN: Yeah. Daly and Mester are alternate members of the FOMC this year. But, of course, when any Fed head speaks, we closely pay attention. And those takes like that, Sarge, are very much welcome. To the point about the Fed, we know their expectation I think for the end of the year is for the Federal funds rate to go up to 5.1. I think that's still the last guidance. 5.1. But give me your expectation about a obligatory Fed pivot question. When does it happen? Does it happen? What does it look like?

STEPHEN SARGE GUILFOYLE: I believe that they will go another 25 basis points on the May 3 meeting. That's consensus. That's nothing new to anyone. I think they need to pause then. I actually think they needed a pause a couple of months ago. But I think they need to pause then and let, as Austan Goolsbee has been saying-- who's the guy I have not agreed with in the past, but he certainly seems a little more sentient than a lot of his colleagues right now. He says it's time to let the economy play catch up to policy to see where policy really is. Maybe policy isn't right. But we have no way of knowing if we don't allow the economy to catch up. We know the economy is weakening in a lot of spots.

Industrial production I think came out all right. But everything else this week and last week was largely really terrible. And, I mean, I know the Atlanta Fed I think last was tracking Q1 at 2.2% growth. That's probably going to come down a little after today's retail sales. But I think that's optimistic. The Fed themselves, you said they see a 5.1% Fed funds rate at the end of the year. They also see, what, like a 0.4% GDP at the end of the year?

JD DURKIN: 4/10. Yeah.

STEPHEN SARGE GUILFOYLE: Does that makes any sense to you to keep the rate there if your own dot plot is barely showing any growth and your staff economists are telling you that you're going to be in overt recession probably by the ninth month of the year? I don't think you're going to keep the Fed funds rate there unless you really do have a mandate to correct what you see as a demand caused more elevated than normal inflation and you don't see harming the labor market as a factor because this 3.5% unemployment rate is far better than anyone ever thought we'd see in our lifetimes.

They used to say 5% was full employment. So these guys could get a lot of people laid off and still be where they feel at one time was full employment. So maybe they don't feel it's on them. Maybe they feel like they just have to fight inflation and if they keep unemployment under 5%, well, then they're satisfying both sides of their mandate. Who knows with these guys right now? I'm pretty disappointed in their overall performance.

JD DURKIN: You're not the only person to ask what's going on with these guys, for sure. Latest Atlanta Fed estimate is at 2.2. And you're right. Fed official projections we got from the FOMC minutes indicate GDP in their estimations up only 4/10 of a percent, rebounding up then to 1.2% in the estimation of Fed officials for 2024. That remains to be seen. Sarge, this is a wonderful conversation. I could do this with you all day. But I only have time for one more. Anything else on your mind that you would have wanted me to ask you about because you're scorching with the hot takes today, my man. I don't want to be in your way.

STEPHEN SARGE GUILFOYLE: Right now, we rode a pretty nice wave. I'm still elevated in my cash positions because, hey, like I told you last time, I think last time you could get 3 and 1/2%, 4%. Right now, you're getting almost 5% for your cash. So you're kind of crazy to not tie up cash for 90 days to get 5% back, 5% yield rather, with no risk unless, of course-- you know what? The US government is a risk right now.

So I take that back. There is some risk with the debt ceiling. But I see it as almost riskless income. So I think a certain percentage of your portfolio needs to be tied up that way. I'm keeping my positions narrow. As my readers know, I always have a target price and a panic point. And I'm well disciplined with those. But I'm keeping positions narrow. I'm taking profits on good days. I'm adding on exceptionally poor days, which come once in a while.

But I am really concerned with the whole-- we do this thing every year. Sell in May and go away and come back in September or October. We do this every year. And I think this year it might really matter. So I really think those who are overexposed or not underexposed might want to look at their books ahead of May-- so we're talking about within a couple of weeks-- and see if there's anything they'd like to take profits on now because I do see a little bit of a tougher path, especially with earnings, especially with economic growth moving forward.

Of course, if the Fed pivots, the market will probably pop tremendously on that news. But it may have already done that just on the hopes for a pause. So I don't know. If the Fed does pivot at all, it would be to a pause, not to a cut. So we don't want to get too excited. Sell ahead of May might be a real thing this year.

JD DURKIN: Sell ahead of May. Go away. Wait until September, October when, traditionally, a lot of these indexes and big names underperform in the months in between. We will see. Sarge, outstanding conversation. Happy Friday to you, my friend. Enjoy your weekend. Thank you for the scorching hot takes. We'll do it again soon.


JD DURKIN: You got it. Members, those of you watching at home, don't forget. Chris Versace and I will be back on Monday morning to get ready for a busy week ahead. Have a great weekend. We'll see you then.