Hedge Funds Gorged on Startups

on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or stream us live on YouTube and Bloomberg dot com. We know it was tough for public markets, but what about the private markets, Tim, Yeah, those high flying private companies such as Discord, Stripe, Instacart, Chime and more. Something that hedge funds really gorged on big time last year.

How much value did those companies created? In two The story a most read on the Bloomberg Today with more We've got Bloomberg News hedge fund reporter Hemma Parmer with isn't our Bloomberg Interactive Broker's studio with more love this story? How much you did some exclusive analysis for this story today Among the most route on the Blueberg terminal. Just how bad was it for for hedge funds? And also

how did you do it? Because these private market valuations, UM, they don't get revised very frequently, right, UM, So hedge funds, generally, that the crossover funds, those that do both public and private investing UM had a very difficult year. We've reported about this extensively down double digits UM. And on the private side, you know, the story really talks about how obscure these markets really are and nobody really knows exactly

how much of these companies are worth. It's not like the stock market where everyone knows every every single second one a company is worth. And so UM, Well we did is we looked at, well, what companies private companies are mutual funds invested in that hedge funds are also invested in. Because mutual funds have to disclose publicly how the marks for their companies over time, hedge funds don't

have to disclose that publicly. UM. And so we looked at an array of companies, forty six of them, and we said, okay, well are through our analysis with our data team, these mutual funds marked down about seventy of the forty six companies UM with average a decline of with some down as much as that's pretty intense. So it shows really just the extent of these markdowns UM and and how bad it could be for for some of these funds. So then talk to us about the

hedge fund environment. I mean they were all in, yes, a lot of them perspaciously into privates last year the year before UM. Now, the the interesting thing is that every firm can mark their private companies differently. And it could be because of their structure, maybe they asked for special terms in their investment. It could be because of their size of their investment, it could be when they got in, but that just makes all the harder to

figure out, like what is it worth? But companies like tro Price and Fidelity want to make sure that they're accurate because they actually have these invested as parts of

mutual funds that people can invest in. Right. So the liquidity yes, So because mutual funds are so liquid, they have to mark these things a lot more frequently, and because UM people will may want to a deem more often, they will be maybe even overly cautious about marking things down aggressively, so so that people are not overpaid when they are redeeming or when people are getting in, they're not buying into expensive So you do you could see

more aggressive markdowns and the mutual funds than anywhere else. Um. And if you look at our story, we even show dispersion amongst mutual funds. So in some cases the mutual funds generally agree on a company, and in some cases

they really don't. If you look at Byte Dance, the dot plot that we have here shows mutual funds generally did not agree on how much bike Dance was worth at any points in the past year, and the spread is pretty significant well for someone who follows the hedge funny industry, like, so, how do you think about it

and potentially the stories we might see play out? Yes, so I think as we look through the rest of this year, UM, we've been already seeing some some struggling news of startups, startup companies firing, a lot more people struggling with the revenue. If that continues, companies, firms are going to have to either mark their underlying companies down or you might see companies mark themselves down increasingly. And

so if that continues, it's basically bodes more pain. One thing I have to ask you because I feel like whenever there's even a bad hedge fund year, there's still a ton of money that comes into the hedge fund industry. Where were assets last year compared to the year before. I think about on pace. I think last time we

talked they were fortullion UM. Generally speaking, the money is flowing into the bigger firms, um into the bigger I think it's still coming in and generally we have seen some redemptions this year, but I wouldn't say so much so that it makes a huge dent into the four trillion dollar number. Okay, so here's my question. Um, it's about it wasn't all bad news. There were some companies that were actually marked up last year, and there's a great graphic in this. So read it on the Blomberg

