Markets could be lower for longer: investor

AdvisorShares CEO Noah Hamman warns there are still headwinds for the economy and markets to recover. He speaks with Alexis Christoforous and Brian Sozzi on The First Trade.

Video Transcript

BRIAN SOZZI: I would say on the markets here, I mean, no I haven't. Advisor Share CEO, Noah, always good to speak with you. I'm look at the Dow. Dow is down over 400 points. Been under pressure pretty much the whole week. Do you think we're smack in the middle of some form of market correction?

NOAH HAMMAN: I think so, and it might even take a while to get there, right? We saw the market drawdown and then start to turn back up as we saw some stimulus come into the markets, and now turning back down again, so we think it's going to be lower for longer. We're encouraging people to use hedging tools to take advantage of the opportunity. We know there'll be some good news coming, and hopefully a vaccine coming, but there's probably a lot of headwinds between company earnings and who knows what's going to happen between the US and China as we get closer to the election cycle.

ALEXIS CHRISTOFOROUS: So Noah, what are some of those tools-- share this with us-- that you're telling your clients to hedge this market with?

NOAH HAMMAN: Sure, so I'd always suggest cash. Nothing wrong with using cash and getting in that defensive position. You don't make or lose much, though some would say you might lose a little bit relative to the dilution that's going on in the US dollar. But we use hedging tools. We have two different ones that investors can diversify against. A technically driven one that truly looks at just momentum and trend following and tries to short the weakest stocks or a fundamentally driven strategy. So the first ticker symbols, DWSH, that's the technically driven one. The fundamentally driven one is HDGE, and they're just simple ETFs. They're very transparent. You can see what's shorting in them, and they're a great way to hedge your portfolio, and then you just have to decide your risk a little or a lot. You want to watch the prevailing market environment, but it seems like that's going to be a good tool to have to find some returns in your portfolio for quite a while.

BRIAN SOZZI: Noah, we've had a lot of what I would call Wall Street wails come out this week and sound the alarm bells on the overall valuation for the markets. But in particular, tech stocks. Do you agree that some of these big cap tech stocks have just run too far too fast?

NOAH HAMMAN: Yeah, I think so. I mean, it depends on sort of what their model is, right? I think if you have a subscription based model, say Disney Plus or Netflix. I think that helps if you're truly getting more subscribers, and that's, you know, top line revenue. I think if you're a Google or a Facebook, you might struggle a little bit more, you know, relative to the advertising dollars that you're looking for and you're used to getting. Companies are going to spend less, they're going to get less. Maybe even on the hardware side with an Apple, probably slower upgrade cycles for phones and hardware, so you definitely expect to see some challenges ahead for some of those tech companies.

BRIAN SOZZI: You know, just staying on the challenges topic, Noah, airlines remain very much in focus, yet Boeing CEO come out this week in an interview that suggests one of the top airlines will go out of business essentially. That has caused pressure in the airline stock space. At what point do you take a nibble a little bit?

NOAH HAMMAN: I'm not sure that I do. It's just a category I would stay out of. You don't have to be invested in every sector at any time, and for those that follow Warren Buffett, he's out. There's no reason why you shouldn't be out too, unless of course, you just want to put some speculative dollars to it, but I think they're right. I mean, it's as it is, one or more may not make it. We see that in our own industry in the asset management industry with mergers and acquisitions going on trying to find efficiencies, and that's been happening for a while relative to lower overall costs. Not surprising in the environment that we're in that one or two airlines might make it, so I would be nervous to be in that space. Feels too early to start nibbling in terms of adding it to your portfolio, and it's unfortunate news for that category, but hopefully they come out healthier and stronger after.

ALEXIS CHRISTOFOROUS: Hey, Noah. I want to stick with the travel stocks for a minute and look at those cruise lines, because we heard from Norwegian this morning. You know, pretty disastrous quarter. This was to be expected. A much larger than expected loss, but they're seeing some glimmers of hope in the future. They were able to secure that raise, they had about two and a half billion dollars that they raised last week, so they say they have liquidity for the next 18 months, even if they don't sail again in that time. But they are starting to see some demand for sailings in the coming months. What's your take on the cruise lines right now, and is Norwegian a good bet?

