Delivering Alpha 2021

If you missed billionaires Lasry & Sternlicht at Delivering Alpha, here's the transcript

Marc Lasry and Barry Sternlicht speaking at Delivering Alpha in New York on Sept. 13, 2016.
David A. Grogan | CNBC

Sometimes, it's fun to just sit back and listen as billionaires pick apart the economy, politics and the markets.

Hedge fund honchos Marc Lasry and Barry Sternlicht allowed the Delivering Alpha crowd just that luxury Tuesday, as they tackled those topics and a host of others with "Power Lunch's" Michelle Caruso-Cabrera. If you missed their entertaining riff, here's the full transcript:

Caruso-Cabrera: We were chatting and we had our conference call beforehand. And you made the point in saying that a while ago you gave up on quarterly redemptions. If you want to give me your money, you have to give it to me for three years. No more hedge fund. Why?

Avenue Capital Group CEO Marc Lasry: Because I think it's gotten extremely difficult to invest on a quarterly basis. I think before, when you weren't in a zero-rate environment, a zero-interest environment, it was actually easier. But now, you actually need the luxury of time. And because sometimes things will go down, so you need to invest over a sort of two or three year period. Or not have people who get nervous who automatically want their capital. And I didn't think we could generate the returns for people if we did that. So mainly we just went to our investors and said we're going to shift anybody who is here to lock up to about three years. And whoever doesn't want to do that, you can leave, and about 75 percent of the money stayed and 25 percent left.

Caruso-Cabrera: I will ask an obvious question, what about [the fact that] low interest rates made it so hard?

Lasry: Well, so here is a simple test since everybody here is in the investor world. 2009 what was, does anybody know, in January of 2009, what the money market rate was? If you put your money in the bank, what you would get?

Starwood Capital Group CEO Barry Sternlicht: Five.

Lasry: Yeah, 4 percent. Alright, so back then, if you did five times the risk-free rate, you made 20 percent. It's not bad, everybody is excited. Today, what's the risk-free rate?

Caruso-Cabrera: Five times zero is zero. (laughs)

Lasry: Right. Make it 10 bids.

Sternlicht: Deutsche Bank pays 35 basis points.

Lasry: No, think about it. Even if you make 10 or 20 bids, you can make, pick whatever number you want ... but to do that you will have to do 200 times the risk-free rate, 50 times the risk rate. Whatever rate you want to use, I am taking 10 bids or 20 bids, so the risk you are taking is substantially greater. So, therefore what you have to do there is to find situations where there is issues where people are nervous, and you have got to buy. So when we invested in energy we did so about a year ago, a year and half ago.

Look, I wish I could tell you we timed it perfectly, but we were very good at timing it when oil was 70 or 60. We did not think it would, could [go] much lower. And, shockingly it did, and you kept buying and buying and buying. And you know, when oil got to 25, we kept buying the debt and kept buying the debt. If we had had the hedge-fund money, we would not be able to do that. So, the fact that we had lock up money, we were able to buy.

Sternlicht: And live in a lot of pain.

Lasry: A lot of pain, a lot of people.

Sternlicht: A lot of phone calls.

Lasry: Yeah, we get the phone calls anyway.

Sternlicht: You always get phone calls.

Lasry: It is not like people don't call you and say, "What the hell happened?"

Sternlicht: This is not a question to me but I will add two things that are different about the market — the ETFs and the algorithm of trading, which are dominating the incremental dollars being invested in the equity markets today. 70 percent of the money is going to passive investment vehicles. Those are very fast trading; they get in and out, and you can get your money in and out. So, it influences stocks in a way you didn't have to deal with five to 10 years ago. So, they are selling all bank or they selling all. And you also have the trades that are coming in and multiplying the impact of the close on the opening....

Caruso-Cabrera: I was going to say that to also think of long-term money, hard assets and real estate.

Sternlicht: The opposite is happening, we have long-term money, and we are selling faster because we are nervous about rates. Right, so when we are on the money, our holding period even though our funds are typically 10 years long, with two one-year extensions. Our average life of our funds is probably less than five years today. Especially since you see flows of capital across the world that are now ... because the world is actually, despite what Ray [Dalio] said and everybody said, there is tons of money in the world. You are seeing cape-rate arbitrage, yield - returns arbitrage. Guys wanting sevens and eights, and guys wanting 12s and guys wanting 18s, and it is the same investment. They are just buying to a lower return, so you think those people will leave especially as rates do move up. Although, I don't think rates will move up anytime soon.

Caruso-Cabrera: That is interesting, I want to ask you about that in a second. But again today, we are watching the 10-year yield rise.

Sternlicht: It will go up, but I don't think you will see 3 to 4 percent rise.