Tournament on YouTube. Maybe we can back up. I wasn't watching you, And what it shows is that there are companies in here like Bite Dance, SpaceX, and a couple others that actually did pretty well a small minority in twenty seconds. What was unique about these companies or how they were valued. Yes, so some companies are doing fine. Some companies are able to raise money. I'm are able to raise money at a premium, may have enough money, have maybe raised enough in the past that they can

keep going without needing to go back to the market. Um. And so it's not paying across the board by any means. There's a lot of pain, but it certainly doesn't mean that there's that the companies can't do an upground um or be okay or be marked up even if it gets to be tough for economic environment. Just a few seconds left potentially, I mean, I think I think so much as yet to be seen, and this is such a tricky obscure space. Um. I think we'll see a lot of pain ahead, but I think we'll also see

some successes. So which is the howag fun world? Right? That world which is always why it's fascinating? Recover it so well? Like him a Parmer does. She's Bloomberg News Hedgephune reporter here in our interactive broker studio. Please sees Bloomberg Business Week with Carol Messer and Tim Stenavic on Bloomberg Radio. This week is Bloomberg Business Week. Cover stories on newsstands, the issue online at Bloomberg dot com, slash

Business This Week and always on the Bloomberg terminal. The cover story centers on a man who looks poised to run for the highest office in the land come and how his rhetoric is finding traction within the Republican grassroots circles. The story also Today's Bloomberg Big Take. With this story, we turned to Bloomberg Business Week national correspondent Josh Creen, who joins us on the phone from Washington. Also with us in the Bloomberg Interactive Broker studio is the editor

of the magazine, Joe Webber. Joel, Um, we're talking about Florida Governor Rhn de Santis. Yeah, obviously there's uh sort of a been a mess in d C this week. Um, but I think almost the bigger political story that is going to perhaps have a longer trajectory is the Ruhn de Santist narrative. And we've been obsessed with this one for a while, especially coming out of mid terms, because what midterms really showed was how much of Florida has

been galvanized behind Ron de Santis. And now the question becomes, can Ron de Santis actually take that narrative and make it be a national one? And to do that, Josh pointed out something that I thought was just incredible, which is, unlike many Republican predecessors, De Santis has managed to put a target on business in a way that no one else has ever done before, and that has really galvanized UM grassroots support behind De Santis. Um. So, Josh, turn

it over to you. Where did you learn about Ron De Santis? Said, you are working on the story. Well, I mean, the interesting thing to me when I set out to do this story in the fall was that here was a guy who's clearly talented, clearly wants to run for president, and yet faces the same big impediment that every other Republican who wants to run for president does. And that's Donald Trump, who's like the eight pound guerilla

and has managed to kind of sideline all comers. What's so interesting about the Santus and what sets him apart from other Republicans like Mike Pence or Mike Pompeo. UM, you know secondary Trump figures who are known to kind

of want to run for president. Is that these crack the code of how do you build a profile for yourself among grassroots Republicans that isn't contingent on your standing with Donald Trump, and the way that the Santus has managed to do that is by starting the big kind of culture war grievances that Republicans love, that the Fox News audiences love only Unlike Trump, which makes everything about him, the Santus has made it about business in corporate America

and companies like Disney, and they're alleged woke ism. And that's really struck a chord with a lot of grassroots conservative followers who are now lining up behind the Santis, and it turned him into a viable threat, I think to win the nomination in how is it that business friend, former friend at the GOP, all of a sudden has been a great enemy that the Santis has been able to leverage. You know, it's it's a great question. Happened gradually.

You know, this business has always been the great ally of the traditional Republican establishment. They've been sympatico on policy, They've helped fund a lot of these guys. But the Santus is an interesting case and that he's always been a bit of an outsider. He when he first ran for governor in twenty eighteen, uh he was like languishing in third place and was not the choice of the

business community. In fact, the big businesses in Florida, like sugar and construction attacked the Santus because they had another candidate mind. But the sand is very cleverly warmed up to Donald Trump, got Trump's endorsement that vaulted him into the governor's mansion. Uh. And I think the standis feels like, hey, he really doesn't know anything to big business. Um. You know,

he hasn't any problems raising money. Um. But be more and more people I think in our culture view big business as an enemy or a player in the culture wars in a way that maybe they did in a generation ago. So you've got the George Floyd protests, you have Colin Kaepernick protests on least violence with Nike. Corporate America has become politicized, and what the Santus has done is really leveraged that for his own political needs. Actually,

you know, you mentioned, um, some big industry there. One of the one of the things that I thought was so interesting in the story that I learned was his willingness to take on big sugar. And you briefly mentioned that. But just slow that down for a second. I mean, you cannot imagine a bigger industry in Florida than sugar. And the first thing that Roun de Santis does is take on big sugar. What did he learn from that and what did others learn about him in the process. Well,

