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‘Bond market is telling you the growth story isn’t quite there’: Sarge986 LLC President

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Stephen Guilfoyle, Sarge986 LLC President, joins Yahoo Finance to discuss the market’s come back, Delta variant concerns, and earnings season outlook.

Video Transcript

ALEXIS CHRISTOFOROUS: I want to bring in Stephen Guilfoyle now. He is president of Sarge986 LLC. Sarge, always good to see you on the program. So yesterday was an ugly sell-off, but you point out there wasn't any sign of panic. What do you make of this bounce-back today, and do you think that it has any legs?

STEPHEN GUILFOYLE: It'll have legs, Alexis, if the fiscal story plays out this week the way a lot of people-- the way a lot of people are hoping. I kind of-- I'm a little afraid to trust this much of a bounce-back, but, I mean, I'll take it where I can. If we can close above the lows on Friday, I think we're back in a sideways type pattern, which we've been in since early July.

KRISTIN MYERS: So then, Sarge, do you at all see any possibility that yesterday's action in that sell-off could actually be the beginning of a trend at all, especially if some of that data doesn't, you know, meet expectations?

STEPHEN GUILFOYLE: I certainly think that's possible, sure. I've gone to a slightly higher cash level of late. I think we are past peak growth. Fortunately, I think we're past peak inflation as well. I do think it is going to be transitory, but we still have a lot of uncertainty as far as monetary policy, as far as fiscal policy, like I said. We really have to watch those capital flows. The one thing with all this-- the fiscal story is, bizarrely, all the liquidity it created ends up compressing the yield curve, which I really in my wildest dreams had always thought that with the large supplies of sovereign debt on the market that interest rates would probably go higher at the long end. And that's-- right now, that's proving not true.

ALEXIS CHRISTOFOROUS: Yeah. I want to talk to you a little bit more about the activity we're seeing in the bond market, Sarge, because I think it is puzzling a lot of, you know, veteran traders out there. What do you think bond traders are seeing that perhaps the rest of the market isn't seeing? I mean, why do we have the yield on the 10-year sitting at around 1.2% right now given the backdrop that we have of rising inflation, of uncertainty with the fed, of an economic recovery that could be tripped up by new COVID cases?

STEPHEN GUILFOYLE: Well, part of that is foreign money coming in. We know there's a lot of foreign participation in the Treasury markets right now, more so than there had been for maybe a few years towards the end of the Trump administration. However, the growth story-- the bond market is telling you that the growth story isn't quite there, not the way it has been, not the way we had projected. It's telling us there's probably going to be a little bit of a storm here, unless they create it through policy. And that's not really organic. So I don't really know how much I like that. Either that or they're telling you the inflation story isn't there. Probably a little bit of both.

KRISTIN MYERS: So I do want to ask, you know, just about the Delta variant in some of these cases. Last year, we were asking so many questions about the pandemic and how much it was going to weigh on markets, if it was going to be a huge headwind. And, of course, that didn't pan out and really play out too much at all. However, especially after yesterday's action, do you think that we could see news about the Delta variant, about more and more folks getting-- coming down with coronavirus, the unvaccinated folks, the spikes that we're seeing around the country-- do you think that could play, this time around, into the equity story and into the equity picture going forward as a headwind really?

STEPHEN GUILFOYLE: Oh, certainly. Certainly that's a weight upon expectations. I mean, if governments had to lock down again, if people become afraid to go to work again, if human interaction has to slow down-- maybe not nationally, but globally and certainly with our own nation regionally-- well, that's going to weigh down everything from supply chains to the velocity of money. And velocity of money, as we know, has been very poor for a number of years. So, yeah, I'm actually quite concerned with this Delta variant, because I see it in my own neighborhood. I see people don't take it seriously, especially people who have not been impacted themselves-- or family members-- by this virus. So, yeah, I think that's-- I think the lack of respect for the virus that individuals are showing is going to exacerbate the problem. I mean, I know this shouldn't be political, and I should only be financial, but I can't for the life of me imagine why someone would not get a vaccine.

ALEXIS CHRISTOFOROUS: Yeah. That's for a whole other show there, Sarge, but I want to get to--

[LAUGHING]

--what you're doing with your portfolio right now. We are in the middle of earnings season. We've got Netflix and Chipotle out after the bell. Let's start there. Are these stocks in your portfolio right now?

STEPHEN GUILFOYLE: I have a barefoot spread on right now in Netflix, and I've sold some puts down lower. So I'm not in Chipotle right now, but I am geared for a somewhat bearish response tonight to Netflix. If I don't get it, I'll lose a little money. It's under control. If I get the bearish response, I've also set it up so I won't make a ton of money. I'll profit a little. I've set it up so if it goes down 50 points, I'll make 10, something like that. So I-- so I've capped my profits to the downside in order to control my risk to the upside, so to say.

This for the portfolio, you asked that question, sure. A lot of guys call it the barbell. I call it diversified, because I'm older. I'm still in tech. I like-- tech is still my favorite sector. I still like a lot of the software names. I still like the semiconductor names. I do believe they're going to have pricing power moving forward. But, yet, I still like a lot of the industrials as well as some of the financials and the materials. Yes, the materials, even though they've been getting pounded.

KRISTIN MYERS: I do want to ask if you have any specifics for us, Sarge, if you're looking at any companies right now or any stocks that might be really good places for some opportunity.

STEPHEN GUILFOYLE: Sure. I've been-- really, let's take those materials. I've been buying Alcoa, Freeport-McMoRan, and Southern Copper on the way in. I loaded up on KeyBank last night, so that's-- that one, so far so good. I also like SoFi because-- not that it's doing well, but because I like the CEO, Anthony Noto. I am a guy who invests in CEOs.

As far as industrials, I think Ford is cheap here. I think the recall made it a little bit cheaper. I do like GE and Honeywell. For defense names, I like Kratos. And I also like Palantir, which is actually a software name, but they're also involved in defense. I think everybody needs Apple. I think everybody needs Amazon.

I think AMD is an elite semiconductor maker. I like Nvidia. I'm out of Nvidia right now. I'm-- just a lucky mistake I made early last week. I sold these shares, all of them, when I meant to just lighten up on the position, and I got out of all of them. And thank goodness, because it went down almost 100 points. But I still have to get long in that name, because I do like Jen-Hsun Huang.

ALEXIS CHRISTOFOROUS: I would love your thoughts quickly here, Sarge, on cryptocurrencies, Bitcoin now trading below $30,000. Do you have any exposure at all to that space?

STEPHEN GUILFOYLE: Only through names like when I'm Nvidia and other names that are involved in the mining. I'm not in crypto. I am in gold and silver. I have a rather negative opinion of cryptocurrency. I believe they're the realm of despots and cyber criminals and drug dealers and terrorists. I really think if you took that element out of the valuation, would a Bitcoin even be trading above 5,000? I mean, really, that's really where the demand is. And when you play into these hands, you're actually supporting criminal activities. So, I try not to get involved in that in that way. I do believe there will be cryptocurrencies in the future that play a central theme in global commerce, but they're going to be called the US dollar, the Japanese yen, and the euro.

ALEXIS CHRISTOFOROUS: All right. You're sticking with the traditional currencies there, Sarge. Stephen Guilfoyle, always good to see you. Thanks so much for stopping by.