Caruso-Cabrera: I want each to give me an example. So, you said in an eight-year fund, you are closing out after five.

Sternlicht: Yes.

Caruso-Cabrera: So, give me an example, you bought X hotel or whatever property, and five years later you are selling it far earlier than expected or the exit strategy is coming to fruition because why?

Sternlicht: Because as an opportunity fund you can move real fast and we can buy, if there is going to be an auction for assets in the private world we cannot win that for the rates of returns we are looking for. But if you can move really fast and fix the asset package it up and sell it to someone who has an eternity to buy it. You'll find somebody to buy it, we are buying it to a 20 IR and you're going to find someone who is happy with a 12.

Caruso-Cabrera: Give me an example.

Sternlicht: Something under contract, I can't talk about yet.

Lasry: You can talk about Sea Island.

Sternlicht: Go would need permission of the buyer.

Lasry: Why, are we under a comm-fee?

Sternlicht: No.

Lasry: Oh thank God, I don't want to violate it again. We ended up investing, there was someone who ended up spending...we ended up buying a property in Georgia, Sea Island, and the person who had built it spent close to a billion dollars on it. And we ended up spending $200 million.

Sternlicht: 206.

Caruso-Cabrera: $206 million

Lasry: Right, so we actually found ourselves bidding against each other and shockingly we became partners so we wouldn't have to bid against each other. But we were able to sell that sort of four, five years later for about two and half times our money. Question is, how long do you hold on to something like that, over time do you keep on holding on to it and that is a great asset?

Caruso-Cabrera: The appreciation of that asset is based on why those interest levels are so low?

Sternlicht: Yes, we bought assets in Dublin and now because of Brexit, Dublin is hot. We are selling way above what we thought we would sell in five years [just] nine months after we bought it. So, we are selling the building, because all the good news is in the price. We have seen this in a lot of stuff, we call them trading markets. A lot of Europe is — because the macro is through in Europe but the wash of capital is so deep that we are buying assets; we bought a building in Manchester, a stock exchange. Another core investor bought it from us at way beyond our five-year exit. So, it is happening a lot, actually, but what you are seeing is that we are buying for 20s and guys are happy if they get 11s and 8s. And that's all because of half their money was in bonds, and there is no yield in bonds, right? All this money is moving to real estate, quasi real estate products whether debt or equity..for search in yields. It is definitely impacting global markets but our asset class happens to be a really good asset class right now.

Caruso-Cabrera: Give me another example in energy. You started buying debt in what? Give me a specific.

Sternlicht: Very specific.

Lasry: Yeah, there is Dynegy. So, you can end up buying the debt in Dynegy around sort of 75 cents, it was senior, it was secure. People were nervous at the time because oil was kind of going down but it was irrelevant because it is an independent power producer. So, you are looking at that and going in fact oil going down is not affecting you. And their rates were locked in for the next two to three years so you knew where your bid was going to be.

Caruso-Cabrera: And this is when oil is at…

Lasry: Yeah, we started buying when oil was around 50 because it was starting it get hit. It was around 80 and it went all the way down to 70 cents on a dollar. So we ended up buying quite a lot of it and it is back up to sort of high 90s.

Caruso-Cabrera: You still hold it.

Lasry: No, we got out. But part of that is because people are looking at the yield and people are looking at, well normally in a situation that debt should have dropped to the 40s. But because of the yield and because of where it was trading, and because it was senior and secure, people still came in people still need that yield. And I think for us, at least for what we are trying to do is that we are trying to look at the value of that asset. Barry is right. What the problem ends up being, it that we are trying to make that 15 to 20 percent return and everybody else is actually very happy at 5 or 10. I mean they really are because it is really really hard to make that 5 or 10. So if they think they can do that in something they think is safe, they are going to do that. So here is a piece of debt that was trading at 70 and yet very few people want to buy it and yet at 99 everybody wants to buy it. And that is what is odd, and the reason is that when something is trading down everyone is nervous. 'I don't know what is going to happen.' But then everyone is looking at the yield and thinking 'thank God, I am making 8 percent.' It is safe and great. You got to be able to take advantage of that but you can't do that if you have got short term money.

Caruso-Cabrera: On the call you said "The economy is entirely weird s--- right now."

Lasry: (laughs) Yeah, but that is a technical term.

Caruso-Cabrera: Explain. It is part and parcel in the interest rate story, correct?