what's the interesting with the historical content? I mean, sugar is one of the big industries there, has a ton of money, is very actively involved in politics, and in eighteen they were supporting the state Agriculture commissioner who was who was who was their guy? And they ran a lot of negative ads on the Santus. If you step back through and think about what sugar needs and the context of modern Republican politics, they need cheap immigrant labor um,

you know, and they want to open markets. Well, what's been the big change in Republican politics since Donald Trump came in? He's turned the party very anti immigrant and very anti trade, and so that helped drive a wedge I think between traditional Republicans and kind of Trump to Santas style Republicans. So it's much easier for De Santis to go out, uh and attack sugar um, you know, not based on kind of state economic grounds, but but more on on on culture and on issues of you know,

should they be able to use immigrant labor. Well, I know from being at tons of Trump rallies to Santus

campaign events that Republicans still really care about immigration. And so, uh, you know, while while Sugar has a lot of powerful lobbyist still has a lot of political sway in Florida, they don't have nearly this way that they did, you know, ten fifteen years ago and Jeff Bush was president, and you know, you have this kind of uh populist uprising that certainly saw in Steen round Donald Trump and a lot of other candidates that now at least Florida has

gravitated very strongly to Rohnd De Santas. And it's worth pointing out this isn't just Republicans and Trump supporters. He all so one a lot of independence and a lot of Democratic voters too. So he's really come up with a formula that has worked well in Florida and could conceivably work on the national level. Two, but can he take on Donald Trump? Can he go head to head with with Donald Trump? Uh? As we've learned in the mid terms, De Santis was very popular, Trump not so much.

But as you write, people have made the mistake of counting out Trump before, Yeah, and De Santis strategy And know, when I was down there, Trump was still considered this big, imposing figure, and the Santa's strategy has been to ignore him entirely, to put off that fight to another day, Santis or to sanctimonious. Yeah, even when Trump called him, you know, Ron to sanctimonious and tried to start a

fight with him, to Santus just ignored it. And uh, you know, even in the weeks since I was down in Florida, there's been kind of a vibe shift in Republican politics where siddy Donald Trump doesn't seem quite as big and scary as he wants did. Part of that is it Republicans fared so poorly actually Trump's candidates in the mid from elections. Um, but he just seems to be a shrunken figure compared to what he was six

months or a year ago. So at least for the time being, you know, De Sandus is the hot brand among Republican donors and a lot of Republican voters. But as you said, at some point, if he wants the Republican nomination, he's gonna have to get up on a debate stage and challenge Donald Trump, and so far nobody has done that and survived, so maybe he'll be the first. So he's taken on this corporate wokeness. Um, where does he go from here as a candidate, if he's going

to actually go to this national stage. What's working for him? I mean, he started out with with Disney and criticizing a lot, you know, a lot of the companies UM that were openly supporting black Lives matters after after George

Floyd's murder in Minneapolis. Um, what's happened since then is that I think he'd recognize that this really resonates, and he'd broadened out the fight on corporate wokeness to focus on big Wall Street banks UH and big asset managers, companies like Black Rock, people like Black Rocks CEO Larry Fink.

He's kind of turned them into the new villains for Republicans because you know, there's never going to be a lot of grassroots support for Wall Street firms, but he's claiming that there woke that they're diverting traditional capitalist goals of building shareholder value in order to pursue liberal social justice goals like curving global arming and so on. There's a degree of truth in what he's in what he's saying. But everything I've seen is that this really does resonate

with Republican voters. If you watch Fox News prime Time. Maybe not this week with with the chaos we have going on down here in Washington, but any other any other week, and this is something that Republicans care about. It looks like it's resonating, and that's all good for Rhode Santas political future. Josh, I'm stealing your words here, but you know, you kind of asking your story, you know, Ken,

though de Santis replaced Trump's rages. For example, you write, you know, can De Santis's attacks on s G and Larry Fink eclipse, Trump's crusade of cricket, Hillary and Lion ted in the pantheon of Maga villa villains. It's a great question, like Kennet and kenn resonate nationally? Yeah, and I don't. I don't think we have any answer to