NOAH HAMMAN: It's challenging. Same thing, it feels too early for me. I just sort of only use myself as a litmus test. Would I get on one of those cruise ships anytime soon? And I wouldn't. It's more than just testing and a clean protocol. Once you're on that ship, you're kind of stuck. I can't imagine people are going to feel comfortable until they know that there's a real vaccine, a real solution, that if there is any issues on the cruise ship, there is a way to tend to it very quickly that, you know, the cruise ship has onboard and stocked, you know, the vaccines that it needs.

Otherwise, you know, I don't know what gets many people, most people on a cruise ship anytime soon. So it's great that they have the liquidity. Same thing, feels too early. I would look for other opportunities in your portfolio. Maybe it's more on the utility side or something, which I know isn't sexy and exciting, but that could add some protection and some value to your portfolio. I'd stay away from the travel stocks for a while. In fact, they're some of the ones that we are shorting in some of our portfolios trip.com group, TCO, which is a Chinese travel company. One of our short positions, we just don't like the category right now.

ALEXIS CHRISTOFOROUS: All right. How do you like big tech? We interviewed Cisco CFO Kelly Cramer earlier on the show. They had a pretty solid quarter during this pandemic and also seeing opportunity as, you know, major companies start to look at IT infrastructure, because they don't want to be caught with their pants down during another crisis, so what's your feeling on Cisco?

NOAH HAMMAN: Yeah, that's an interesting point. You know, they're sort of the backbone of some of this webinar streaming, the things that you have in place that people are using, right? And so that type of hardware as more companies build the infrastructure to support that capability, working from home, using those types of services to communicate, you could see some growth there from companies. Twitter coming out this week and saying, you know, people can permanently work from home. You're going to want central servers and things like that to manage not just employee accessibility, but security and management around that piece, so that's probably a hardware company that could benefit from the current environment.

BRIAN SOZZI: Noah, taking a step back here, we had Chair Jerome Powell, Federal Reserve Chair Jerome Powell this week, really put the onus on lawmakers to step up again with a new fiscal policy response. You had the House come out here with a potential three trillion dollar plan. That got shot down, obviously, by Republicans. But do you think you can't get long this market and unwind some shorts until we do get another big stimulus plan? Consumers are getting more stimulus checks mailed to their house.

NOAH HAMMAN: Right. That's the concern I have relative to our view that it's time to get hedge. It's trying to fight the Fed. That's difficult to do. It's proven difficult to do. I think at some point, you know, maybe legislatively they'll come together, but Jay's probably being overly optimistic, Chairman is being overly optimistic that they'll be able to come to some unified agreement, but I think they get there, and that's the big challenge. But I do look at something like the stimulus checks and wonder, you know, how much of that is coming back into the system. If you remember, it was just strictly an income based amount that you would get. And so I know some people that worked here were eligible for it, got a check, but you know, knock on wood thankfully we're all fine here, and we've not laid anybody off and had to do that. So where does that money go? It probably goes to savings. So I think once that money starts targeting the true areas of needs, it could have a very big impact on the economy. But I think for right now, devil's in the details, and I think you're right. When you see that there's some alignment and some agreement, wouldn't be surprised to see the market do what it's just done over the past few weeks.

BRIAN SOZZI: Noah, personal question. What would get you back on a cruise? Some free steaks at the buffet? What would they have to do?

NOAH HAMMAN: Ugh, I'd be nervous, right? And I'd do it in layers. I might get on before I let my kids get on, but it would definitely take that you know, a little upgrade on the suite would be nice, and for me, probably lots of suntan lotion. So yeah, it would be a while. I'm probably going to do a plane first before I'd consider getting on a cruise ship and being locked in, and even a plane I'm nervous. Imagine going on a business trip to LA or to New York or wherever, and then you get there, and then there's a problem, and you're stuck. I just, it's going to be a challenge for a long, long time until there's a real solution in place.

BRIAN SOZZI: All right. Well said. Noah Hamman, Advisor Share CEO. Always good to speak with you. Stay safe out there, and keep that suntan lotion on, baby.

NOAH HAMMAN: Thank you.