Lasry: Yes, but it is also..well you are in an environment where you are growing at 1 or 2 percent. And yet, if you talk to everybody, everybody will say 'I don't think anything is going great.' And the reason for it is that the economy is growing 1 or 2, it's nothing great. Interest rates are where they are, and yet you need to continue to invest and need to be a debt investor or a real estate investor. Being an equity investor in a 1 percent growth environment isn't great. Yet, everybody is forced to do that. So, every rule is being broken. You know when you are in business school and somebody said to you 'Hey, the economy is going to grow at at 1 to 2 percent for the next three or four years, do you want to be in an equity investor?' Most people would say no. You don't have enough growth yet people don't have that choice. The reason why they are doing it is because they want the liquidity of the equity markets.

Sternlicht: And the way they think is liquidity.

Lasry: Yes.

Sternlicht: Can we talk about the economy for a second?

Caruso-Cabrera: Go ahead.

Sternlicht: It is actually, as I told you, is better than people think. You are sort of in this...I don't even know how to describe it. You are sort of in this electoral process.

Caruso-Cabrera: The sooner you bring up politics, the sooner I go there.

Sternlicht: If you were rational, you would not be spending a ton of your cash right? And companies have pulled back on investment spending hard. Like, drop 44 percent in the first quarter.

Caruso-Cabrera: Because of the election?

Sternlicht: Just because CEOs don't have a clue to what is going to happen, right? You don't know what the tax policy is, you don't know what the attitude of the electorate is towards business. You feel like regulations keep changing on you. You don't know what the future holds, so, you do the prudent thing and just wait. So I think with the collapse of the oil sector in the middle of the country which was powering the economy through, I thought we should have gone into recession in the second quarter. I was surprised we grew at all given investment spending. The government by the way picked up their spending by like 50 percent. So the government is only a quarter of consumer and business spending. The consumer, we own about 30 malls, we have about 90,000 apartments and probably .. I don't even know, maybe thousands of hotels. The economy is not actually bad in the light of all that is going on. And the question is that who is elected..and we will get there later I presume...actually under the new regime, whatever that is..will they feel..well let's say the House is split and the Senate and the presidency. Or with split parties and no party dominates anything and we are still stuck, will that money come out of the mattress? I was telling you that the under belly of this economy and the part that missed the recovery, and is roaring ahead and people are not paying any attention to is the residential sector. Which has been part of every recovery in history and it is not participated in this recovery. The residential markets are really good from apartment — the best apartment market I have ever seen in my life and anyone has ever seen in their lives because of the propensity of the people renting versus those that buy. The millennials generation are a sharing generation. They want to be in cities and they don't want to be in suburbia. They want to get married later. There are fundamental changes to the demographics of this country, which are changing consumer behavior. It is really playing out in the rental markets. They're the highest or the lowest vacancy in history and the rental growth is -- our 90 thousand units grew 6 percent in same store sales growth in the first quarter, second quarter and 10 percent OI growth. That is better than anything you see in most companies in this climate, right? By the way New York City is a disaster, San Francisco is weak in the rents.

Caruso-Cabrera: Define disaster.

Sternlicht: The rents are probably down 15 percent in the high end. Most of what is getting built by institutions, for the lack of — is high end stuff.

Caruso-Cabrera: So, a $20,000 apartment's only 18?

Sternlicht: No, no, not that high end. But my son live in an apartment in the city and his rent is down 20 percent year over year.

Caruso-Cabrera: They lowered his rent?

Sternlicht: Yeah.

Caruso-Cabrera: In the same place, didn't have to move?

Sternlicht: Didn't have to move. So, New York City is weak. Actually there is just too much building coming up on the high end. San Francisco is getting a little overbuilt. Our assets are in Seattle, Denver, South Florida. Dallas is kicking ass. Atlanta is amazing. I have never seen an Atlanta market like this and people are in apartments with lowest interest rates we have ever seen in our lives.

Caruso-Cabrera: They are not buying homes?

Sternlicht: They are not buying ... and they are not building enough homes. The math is simple, there are 3 million Americans that are added to the birth population every year and a million immigrants. I think it's illegal. I have no idea how many illegal. Just take that number (laughs). It is like 2.2 to the household. You need like 1.6 million households are formed every year. And that was the old number we build about a million and half. About 65 to 70 percent or houses where 30 percent were multies. So that — the old equilibrium number for multies was a million and a half. That is 450,000 apartments a year. We are building just under that. But now you have..we are building like 400,000..but if you run the math at 30 percent you need 600,000 apartments a year.

Caruso-Cabrera: That is why you rents in some cities is --

Sternlicht: And single-family home prices are up 6 percent year over year and some places are up 10 and other are up, and it is because we are not building enough. We have a home builder in the stock exchange but [they aren't] building enough.