that yet. I mean, I'll be honest, like I was a little skeptical going into this piece, but I went down and you know, I traveled around Florida, talked to a lot of politicians, including Democrats, you know, talk to some Fox News producers people like that, and it really does register. And it's not just run De Santis saying this, and you have other candidates like Mike Pence who are now trying to hop on the wokeness bandwagon. It's just

something that that seems to resonate with Republicans. So at least so far, it's working for De Santis. But again, at some point you're gonna have to control confront Donald Trump, and that's that's a showdown we haven't seen yet. Last question, it's a quickie. What's it like to try and coverage the Santis It isn't easy. He doesn't you know. Part part of his stick is he hates the press and

he keeps them penned up in rallies. So uh, he won't talk to non right wing reporters, but a lot of a lot of people's rallies very forthcoming, very eager to talk to him. And you know, not just Trump people in Conservatives, but I ran in lots of independence Democrats too, So um, he's certainly somebody I think that a lot of political experts at bullish on them. Josh, yes, so no, if they both are on the debate, stage, will they both be throwing baseball caps into the audience?

I guarantee it guarantee Josh Green, the cover story of Bloomberg Business Week, thank you so much. In our thanks to Joel Bebber as well. You're listening to Bloomberg Business Week with kirol Messer and Tim Stenovik on Bloomberg Radio

Bloomberg Quick take Out. Today. They are noting that there is a new COVID variant, it's nicknamed the Kraken variant, that was detected last year and has become the dominant strain here in the United States, identified in twenty eight countries according to the w h O, and there have not been any reported significant differences in severity, which makes me happy. But what do we need to know about it?

We've got a great guest with us this afternoon. Carry All Tof is Associate professor of epidemiology at the Johns Hopkins Bloomberg School of Public Health. It is supported by Michael R. Bloomberg, founder of Bloomberg LP and at Bloomberg Philanthropies. She joins us on the phone from Baltimore. Dr Altof. It's good to have you back with us. It has been a while since we last spoken, and perhaps it's a sign that things are concerning when it comes to this new variant, that you are back with us and

speaking about this so called crack in variant. What does our audience need to know? So this variant, we believe is pretty transmissible. What we saw happen in December was that it went from the circulating variant to really growing in the proportion of sessments that we that we look at to see what variants are circulating. It's now up to about of those sessments that we're capturing um, which was about a templed increase from four percent about in

the month of December. So we do know this is highly transmissible, and therefore we start asking these additional questions life severity, we are seeing just light increases and hastilizations the way we expect after the holiday gatherings, what we were kind of anticipating after the holiday gatherings. And we also note that x bb B one five, which is the scientific term, it's really dominant in the northeast of the United States, but we're not seeing differential hospitalizations there.

So so we're hoping that this early and yet still inconclusive evidence that this is not a more severe strain causing more severe disease is true. We're also looking at that vaccine. The bivalent vaccine does have omicron variants in it, and XBB one five is a sub variant of the omicron virus, So so really having that vivulent vaccine is important. And right now we see only of adults over sixty five who are at highest risk per severe disease are

actually vaccinated with the vivalent booster. So to protect yourself from severe disease from this BBB one five vivalent boosters are the way to go dr altof UM. What worries you more right now? These COVID variants and covid case is still out in our communities, or the flu, which I know a lot of folks in my family I've seen it and others where they're like, man, the flu knocked me out for two weeks. What is it that worries you a bit more? And that might be more

problematic to our health right now? You know what? I think it's the combination. Right, So, we've seen RFV start to come down, which is great because that was differentially impacting or very old and or very young. We are seeing influenza and particularly the A strings are really still going strong. And just as you said, people are getting pretty ill, getting down and out for for days, if not weeks done and it's taking a while for some folks to recover. End it again is affecting our oldest

and our youngest. So we are trying to make sure that this combination is not resulting in a higher capacity or i'm sorry, reaching capacity at hospitals, right, because that's

really our biggest concern. And so what that means is that again, you know, vaccines, we have flu vaccines just not necessarily going to protect you from the infection, but we'll keep you out of the hospit it will definitely reduce your risk of hospitalization, particularly among young and the old, who we see are at greatest risk for that severe disease from influenza. But yees flew ripped through my house too. It is no joke. What about when it comes to

