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Credit deflation and the reflation cycle to come.


DurhamBorn

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The *HUGE* biggy is China.

It was China exporting deflation that pished Western IR low as they swamped the Western market with cheap stuff.

Wester ncentral banks fucked up by not seeing this, lowering IRs, causing Western assets to boom, digging a bigger hole.

Now China is swinging from a current account surplus to deficit.

https://tradingeconomics.com/china/current-account

And China is a long way from cheap.

This is where the fun starts.

Anyone who is dependent on Chinese export is going to get royally fucked over.

And now the Chinese will start pushing prices up the in the West.

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5 minutes ago, spygirl said:

The *HUGE* biggy is China.

It was China exporting deflation that pished Western IR low as they swamped the Western market with cheap stuff.

Wester ncentral banks fucked up by not seeing this, lowering IRs, causing Western assets to boom, digging a bigger hole.

Now China is swinging to a current account surplus.

https://tradingeconomics.com/china/current-account

And China is a long way from cheap.

This is where the fun starts.

Anyone who is dependent on Chinese export is going to get royally fucked over.

And now the Chinese will start pushing prices up the in the West.

Wow, that current account surplus is a massive red flag that times are a changing.

Have consumers finally run out of credit road with the Fed withdrawing liquidity?  India/Indonesian central banks are already complaining about king dollar...

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sancho panza
12 minutes ago, spygirl said:

The *HUGE* biggy is China.

It was China exporting deflation that pished Western IR low as they swamped the Western market with cheap stuff.

Wester ncentral banks fucked up by not seeing this, lowering IRs, causing Western assets to boom, digging a bigger hole.

Now China is swinging to a current account surplus.

https://tradingeconomics.com/china/current-account

And China is a long way from cheap.

This is where the fun starts.

Anyone who is dependent on Chinese export is going to get royally fucked over.

And now the Chinese will start pushing prices up the in the West.

Poundworld?

Mind you with these Private Equity messes,you can't blame it all on currency manipulation

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3 minutes ago, Majorpain said:

Wow, that current account surplus is a massive red flag that times are a changing.

Have consumers finally run out of credit road with the Fed withdrawing liquidity?  India/Indonesian central banks are already complaining about king dollar...

Deficit!!!!

I fixed my post.

Its notable.

As Ive repeated on ToS.

20 years ago, I saw quotes where the labour was pennies v 100£ in the UK.

Now Im seeing quotes where the labour is 30% higher than the UK.

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sancho panza
2 minutes ago, Majorpain said:

Wow, that current account surplus is a massive red flag that times are a changing.

Have consumers finally run out of credit road with the Fed withdrawing liquidity?  India/Indonesian central banks are already complaining about king dollar...

Was reading about them earlier

Indonesia raised rates twice in two weeks

https://www.bloomberg.com/news/articles/2018-06-06/indonesia-says-fed-must-be-mindful-of-policy-impact-on-others

'Indonesia’s new central bank chief joined his counterpart in India in calling on the Federal Reserve to be more mindful of the global repercussions of policy tightening amid a rout in emerging markets.

In his first interview with international media since he took office two weeks ago, Bank Indonesia Governor Perry Warjiyo said the pace of the Fed’s balance sheet reduction was a key issue for central bankers across emerging markets. Reserve Bank of India Governor Urjit Patel made similar comments earlier this week, arguing that slowing the pace of stimulus withdrawal would support global growth.
 
With the Federal Reserve proceeding with its policy tightening, and another interest-rate hike expected next week, emerging markets across the globe are bracing for a further selloff. Bank Indonesia has already raised its key rate twice to help bolster its currency, while the Reserve Bank of India on Wednesday became the latest to move, increasing its policy rate by 25 basis points to 6.25 percent. '

 

 

2 minutes ago, spygirl said:

Deficit!!!!

I fixed my post.

Its notable.

As Ive repeated on ToS.

20 years ago, I saw quotes where the labour was pennies v 100£ in the UK.

Now Im seeing quotes where the labour is 30% higher than the UK.

I've been hearing from friends in the import game that China has moved up in price significantly over the last few years.

 

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2 minutes ago, sancho panza said:

Was reading about them earlier

Indonesia raised rates twice in two weeks

https://www.bloomberg.com/news/articles/2018-06-06/indonesia-says-fed-must-be-mindful-of-policy-impact-on-others

'Indonesia’s new central bank chief joined his counterpart in India in calling on the Federal Reserve to be more mindful of the global repercussions of policy tightening amid a rout in emerging markets.