Caruso-Cabrera: Here is what I don't understand, I think, Steve -

Sternlicht: Oh, and they are not building it because there isn't labor. They can't get enough people to work. And in South Florida there is a huge labor shortage in construction. We thought they all went to frack. We don't know where all these people went, right? All these construction workers. There were a million of them, and we thought they were fracking because they were getting $40 an hour instead of $22. But the fracking blew up, and they did not come back. I don't know where they went. I don't know (laughs). We thought they would come home and build some houses for us, but they disappeared. And they are asking for more, wages are going up. That is also really good and whoever is the next president is going to take credit it for and wages are going up.

Caruso-Cabrera: Maybe that is why the long end of the curve is rising right now but you don't believe it. You don't think interest rates are going up?

Sternlicht: No, I don't think U.S. interest rates can rise as high as people say: 3, 4 percent of the 10-year.. Given where global rates are or the dollar will scream, and we will go to recession and the whole thing will reverse itself. So I think —

Caruso-Cabrera: You don't?

Lasry: Yeah, you can't have rates moving up when —

Sternlicht: They will move up but not..the cripple flat. But that will be fine. That is good. That is good for the economy.

Lasry: It will go up half a percent.

Caruso-Cabrera: Flattening curve is not a precursor to an inverting curve?

Sternlicht: No, I don't think so. With the German bunds at -8 or whatever they are and Japanese rates negative. You just can't. There is too much liquidity in the world, and it is going to race into our rates if they rise and the dollar will scream.

Lasry: The dollar will temper.

Caruso-Cabrera: Because the debate has been this week that if we were to show an intra-day of the 10-year right now, it looks like a huge move and it is a 1.72. But everyday, for the last several business days we were talking about it, and with the discussion today, Ray Dalio — dangerous turns in the credit markets. You heard Bill Miller: 'Whatever you do, don't do that.'

Sternlicht: We don't disagree, but our investors….well, you have to invest in something, right? You can't just sit in cash. So, unfortunately we are supposed to put money to work and the property sector is a safe heaven. It is the healthiest real estate market in the United States I have seen in my career.. And that is unfortunately that's 30 years long. So we have never seen markets like this with very little new supply. Office and industrial, some markets are at one percent vacancy rate in Sourther California. One percent, I mean like they build it and they fill it. And apartments and offices absorbing space —

Caruso-Cabrera: Why doesn't feel that way?

Sternlicht: Because it is slow. I like slow.

Caruso-Cabrera: Why is everyone so unhappy?

Sternlicht: It is the political discourse too, right?

Caruso-Cabrera: Everybody is unhappy, the whole world is unhappy.

Sternlicht: Yeah.

Lasry: I'm happy.

Sternlicht: Look at that sweater, he is a happy guy. Cashmere too, huh? (laughs)

Caruso-Cabrera: You are the kind of guys that —

Sternlicht: You know it's not winter yet.

Caruso-Cabrera: So, you two are the kind of guys who would get deal flow. Right? People bring stuff to you, etc. Any unicorns that you passed on or any would-be unicorns you looking at. You get any tech stuff put in front of you. You mentioned millennials...

Sternlicht: I do a lot in the tech world.

Caruso-Cabrera: And?

Sternlicht: Well, I didn't to WeWorks.

Caruso-Cabrera: Do you regret that?

Sternlicht: Well.

Caruso-Cabrera: Of course.

Sternlicht: We will see who is right at the end. It's a question whether these companies are real; it is a question of evaluations. But I have done some cool stuff. There is a company called Doppler Labs, which you have never heard of but they made a programmable earplug which you can modulate the sound so you can get rid of your wife's voice, your husband's voice on your phone. And you can get rid of subway sounds and you can sleep and everything. You can pretend you are in a concert hall listening to music and because of what Apple just did, there are like seven companies that all of a sudden want to buy this. So it is all patented and projected, and it is called "Here."

Caruso-Cabrera: H-E-A-R?

Sternlicht: H-E-R-E and the company is called Doppler Labs. It is amazing, it will be like Aculas. It will sell for a couple of billion bucks.

Caruso-Cabrera: And that was what? A bag or three bag. How are you gonna you do?

Sternlicht: It if sells, I'll do well. I'll let you know.

Caruso-Cabrera: But if somebody come to you, if one of your colleagues comes to you who is in the standard real estate business and says, "I want to go into one of these unicorn because the evaluations."

Sternlicht: I get them all the time. It depends which one it is. Look at Google and Facebook.. These companies have really — they are trading at 10 times. Why would you go to to WeWorks at 300 times EBITDA. If you got shares that are at zero value, like realty cash and incredible compensation. When these things go down they do not go from 16 to 14, they go from 16 to 2. There is no elevator down, you hit the floor. There was a joke, for the first guy that jumps off a 100-level building and in the first 99 levels he thinks he is flying. When you go down, it goes splat. It just goes bankrupt. And so many of these companies are negative cash flow despite what Chanos said about Tesla today, which is negative cash flow. Which I have two of them and I hope they say and survive. I love the car by the way.

