00:00Let's talk more now about how the country plans to navigate this trade environment and the markets as well, of course, Afsane Beschloss, CEO and founder of Rock Creek Group.
00:09Afsane, you know, we have to wait and see if this market reaction holds, but for now, it appears the market wasn't expecting anything this, you know, seismic, let's say.
00:19We have, you know, quite a strong move in currencies and equities at their session lows.
00:24What is now your base case on trade for August 1st?
00:27You're absolutely right, Vani. The market expected something closer to 15 to 17 percent in terms of the average tariffs that would be getting sometime end of, you know, July 9th or some point later.
00:43So the 25 number is a little bit up there versus the 17 percent.
00:49So I think the market is gradually getting adjusted to this.
00:53But the fact that there is this choppiness and there's this uncertainty about, one, the dates, two, the amounts, three, to some of our most important trading partners like Japan and Korea does create a lot of impact, I think, on the markets going forward.
01:09And we should expect the choppiness that we've seen over the last few days to probably continue, maybe not April scale, but certainly to continue.
01:20There will be bouts of volatility already.
01:22You know, the VIX is up to just around 18, so nothing panicky just yet.
01:27But, you know, we need to keep an eye on that, right?
01:29And we obviously need to watch for Japan's response.
01:32But what would you be doing in this environment, given that there's only perhaps so much that Japan can do now?
01:38So I think one thing is that, you know, if we assumed that we would go back to that sort of average, even 17 percent, even that is a very large tax on consumers, right?
01:49Because at the end of the day, the consumers will be paying a large share of that.
01:54So with that scenario, if you're assuming that U.S. growth will be a little bit slower based on that, we have to obviously wait to see what the earnings reports are that are coming out.
02:03But what has been happening already, the kind of outflows that we saw from the U.S. equity markets did continue in Q2, as we saw in the numbers that came up last week, about 30-some billion that came out of U.S. equities.
02:21Some of that went into small caps.
02:23Some of that went into international markets.
02:26Bond markets saw a flow.
02:28So interest rates could be coming down sooner, potentially, in September, Vani.
02:33We thought that they might be coming down later at the end of the year in 2025.
02:39Now there's a scenario if we're slowing down, potentially, we might see interest rates come down, which also has impacts on the dollar.
02:47So what does that say in general, diversification away from U.S. assets over time, not one big swoop, but over time?
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