an rs V vaccine? How close are we to one of those, especially for kids who are the most vulnerable. You know, there have been trials of RSV vaccines that have gone on for many, many years. There is one we are getting excited about it is coming down the pike, um, and we are hopeful that we will be able to share that good news that there is an rs V vaccine that is safe and effective relatively soon. Are you involved in the study. No, no, no, no, no, no,

not me. We we as a scientific but I think I think the thing that is most important to recognize about that is for parents of young kids right now, and for people who regularly interact with older adults and care for older adults, particularly in residential settings. That vaccine is out here now in RSV is It's very real. It's starting to come down, which is good news, but you know, we're we're still very cautious because it could

go back up. We're still watching. Hey, I am curious to how much you're keeping an eye on what's going on in China specifically right I feel like, you know, going back to the early days where we were seeing you know, high deaths, high hospitalizations, you know, bodies piling up. Unfortunately, we're seeing that play out in China right now. Are you at all concerned that what's happening to China could ultimately lead to some kind of spike or new variant

coming into the United States. So, first, of all, what what we're hearing coming out of China. It is devastating.

It's devastating for the people of China. And you know, it's important to note that they do not have a very high vaccination rate among older adults, who we know are greatest risk of severe illness and death from COVID, and so that's really where where my concern lays is that these these older adults are are pretty unprotected and that is going to impact how that this wave of illness that they are seeing plays out in terms of

the impact on that country's health. I think overall, as a global community, absolutely we are concerned because anytime you have this much replicating virus, replications lead to mutations, and mutations lead to new variants. And so absolutely this is not just a really hard moment for the for the people of China as they kind of attempt to get through this way, but it is also a very concerning

moment globally. Dr Altoff just in the last minute we have I want to end on somewhat of an optimistic note. I hope it is because your specialty is studying HIV and if I think about my lifetime the way that an HIV diagnosis when I was a kid was like a death sentence to the change as it is now when there are so many people who are living healthy

with the virus. What does let's say about how quickly we can overcome you know, the next virus that we find or different variants of COVID, and how quickly medical science is able to change really just one generation. I mean, I think what we've seen in terms of scientific advancement under COVID is is really it's a moment that if I ever see anything like this again in my career, I will be just as surprised as I am right

now with the advancements that we've made. I'm also very hopeful that the advancements that we've made in COVID will start to translate to other settings, including a potential HIV vaccine. And so these are the pieces of this terrible pandemic that are the silver lining for us and and hopefully we will continue to see this with with good funded research from from our government. Well, we always appreciate checking

in with you and the Johns Hopkins team. Dr carry alt Off, a CSI Professor of epidemiology at Johns Hopkins Bloomberg School of Public Health, which is imparted by Michael R. Bloomberg, founder, Bloomberg Alp and Bloomberg Philanthropies. These two is Bloomberg Business Week with Carol Messer and Tim Stenavik on Bloomberg Radio. Wouldn't ust be a nice story that we could start

talking about? Three? And that is peace between Russia and Ukraine because, surprise, surprise, earlier today, Russian President Vladimir Putin ordered his forces to cease fighting in Ukraine for thirty six hours starting tomorrow Friday at noon Moscow time. So, Tim, is it a change of heart or as Kiev quickly dismissed, a ploy by President Putin. We've got a great voice to address exactly that question back with us here on Bloomberg We've got Angela stant Senior Adviser to the Center

for Eurasian, Russian and East European Studies. She also served as National Intelligence Officer for Russia and Eurasia at the National Intelligence Council and before that served at the U. S Department of State. Her latest book is on Vladimir Putin. It's called Putin's World, Russia against the West and with the rest. She's with us right now on the phone from Washington, d C. It's really good to have you back with us, Angela, thanks so much for joining us.

So how did you read into that news today? Was it a change of heart or as Kiev quickly dismissed, a ploy by Putin, Well, this isn't a change of heart. I mean Putin was first of all making, you know, deferring to the Russian Orthodox Church. That patriarch asked him for the seasfire, so he wants to show that he respects the church. Since this patriarch is an enthusiastic supporter

of this war against Ukraine. It was for domestic purposes to show his people that, you know, he respected the Authox Christmas, and I think to the outside world to make it look as if well he is interested, you know, in at least for thirty six hours um a ceasefire.