Caruso-Cabrera: What do you think of the stock of the company?

Sternlicht: No comment. No, look he has to raise equity one way or another. He can get an investment in the company, he has to issue shares, he has to get more cash.

Caruso-Cabrera: Would you invest?

Sternlicht: No, I'd be short actually, so...

Lasry: Tesla, no.

Sternlicht. You can't borrow the stock, I've checked.

Lasry: No, but that is like..

Caruso-Cabrera: You wouldn't? It is not necessarily what you would do

Lasry: No, I think it is hard for people who try to invest in companies at five times to try to invest in companies that are trading at greater than 20 or 30 or 100 times. It's just not my DNA. Yeah, it just makes no sense. My son explains to me why I am wrong and I go, 'Okay, I am doing better.' So, you keep doing what you are doing.

Sternlicht: Value investors have a hard time with this.

Lasry. Yeah, it is hard.

Caruso-Cabrera: Yeah, I bet.

Sternlicht. Multiples of revenue for us that have — on actually paying bills and playing debt service. Multiples of revenue don't mean anything to us. We want to know how does the company eventually make money and where's the business model and that is still something you don't talk about in Silicon Valley that much. And there's a lot of these companies that are all doing great. I'm investors in many of them and they're funny I mean...Pinterest $12 billion, I use it but I don't pay anyone anything for it so it seems like a lot of money for a bulletin board, but that was the market cap of Starwood Hotels when we owned $1.6 billion we made $1.6 billion and we were told buy no market cap that year so it was like 'wow, that's a lot of...believing.'

Caruso-Cabrera: When we were on the call I asked about lack of liquidity in the markets. You brought up market illiquidity and I asked you 'illiquidity in the bond market?' and you said 'Ugh, God.' I mean you made it sound like it was just really horrendous right now in terms of the ability to execute trades.

Lasry: It's always difficult; there's very little liquidity, and when there's bad news there's no liquidity.

Caruso-Cabrera: Always?

Lasry: Yeah, you always wanna be the buyer. That's sort of why you need lock-up money because when there's no liquidity, really, what you want is you want to be the person who's just giving somebody a down bid. You hate being the recipient of a down bid. So if you've got to sell, so when there's bad news you wanna be the person who's giving those bids and in the bond market today, look the biggest problem ends up being that once the banks got out, so the only people who are providing liquidity are people like me, right? So, yes if times are good, you're gonna be buying but when times are bad or there's bad news which is what we're trying to take advantage of, you're always gonna give somebody a down bid and there's nobody there in between to sort of level it off. So it just makes it so much better if you're a buyer in a downturn.

Caruso-Cabrera: When we hear some regulator, some inventors of the regulation say things like the Volcker rule had nothing to do with the lack of liquidity or therein.

Lasry: They don't want to hear it, but they're wrong.

Caruso-Cabrera: Paul Volcker did not want to hear it, he was definitely up against that.

Sternlicht: Well, but he's definitely wrong, I mean the capital requirements for banks make it too onerous to buy anything but rated securities so all this stuff that is not rated investment grade, basically there's no home for it anymore so it gets a little complicated for the banks to hold on to paper. It's changing the finance markets but again there's so much liquidity in the world. You know, there's no shortage of debt for real estate.

Lasry: Think of one thing, Barry's right, in Europe today, banks are being forced to sell, so you can make quite a bit of money on direct lending and here's what doesn't make sense. We can go and lend to a company at LIBOR plus 8. So we can lend at LIBOR plus 8, senior secure at a three or four multiple. Banks who are in that business used to lend at LIBOR plus 3 or 4, right so they're gone, why? Because it's not a rated loan. If it's not a rated loan, it's a 100 percent hit to your capital so it is actually far better for a bank to make a rated loan at two percent to Samsung, Deutsche bank, whoever you're making the loan to, and remember the banks are in lever ten time so they're gonna make 20 percent on that loan whereas on something we're doing, we can end up loaning a LIBOR plus 8 and the banks can't do that so you've taken out this huge amount of capital that used to be your biggest competitor. There have been so many different scenarios and things that have happened that have changed how people invest today and I don't think the regulators remotely understand. You can explain it to them and they go 'Yeah, okay, but that's an aberration.' You go 'No, it's not,' and no matter how many times you explain it, everybody goes 'Well we're trying to protect for the greater good and the greater good is that we don't want systemic risk,' and that's what everybody's worried about, and because of that, you end up having always these pockets where you can make, you're getting overpaid for the risk you're taking.

Sternlicht: That's another reason why the economy is probably better than people think because there isn't a lot of leverage in the markets right now because the banks have been very disciplined and actually buyers I'd say have been more disciplined. We're not lending 90 percent, we're not lending 100 percent like we did in 2006-2007.