In his first interview with international media since he took office two weeks ago, Bank Indonesia Governor Perry Warjiyo said the pace of the Fed’s balance sheet reduction was a key issue for central bankers across emerging markets. Reserve Bank of India Governor Urjit Patel made similar comments earlier this week, arguing that slowing the pace of stimulus withdrawal would support global growth.
 
With the Federal Reserve proceeding with its policy tightening, and another interest-rate hike expected next week, emerging markets across the globe are bracing for a further selloff. Bank Indonesia has already raised its key rate twice to help bolster its currency, while the Reserve Bank of India on Wednesday became the latest to move, increasing its policy rate by 25 basis points to 6.25 percent. '

 

 

I've been hearing from friends in the import game that China has moved up in price significantly over the last few years.

 

Indonesia had the Asian crisis in 98.

They gave up on running their own monetary policy and hooked up to the dollar.

Got a free ride 2008-2018. Not its starting to be an issue.

 

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sancho panza
29 minutes ago, spygirl said:

The *HUGE* biggy is China.

It was China exporting deflation that pished Western IR low as they swamped the Western market with cheap stuff.

Wester ncentral banks fucked up by not seeing this, lowering IRs, causing Western assets to boom, digging a bigger hole.

Now China is swinging from a current account surplus to deficit.

https://tradingeconomics.com/china/current-account

And China is a long way from cheap.

This is where the fun starts.

Anyone who is dependent on Chinese export is going to get royally fucked over.

And now the Chinese will start pushing prices up the in the West.

Owrth noting from Hodges

https://www.icis.com/blogs/chemicals-and-the-economy/2018/06/financial-markets-party-as-global-trade-wars-begin/

'FINANCIAL MARKETS HAVE AN UNPLEASANT “SURPRISE” AHEAD AS CHINA SLOWS
It is therefore no great surprise that financial markets have continued to ignore developments in the real world.

Yet a decline in world trade, and the rise in protectionism, will inevitably produce Winners and Losers.  This will be quite different from the SuperCycle, when the rise of globalisation created “win-win opportunities” for countries and regions:

  • Essentially the deal was that consumers in richer countries got cheaper, well-made, products
  • People in poorer countries gained paid employment for the first time in history by making these products

History also suggests President Trump will be proved wrong with his March suggestion that:  “Trade wars are good and easy to win”.  Like all wars, they are easy to start and increasingly difficult to end.

So far, financial markets have ignored these uncomfortable facts.  They still believe that any bad news will lead to even more central bank stimulus, and a further rise in margin debt.

But as I noted last week, China – not the Fed – was in fact the major source of stimulus lending.  Now its lending bubble is history, the party in financial markets is inevitably entering its end-game.'

 

 

https://www.bloomberg.com/news/articles/2018-06-06/china-banks-yet-to-feel-the-worst-of-deleveraging-pain-ubs-says

'China’s banks have managed to sidestep the severest curbs on their shadow banking activity, suggesting the real pain of the deleveraging process lies ahead, according to a report by UBS Group AG.

 
A squeeze on their interbank borrowing was mitigated through extensive use of a short-term funding instrument called negotiable certificates of deposit, the report by UBS analysts led by Jason Bedford said. Regulators have clamped down on interbank activity because some banks had used it to boost shadow loans and add leverage.
 

China allowed sales of NCDs in December 2013 as a fresh fund-raising avenue for smaller lenders, which have difficulty competing for savings with multi-branch state banks. Between 2014 and 2016, issuance surged 22-fold to a record 20.2 trillion yuan, according to data compiled by Bloomberg.

Read the views of an analyst who sees a ‘softly-softly’ approach to deleveraging

The central bank plans to include NCDs issued by financial institutions with total assets of less than 500 billion yuan in the calculation of their interbank liabilities from the first quarter of 2019. Those issued by larger lenders have been included since the first quarter of this year. Currently, banks are required to cap their interbank borrowings at no more than a third of total liabilities.'

 

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40 minutes ago, spygirl said:

Its useless cunt Carney an the BoE

The first hit from Carneys fucked up policy is dollar priced commodities - mainly oil.