But I think it could also be because on Monday there was a major Ukrainian attack on an army barracks in Makievka, where hundreds of Russians apparently died, and the army has been heavily criticized for being probably responsible for this, for allowing the soldiers to have their cell phones working, so the Ukrainians knew where they were, et cetera. And it may be that Putin wanted to avoid any you know, subsequent attack on Russian troops during our Orthodox Christmas. So

this is I think more or less a ploy. Um. The Ukrainians clearly don't take it seriously, and we really see no signs that Putin's interested in serious negotiation with the Ukrainians. Angela, I feel like nobody can tell Vladimir Putin what to do. You would know this or understand him certainly more than I would. But I mean, why would he do this? Does it make sense at all?

Even if it's why do this ploy? If that's what it ultimately is, well, because he again for it's for probably for pr purposes globally to show that he's reasonable, but also, as I said, to kind of show that he supports the Russian Orthodox Church and and show his people that he's willing to get them a rest spite for thirty six hours. Now, some Ukrainians think, you know, the Russians are going to use this to regroup. It doesn't really give them that long, uh to regroup, But

that's why he did it, um. And and so that you know, to reinforce those voices in the outside world and the West to say, well, you know, maybe he is serious about negotiation. Well, that's that's my question. It's about negotiation, but also about just troop morale. As this this war, Russia's invasion of Ukraine enters what could be a very brutal winter, and of course the the the you know, second year in just a month or so, Angela, So what does it what does it mean for four

more ale right now? And what do we know about morale? Well, I think morale among the Ukrainian soldiers is pretty high. They're highly motivated their fighting for their country. But morale among Russian soldiers isn't so high. I mean, we've had hundreds of thousands actually of Russians trying to avoid the

last mobilization. There are now rumors that there's going to be an mobilization coming very soon, and so people again are concerned about that, and there are increasingly but you know, Russians who go and fight there and they don't understand what the point of it is um and why they're being all of these casualties. So I do not believe that morale is that high among the Russian soldiers, and you know, they're not even given the equipment they need

when they're mobilized. They have to provide everything themselves. Um So it's you know, it doesn't make them look We're in a very favorable way on the Russian military. You know. The other thing we talked about Angela today here at Bloomberg is how the US and Germany or specifically sending armored vehicles to Ukraine. President Joe Biden and Chancellor I'll have sold saying that in a joint statement. So that's a pretty significant upgrade in firepower that was sought by

the Ukrainian president. Germany is also going to follow us and providing a Patriot missile defense system to Ukraine. I mean, this stuff is getting pretty serious in terms of the types of equipment that continue that goes to the Ukraine. How are you thinking about three in terms of this war? Well, I mean the war suddenly going to continue, and the Ukrainians can only continue to push back against the Russians

if they have the Western equipment. And I think it's it's very good that the US and Germany, and by the way, France announced yesterday it too was gonna provide uh, you know, modern Western tanks to Ukraine. So so far the Poles and others um formal warsap PAK members have supplied Ukraine with Soviet era tanks. But now they're going to get the modern Western stuff and this will help them to keep pushing back against the Russians, because without

that they would be in a much worse situation. Angela, We've been talking about you, and gratefully we've really relied on you to weigh in on this. This is somebody you've written about. You know, I'm talking about Ladimir Putin, and you understand, as the longer disc goes on, how

do you think about the stability of this leader? So there are I mean, I think at the moment you can say he is still in charge because he's created a system where there's there really is no uh success that's been named, and there are no kind of opponents that we know of high up in the ranks that could do something about, you know, persuading him to to retire.

But I think that the longer this war goes on and that the and the Russian army doesn't do well on the battlefield, I think in the end that does begin to erode his position so far. There are a lot of critics, the more hawkers critics, but they're blaming the military for all the problems. They're not blaming Putin himself. That could change, and if that were to changed, and