Caruso-Cabrera: What Mark's describing sounds like the pendulum has swung the other way and to me explains a lot about what's happening in Europe and the fact that they can't grow because credit contraction is still ongoing.

Sternlicht: Also what's interesting about Europe is the banks have basically stopped crossing borders, so the French banks are in France, the German banks are in Germany, English banks are in England. After 2007-2008, they all went home. You can't find the French banks pretty much in the US market.

Caruso-Cabrera: They have open borders in Europe.

Sternlicht: Yeah, but they went home to save their countries and they were directed to do so I assume so. They're here a little bit but not the way they were, they used to be real bids in these markets, if you got a dumb loan it was almost for sure a foreign bank, not the sponsor. That I consider a domestic bank, so actually I think they make more money here than I think they did in Germany.

Caruso-Cabrera: So on the stage right now is a Republican and a Democrat.

Lasry: You're a Republican?

Sternlicht: Yeah.

Lasry: Why?

Sternlicht: Socially liberal. So, my reason for being a Republican is if you don't fix the nation's balance sheet, you can't get to your social issues. So, I mean we're in enough wars, so that's why if we don't fix entitlement reform, fix the teacher's union, now I cross over because I'm pro-environmental so i'm in the middle right? But if we don't fix the balance sheet, we don't get on a better path, we won't be able to fight for our social issues.

Caruso-Cabrera: As a Republican, do you end up voting for Trump?

Sternlicht: What do you wanna say? It's really hard...first of all, everything you've seen to date is pre-gaming, everything you've seen to date in the polls and everything, my kid's at Stanford, they warn you, don't drink before a game, the debates are the game, right? This is all pre-game and you're getting drunk and the press is having fun, but those debates, Les Moonves from CBS said the first debate will have more viewers than when the man walked on the moon. It'll be like the largest TV show in the U.S. — in the world's — history. Because everyone thinks Donald is gonna call her fat and ugly and there's a 75-25 shot, 3-1, I bet he does. And that's unfortunately degenerated to a level of political discourse that's unusual, and it's horrible for the country; you know, it's like if you want your kids to be president, but it's a race to the bottom at the moment and it's really uncomfortable, I think. But we'll see, I have no idea what's going to happen and I don't think anyone knows because I don't think anyone knows who's gonna vote. ... With these three debates, they're gonna be epic; and there's too many people, it's too close and I wouldn't count Donald out at all. And we're heavily invested in England and we were fortunately we didn't have any lending exposure when Brexit hit but that wasn't exactly what people thought.

Caruso-Cabrera: It worked out better than people expected economically thus far, hasn't it?

Sternlicht: No, no, no, no there hasn't been a Brexit, they haven't left anything. The only thing that happened was the pound went down and that's good. Right? Sales are up. But nobody's left London yet, they have years to do that.

Caruso-Cabrera: You're convinced they're gonna go?

Sternlicht: Yes, I think businesses will leave London if they do this. Banks and there's money and hedge funds and it's not gonna be pretty.

Caruso-Cabrera: I don't wanna let Lasry off the hook on the politics, so..

Sternlicht: You don't have to, he's core.

Lasry: To the core…

Caruso-Cabrera: Politico headline today: "Progressives draft blacklist for Clinton administration: Left-wing groups warn the Democratic nominee not to appoint Wall Street-linked Lael Brainard or Tom Nides of Morgan Stanley to senior finance and economic jobs." I mean maybe they don't want finance people in charge of finance, but does it concern you how far to the left the democratic nominee has been pushed?

Lasry: I think she's been pushed to the left, like to me, who cares what a bunch of progressives say? Like, I got, you don't want somebody from Wall Street. Such is life. Look, at the end of the day, the Democratic party, I think Hillary has moved a little bit more to the left than she was, and I think part of the reason for that is you've had more people who are more to the left. Right? So, but I think at the end of the day because of that headline, to me, everybody likes to make a big deals out of two or three people talking or 10 people talking, I don't really pay that much attention to it.

Caruso-Cabrera: Bernie Sanders got closer than anybody expected.

Lasry: Yeah, but he still lost, he lost by 4 million votes. Like, last I checked when you lose, you lose. So, I don't know why it's like 'Let's pay attention to Bernie.' I mean, he lost, and he lost because there were a lot of people who believed in his message, but the vast majority didn't. That's why he lost. I look at things pretty black and white, if we make money, our investors are happy. If we lose money, and I explain to them why they did, investors go, "Yeah, you're right, but I'd like my money back." At the end of the day, Bernie Sanders lost. I got you, you can voice your opinion. If I was Hillary or if I would give her advice, I'd say, "Look, I think part of it is, I respect what you stand for but the reason I won is because I had a broader message, I had a broader appeal."

