Notes from a conversation with Jamie Dinan, Marc Lasry and Jason Karp on the global and local markets. This is a brief summary from Portfolio with Purpose‘s event last night.

Q&A with Jamie Dinan, Marc Lasry and Jason Karp

Q: Views on the markets and the world? How do you see the landscape?

Jamie Dinan (York): “There’s an enormous amount of nervousness and uncertainty out there… everything is messed up. There’s imbalances everywhere. Exports, imports, currencies, rates, negative rates, leverage, you name it.

However, despite all this – the world just keeps on ticking. People just go to work and focus on making their lives better. The global economy continues to grow, and wealth continues to be created.

As it relates to making money, I have no clue where the markets are going. I think China has already had its hard landing. We’re still around, the world didn’t end. As far as US markets, they are fully valued, but the pain trade is to the upside. Most fund managers are thinking the likelihood of the market going down 10% is higher than the likelihood of it going up 10%. No one is positioned for S&P 2300. I don’t see the US market going into a recession. I also see Hillary winning and markets will like that.

What worries me? Europe. The Grexit probably won’t happen but you may get a surge of nationalism and isolationism – to me, that’s probably the grey swan event.”

Marc Lasry: “Who here is up this year? It’s really hard. In a market like this, you can make your bets but you better have the luxury of time. There’s a lot of things that are exceptionally cheap. They may get cheaper. We were very early in energy. We thought things were cheap at 70. They were cheaper at 60. Then they went to 50. At 40, we felt like we were going to throw up. But we had, and have, the luxury of time.

Volatility is back. If you look at Ackman and Valeant, no one would’ve thought this thing would’ve dropped 90% in a year. This is an unheard of amount of volatility, coupled with the fact that there’s NO liquidity in this market. The next wave of successful managers will be those who have the luxury of time.”

Jason Karp of Tourbillion: “This is my 18th year in the business….the volatility we’ve seen in the past 6 months is unprecedented. Even 2008 wasn’t like this. You have to be flawless in your fundamental analysis and be extra careful what risks you underwrite. You need a much bigger tolerance for losses. You need to educate your investors on how the environment has changed. They have to understand what’s in your head as a manager. Tell them about your process. I agree with Marc that at the end of the day stock prices converge with businesses. In the short term, these convergences have gotten wider, but they’ll eventually converge. If you are right, it’ll happen… but you have to be alive when it happens.

Q: “Is the Fed behind the curve?

Jamie Dinan: “That’s been the typical anti-fed punditry for the last 20 years. I think the Fed kind of follows markets more than they lead, much of the time. And that’s okay. The collective wisdom of all investors may be better at reading the data than the Fed. They have been wrong on inflation expectations for the past six years. The dots were off. I think of the Fed as being reactionary, and as such, they’re not going to do something harmful because they feel like they have to. Net net, they’re more your friend than your enemy.”

Marc Lasry: “I agree, I don’t think they’re behind the curve.  We all pay attention to what the Fed says. At the end of the day, they’ve got to be positive. You can’t have them saying ‘we’ve got serious issues.’

Look at the economy. The economy is fine. I don’t know why everyone is bitching about it. We’re not growing by 3%, but I’ll explain the way to solve this whole thing – which is very simple. Every small business needs to borrow money to grow. Are any of you borrowing unsecured at less than 5%? (A few people raise hands). If you think about that – people and small businesses drive the economy. None can borrow money under 5%! That’s the problem.

What the Fed needs to do is help fix this – there’s too much regulation out there! You’re just gonna grow at only 1-2% with that, not 3%. Let banks lend! For a bank to lend to you, it’s exceptionally hard from a regulatory standpoint. It’s easy to lend to companies. It’ll change. We need to get lending going again.”

Jamie Dinan, Marc Lasry & Jason Karp Talk At PWP