I think his hold on power might be somewhat weaker. Um. On the other hand, he probably you know, will will remain in power for this year and he'll run for president again. In The question comes up and has really come up over the last few months, as about a potential off ramp for Vladimir Putin if the U S and the Western world continues to fight Ukraine with this aid, and Ukraine indeed continues to surpass at least the earliest expectations of being able to defend itself and fend off Russia,

what is an off ramp for Putin? Yeah? Does it come via Turkish President Urdawan? I'm not sure that there isn't off ramp. I mean putent that the Russians are still insisting in the minimum that the Ukrainians recognize the annexation of four territories, none of which Russia fully controlled Um and two of which, you know, until this war began, were firmly under Ukrainian control. You know, why would the Ukrainians make those kind of territorial concessions when they're doing

better on the battlefield. Uh. And it's not clere that Putin would accept any less than this recognition, at least of the annexation of these four territories. So I'm not seeing any off ramp. I know that countries like Turkey are trying to mediate. People have asked the Chinese what they like to mediate, But I don't think any of those countries, and even China necessarily has the will or really has the power to persuade Putin to do something

that he doesn't want to do. Do you think in terms that we talked to the equipment right US Germany, you mentioned France, Uh, the amount of equipment that is going to Ukraine to help it in its fight against Russia. Is the right kind of support being shown? In your view, if you were a policy advisor at this point, you understand this world. Is there something else on that policy document that you would be sharing with the President of

the United States or other leaders? Well? I think the Biden administration has done a lot for Ukraine, but it has its own red lines worked out. I think with its NATO allies, which is not getting into a situation where there might be a direct conflict between NATO troops and Russia. And therefore, you know, if we'd had a no fly zone at the beginning of this war, the Ukraines wouldn't have been subject to all these bombardments. That

wasn't done because of the concern about that. Um. I think you know, when this is all over, there will clearly be discussions about were we all too concerned about escalation? Again, you get the nuclear rhetoric from Putin, how silly says that, well, we all too concerned about that to do what was really needed to help Ukraine push the Russians out of the territories at least that they've taken. But at the moment um, you know that that is the administration's policy,

and I don't see that changing. Hey, Angela, just about a minute left here. Um, what would surprise you here as this continues to go on, Well, um, I would be surprised, in fact, if the Russians suddenly said, Okay, well, we're willing to sit down and talk to the Ukrainians, but not on the basis that they have to accept all the annexation of the churches. That would surprise me. I would be very pleasantly surprised by that. But I'm not sure that we're going to see that. All right,

Gonna leave it on that note. Happy New Year, Angela, and thank you so much. As always. Angela's stant senior fellow at the Brookings Institution. She is author of Putin's World, Russia Against the West and with the Rest. Joining us on the phone from Washington, d C. As we mentioned, she served as National Intelligence Officer for Russia and Eurasia at the National Intelligence Council. Before that, she was at

the U. S. Department of State. I mean understands what's going on, you know, in these kinds of situations behind closed doors. A little concerning that there's still no off ramp for Putin. So what is this a stalemate? I I don't know. I mean it's stale made in the sense of, like, you know, this is what keeps happening, right, the fighting just continues. Well, it certainly feels that way, you know, I think about saving face as a world leader, like how do you get out of this? I don't know.

I really don't know at this time, but it's something that we know investors, you know, top of the list, those geopolitical concerns as they drag on a You are listening in watching Bloomberg Business Week, Carol Master, Tim Stanevik. We're back in just a moment right here on Bloomberg Radio. I'm a journal now, but you let me drive. Oh no, no, no no, no, who's homes right? I want to drive. It's a good question. Good drive to the clothes on Bloomberg Radio. All right, everyvetty, it is time for the

drive to the clothes. We've got about seventeen minutes left in today's trading session. Were you going to say something to you? It wasn't. I was just like thinking about our next guest. I'm excited to hear from Sam. I love talking to Sam. Talked to him so much over the past few years and throughout so many different cycles in the markets, and he's someone who really looks at trends and what goes on historically when it comes to

the financial markets. We're talking about Sam Stovall, chief investment strategist at c fire A. He joins us this afternoon via zoom from New York City. Sam, good to have you with us this afternoon. Okay, we've been talking a lot about two, but we've been talking more about three and what it has in store because the start of the year, unless you're you know, a share of a Chinese company traded here in the US, things are not looking good. What's your read? Hey, Carolin, Tim, Good to

talk to you again. Uh, well, it's same is if we are heading into three the way a lot of strategists have been predicting where it's going to be a tale of two halves, where the first half is likely to be challenging with high volatility, retest of the October low, maybe even a new low set, but then investors look across the valley and we start to see a recovery