Caruso-Cabrera: Have you given her advice?

Lasry: If she asks, I'm always happy to give her advice.

Sternlicht: I think the question is 'Does she ask?'

Caruso-Cabrera: Thank you for the follow-up, wingman (laughs)

Sternlicht: I sent him an email, I told you and Rothchild that she should pick Rob Portman as her running mate. I got there a little late, because he's been disenfranchised from the Republican party a little bit. He's a great guy from Ohio, it's an important state, and he has a gay son and he came out to support his son and I think that would be the biggest message she could have done that would have been an amazing choice, and would have pulled the whole independent — which we're gonna swing the election, I'm really an independent. But I think we're gonna swing the election.

Caruso-Cabrera: So we all say.

Sternlicht: No, we are, in Connecticut where we're from...actually I'm a Florida resident as of July 1, but where I was all great Americans: "You should move to Florida." We own a lot of real estate in Florida.

Caruso-Cabrera: Did you do that for tax reasons?

Sternlicht: Yeah, of course. And the winters have gotten really cold up here, and my kids are out of the house; they're not in school anymore.

Caruso-Cabrera: Do the math for me, you decide you're gonna move to Florida July 1 because...

Lasry: It's 10 percent.

Sternlicht: So, I have to do the math for you? State income tax, I mean, look it's interesting, I would think as an investor what happens with this election if Hillary, that's why it's so important that one of the houses stay...the Senate or the House...stay Republican, because taxes will go up and if she gets this 4 percent millionaire surtax she's proselytizing, tax rates in New York City are gonna cross 60 percent.

Caruso-Cabrera: Is there gonna be a Sternlicht effect on Connecticut like David Tepper in New Jersey?

Sternlicht: No comment, but, no, I don't have that kind of ... income. I'm long-term capital gains, thank you. But, no, I think that Paul Jones left, there's a massive exodus from Connecticut because Connecticut got too close to Manhattan in tax rates. We used to have no taxes as a state tax, and so this close, the kids don't want to come up there anymore. You can't give away a house in Greenwich, it may be the worst housing market in the United States, only followed by New Canaan. It's just terrible. Fairfield County is terrible. You can buy a beautiful house for $600/foot; you can get a bathroom on 135th Street in Manhattan for $600/foot. We sold...we had 59 units at the ... we built in NYC, and we sold the units from $4,000 - $6,000/foot, right, and we have two left. But in Connecticut you can get pools, Jacuzzis, trees, grass, $500/foot I have a house for sale if you can buy it...11 acres...

Caruso-Cabrera: In Florida you'll have that year-round the jacuzzi outside, you can't use it in the winter in Connecticut. Marc, back to the Clintons. Are you surprised at how disliked she is, that her negatives match Donald Trump? I mean, you know her personally. And Chelsea worked for you at one point.

Sternlicht: Wait, your son worked for the Obama administration.

Lasry: Shocking, yes.

Sternlicht: It is shocking, he's the only hedge fund supporting Obama. You're a unicorn. I'm gonna sit further away from you — I have to move. [laughs]

Lasry: Look. I think part of it, I think anybody who has met how many people in this room have met her? (some hands go up) so anybody who's met her actually really likes her. Would that be true? (Sternlicht agrees) I think the vast majority of everybody who meets her walks away and goes "Wow, I didn't realize she was like that. She's talented, smart, she's nice…"

Sternlicht: And she's inquisitive, unlike her husband…

Caruso-Cabrera: She went to Wellesley.

Lasry: But she's great, but the problem is for whatever reason that doesn't come across over TV or when she's giving a big speech, and I think also, you know, it's kinda hard for somebody to have positives when for 20 years all you've had is negative ads run against you.

Caruso-Cabrera: So, it's not her, it's what they say about her.

Lasry: All I can tell you is the person I know, I think, is an exceptionally talented individual, and I think she's great and I think she'll make a phenomenal president. And what Barry said is actually really true, you want somebody who asks questions, you want somebody who cares. And you want somebody who's actually really smart. It'd be kinda nice, that's all.

Sternlicht: Her TV persona is just unbelievable but that's her biggest problem right? Because they say you vote for somebody you want to see in your living room for the next four years and the problem we have is everyone's seen Donald in the living room already, right? And she, unfortunately, they were joking at one of the newspapers, somebody was telling me, one of the editors, they can't find like an attractive picture of her. She's like making all these faces like she's angry.

Lasry: That's not true…

Sternlicht: I'm telling you that's what the guy said. I'm not saying i said that. I've seen a good picture of you with her. It's an interesting phenomenon. That's why the debates are so important. You have to say I'll talk, I'll listen to that person, she's uberqualified, there's no question. Uberqualified.