 

Lower pound + higher dollar + higher oil price = OMG brown trousers 

Venezuela, with the largest oil reserves in the world, had just had its oil industry collapse. Wonder what that will do to the price of a gallon. 

 

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DurhamBorn

@sancho panza i bought SBGL.PPLT is closed off to us now.

SBGL seem as if they want to buy up the entire Plat/pall market outside of Anglo American.They have a lot of debt because of this and the low rand gold price is making life tricky so they might sign a streaming deal for rhodium maybe,but i think they must see what we see for Platinum.I see $1400+ by 2020.I got back in at $2.60 and have owned them several times over the years and they have been very kind to me.Likely il be holding longer this time.

I also bought some more Harmony Gold and some Anglogold Ashanti.I think Greenstone open pit mines in Africa will replace the deep mines over time and they are the best two plays for this.

The pattern in gold is almost the same as 1999-2001 and after that we saw $240 up to $1920 so pointing to $7000 by around 2026 is possible.We see a nice rounding bottom in gold from around 2013 and would now expect a rounding top in equities (US).We expect a break above $1370 then the $1500 area as very likely.95 was our target for the dollar bounce,maybe 96 at most then down.If that is right it should add fuel to the miners.Hardly anyone is interested in the space and its hardly owned.People will probably regret that down the road.

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DurhamBorn
34 minutes ago, spygirl said:

Deficit!!!!

I fixed my post.

Its notable.

As Ive repeated on ToS.

20 years ago, I saw quotes where the labour was pennies v 100£ in the UK.

Now Im seeing quotes where the labour is 30% higher than the UK.

I import from China.I have an agent over there and know several factories inside out.Prices are going through the roof.They cant live with the RMB/dollar where it is.An item i brought in last year was £32 landed to my storage,all costs included (transport,VAT,import duty etc).Iv got some ordered now and its £42 a unit.Delivery costs here in the UK is also up 12%.

 

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sancho panza
28 minutes ago, DurhamBorn said:

@sancho panza i bought SBGL.PPLT is closed off to us now.

SBGL seem as if they want to buy up the entire Plat/pall market outside of Anglo American.They have a lot of debt because of this and the low rand gold price is making life tricky so they might sign a streaming deal for rhodium maybe,but i think they must see what we see for Platinum.I see $1400+ by 2020.I got back in at $2.60 and have owned them several times over the years and they have been very kind to me.Likely il be holding longer this time.

I also bought some more Harmony Gold and some Anglogold Ashanti.I think Greenstone open pit mines in Africa will replace the deep mines over time and they are the best two plays for this.

The pattern in gold is almost the same as 1999-2001 and after that we saw $240 up to $1920 so pointing to $7000 by around 2026 is possible.We see a nice rounding bottom in gold from around 2013 and would now expect a rounding top in equities (US).We expect a break above $1370 then the $1500 area as very likely.95 was our target for the dollar bounce,maybe 96 at most then down.If that is right it should add fuel to the miners.Hardly anyone is interested in the space and its hardly owned.People will probably regret that down the road.

Have you a vierw on Amplats/Impala?

The charts of some of the big goldies are where they were in the mid 90's.Obviously DYOR......but in that time national debts have ramped up.

 

I never tire of posting the following Shedlock analysis

https://www.themaven.net/mishtalk/economics/secular-disinflationary-trend-hits-new-highs-deflation-on-deck-what-s-that-mean-for-gold-1HVGJo4NykmJCIDVGUc9UQ

'Wage and CPI inflation, even core inflation, has surprised to the downside four consecutive months. If a recession hits, and that is just a matter of time, outright price deflation is likely.

 

by Mish

What’s That Mean for Gold?

Contrary to popular belief, gold is not an inflation hedge. We had inflation every step of the way from 1980 to 2000 with gold falling from $850 to $250 along the way.

To be more precise, we had disinflation, a falling, but positive rate of inflation as measured by the CPI. Those are conditions in which gold tends to perform miserably.

Gold tends to do well in deflation, stagflation, and times of credit stress. More importantly, gold does well when confidence in central banks is on the wane.

Faith in Central Banks

The second to last slide above is worth a detailed inspection. Here is the timeline.