in the second half. It sounds really logical, right, It makes sense, right if we think about and I'm guessing to some extense, Sam, a lot of it is because of the FED coming to at least it's the end of the cycle when it comes to rate increases. It may not start to cut rates, as they continue to remind us, but they may come to an end when

it comes to higher rates. That's right, Carol. Our expectation is at the FED will raise rates by fifty basis points in February in March and then hit the pause button. But the FED, even though they keep saying, you know, don't anticipate or rate cut, they do remind us that they are data dependent and it was the data that cause them not to start to raise rates and then

to play catchup. And since the FED typically ends up cutting rates less than nine months after the last rate hike, that would squarely put it into December for the first

rate cut of the next cycle. Hey, I gotta go challenge a little bit here, Sam, because I feel like this is a market cycle we really don't completely understand, right We never most of us have not gone through a pandemic before, where the market shut down, the economy shutdown, and then it kicked right back up thanks to lots of UH stimulus from governments as well as from central banks global central banks. So we're still trying to figure

out what the normal is. Is the normal what we saw pre pandemic or is it something different as a result of all of the stimulus and so on. Well, I think that the normal was pre pandemic. We then got the abnormal in terms of the pandemic. We got the abnormal in terms of response to the pandemic, and now I think we're sort of getting back a little

by little to the pre pandemic cycle nature, et cetera. Obviously, one big difference is that the UH forty years secular bullmarket for bonds or bear market for interest rates has certainly changed. Were bouncing along the bottom, if you will, because the average ten year note since ninety three was about five and a half percent, and we're obviously nowhere near that, but certainly we're a lot higher than the one to two percent that we had been experiencing just

a couple of years ago. So it brings me to where you recommend our investing audience allocate their capital for the year. Let's say somebody has some capital to deploy.

What are you suggesting based on your analysis at c f r A. Well, the right answer to most financial questions is that depends time horizon, well even time horizon, just in terms of this year, UM, a very simple model which looks at a rolling two d day UH performance for the eleven sectors in the S and P would continue to recommend a defensive approach in terms of healthcare, consumer stables, utilities at the expense of consumer discretionary industrials, materials,

non industrial, but materials technology, UM and so because you know, one would say, we're not really sure what the Fed's going to do and when maybe we want to stay defensive at least for now. However, what is the longer term opportunity I would tend to say is almost the complete opposite. I've had people ask me, Sam, do I

hold them or do I fold them? Meaning do I stick with last year's winners as I head into or do I go from first to worst meaning get rid of those groups that did the best and look to those that did the worst. And the right answer is, following a down year, more times than not, you are actually better off buying last year's losers than the last

year's winners. Kind Of that dogs the Dowth theory right to some extent, but it's more broadened out exactly because basically those companies or industries that were priced to go out of business or at least be challenged are the ones that now experience a vacuum of valuations. As I like to say very carefully, uh, and therefore represents the

greatest opportunity twelve months down the road. What about something that you know, we've talked a lot sam about how things though fundamentally there's some stuff going on that maybe is going to impact certain sectors, whether it's energy, you know, whether it's geopolitics, whether it's the pushback on globalization. Is there anything out there though that you know, kind of exkews your thinking in terms of what will be the

smart investment plays this year. Yes, And I think you hit the sector on the nose in terms of energy, because energy has done very well over the past two years, although it had been doing horribly over the prior five years.

Uh and so now that we're rolling back into it, now that energy was up more than fifty in two thousand and twenty two, the question is do I take my profits and run well If earnings are expected to be pretty good next in two thousand and twenty three, If the sector is trading it a near fifty percent discount on a relative basis over the last twenty years and a discount on an absolute pe basis, the group

is still very inexpensive. And from a geopolitical perspective, if we continue to have supplied disruptions from the energy area and we don't get a recession as deep as some are worried about energy could continue to do well well, so great to check in with you as always. Happy New Year. Sam Stovall, chief investment Strategist at cf are A joining us via zoom right here in New York City. Thanks for listening to Bloomberg Business Week. Download the podcast

on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at t p M Eastern I'm blue Berg Radio, or stream us live on YouTube and Blueberg dot com