Caruso-Cabrera: How many people have met Donald Trump in this room? (Hands go up)

Lasry: How many people want to do business with Donald Trump in this room? (all hands down, laughs)

Caruso-Cabrera: How many people want to do business with Hillary Clinton?

Lasry: (raises hand) There you go, you got more hands!

Caruso-Cabrera: Not many…(laughs)

Sternlicht: Not many people want to do business with either one of the candidates...I was hoping the upside was everyone would get indicted and we'd start over. If that judge would just hurry….they have this college case...what happens if he's elected and then gets indicted under that fake university?

Caruso-Cabrera: If she for some reason couldn't fulfill, the progressives would argue Bernie Sanders should be on the ticket.

Lasry: Yeah and that would never happen.

Sternlicht: Joe Biden.

Lasry: Joe Biden.

Sternlicht: Joe Biden.

Caruso-Cabrera: So just squash the democratic impulse within the Democratic party, and this guy came in second and he can't be on the ticket.

Lasry: Who? No, not at all. First of all I don't know who gets to pick, so I don't know what the rules are so I apologize.

Sternlicht: The DNC votes.

Lasry: Then they'll pick whoever.

Caruso-Cabrera: You're right, it would be Biden, but…

Lasry: I think they would end up picking Biden because what you're gonna want is the person who you think is most likely to win, right? So it's not the person who also ran. It's the person who you think is most likely to win, and I think that would end up being you know if you're gonna choose between Biden and Sanders, I think it would end up being Biden.

Caruso-Cabrera: Alright, last words. What do you want to leave the audience with? One gem of an idea or one…

Sternlicht: Wanna go first?

Lasry: Always. (laughs) Why should today be different?

Sternlicht: Go ahead. We're conducting an unprecedented financial experiment globally, which everyone who's really smart is super nervous. Everyone who's super smart is super nervous about because every time the world shakes, you think that, OK, this is it, the gig's up, people are losing face in the central banks, losing confidence in central banks. And we are the Weimar Republic, we are printing money worldwide. Japan is, I mean, I guess we're really happy and if they keep printing and printing and printing and printing and there's no hope ever to pay it back and we've given up. And the Japanese government's buying securities, they're buying stocks, some of those guys are coming over here with propped up equity and buying our companies and they bid for my company. One of them bid to buy Starwood Capital group, the private firm. And they'll pay anybody because the money's fake they just print it in the little room.

Caruso-Cabrera: Wait, the central bank of Japan offered to buy?

Sternlicht: No, one of the companies that ...they're buying like 7 percent of the the opening trade every day. So, if that falls apart that'll be the most obvious thing any of us, that's even more obvious than the residential crisis in the United States in '07-'08 in my opinion. Almost 300% debt to GDP, there aren't enough domestic postal banks to buy all this debt. They're coming up with new shenanigans, so, on the other hand, I don't know what to do about that. As an investor, should I sit in cash? Should I not buy any properties? Real property feels okay because we'll have an inflation hedge and what comes out of the Weimar Republic is inflation when prices go ballistic because paper's worthless and people try to buy things today that they could've bought tomorrow, forgetting the prices are going up.

Sternlicht: So, I don't know but I think everybody has to have a tail risk trade on in their portfolio. Everybody in fact we're doing that right now in one of our funds that was way in the money, we're talking about hedging and i'm getting in a fight with my chief operating officer and I don't care if I give back 2 or 300 points in the IR? On the fund, it's in the 20s, like, if I get an 18 I should be kissed by all my LPs, right? Spend money because things could unravel and don't forget, I think I saw a clip on Mary Erdoes today, I mean, I think your peers that are hedge funds and all the guys I know that run all these hedge funds, they're sitting like this on their sell button, they're ready to push sell at any moment because they don't wanna go through '08, this is not a generation ago the '07-'08 crisis so they'll get out and preserve their net worth and they'll worry about someone else and in this illiquid market that's gonna be ugly so put your insurance on while you can, while it's cheap.

Caruso-Cabrera: Last word, Mark.

Lasry: I agree with Barry, I think the problem, though, is if you listened to everything Barry said, he's right but then you've got the other side which is, you gotta invest. Right? I mean, because people give you money.

Sternlicht: I didn't say you didn't have to invest. I said you had to be careful.

Lasry: So, what you've gotta do, so, the only gems I'll give you is find people who you think are really talented and stop worrying about daily liquidity or weekly liquidity and give somebody money who you think is really talented and have it locked up because that's the only way you're gonna be able to make money.

Sternlicht: Talented and engaged.

Lasry: ...and engaged and really cares.