 
  • August 15, 1971: Nixon closed the gold redemption window. Gold was $43.15 per ounce.
  • January 21, 1980: Gold closed at $850 an ounce. That was the market top for decades.
  • March 1980: US inflation peaked at 14.8%. The Federal Reserve Board led by Paul Volcker raised the federal funds’ rate to a peak of 20% in June 1981. It was not the rate of hikes that directly led to the plunge in gold. Rather, the rate hikes convinced the public and the markets that the Fed had everything under control.
  • August 11, 1987: Greenspan took over as Fed chair. The “Great Moderation” started. Disinflation and slowing falling interest rates were the norms. Greenspan was labeled the “Maestro”. Faith in central banks peaked under Greenspan.
  • May 7, 1999: The Bank of England announced plans to dump gold for other assets. The price of gold was $282 per ounce. The advance notice of the sale drove the price down by 10% by the time of the first auction on July 6, 1999. With many traders shorting, gold reached a low of $252.80 on July 20. This is frequently called “Brown’s Bottom” after Gordon Brown, the UK Chancellor of the Exchequer.
  • 2000-2007: The DotCom bubble burst and Greenspan slashed interest rates to a then record low. This was followed by a housing bubble, a housing bubble bust, and Greenspan leaving the Fed. Ben Bernanke took over. Bernanke slashed interest rates to nearly zero and kicked off three rounds of QE. Faith in central banks was again in question for most of this timeline.
  • August 23, 2011: Gold peaked at $1923.70 with a European debt crisis underway, worries about Greece, and with the Fed involved in a series of QE actions.
  • July 26, 2012: Mario Draghi gave his famous “Whatever it Takes” speech. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” Faith in central banks was temporarily restored.
  • November 22, 2015: Gold touched $1056. In the chart, I gave a December date. That timeframe is when faith in central banks hit a rebound peak.
  • Present: A debate is on whether or not the Fed is behind or a head of the curve. Dissent at the Fed as to whether it should be hiking or cutting is widespread. Many economists advocate a higher range of inflation even though the Fed cannot get to 2% inflation. Asset bubbles are numerous and obvious to many observers, but not the Fed.

The price of gold closely follows faith in central banks. If you think faith in central banks will again come into widespread question, then add to your gold stash.

Deflation on Deck?

Is deflation on deck? Yes, asset deflation, a very destructive kind of deflation.

CPI deflation is not to be feared. More precisely, CPI deflation is a benefit. Falling prices increase purchasing power by definition and thus raise standards of living.

Yet, central banks (especially the Fed, ECB, Bank of Japan, and the People’s Bank of China) foolishly poured trillions of dollars into the economy an attempt to boost CPI inflation.

Instead of boosting the CPI, central banks created numerous asset bubbles. When asset bubbles burst, and they always do, bank loans based on inflated asset values come into question.

This is precisely what happened in the housing bubble, and it will happen again, perhaps not as severely globally, but it may be crippling in the EU.

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.

BIS Deflation Study

The BIS did a historical study and found routine deflation was not any problem at all.

"Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

Meanwhile, economically illiterate writers bemoan deflation, as do most economists and central banks. The final irony in this ridiculous mix is central bank policies stimulate massive wealth inequality fueled by soaring stock prices.

Full Presentation

Click here to view my entire Venture Alliance Presentation, 38 slides in all.

Mike “Mish” Shedlock'

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DurhamBorn

@sancho panza i like all the PM area and would be happy to own Impala/Amplats etc and only dont as i didnt want anymore SA exposure with owning Harmony as well as SBGL and Anglogoldashanti (although they are no longer SA mostly).Im no gold bug,its only recent iv been buying the space,but i think in the following months and years people might once again see gold (and silver) as the primary safe haven assets to protect wealth and avoid massive financial pain.Whatever happens i really would not be without some exposure going forward.

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Yellow_Reduced_Sticker
1 hour ago, sancho panza said:

 

I've been hearing from friends in the import game that China has moved up in price significantly over the last few years.

 

I bought a 500 meter spool of Daiwa fishing line from ebay (Chinese seller)
its TOP quality as good as the stuff sold in UK tackle shops which would cost £18.00
 
yet the china man is selling it delivered to ya UK door for £2.30 !
 
I buy these spools of line regularly and its now starting to go UP... but @ 3.75 its still peanuts!
 
AND NO there was no Yellow Reduced Sticker on it lol:Geek:
 
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1 hour ago, DurhamBorn said:

@sancho panza i like all the PM area and would be happy to own Impala/Amplats etc and only dont as i didnt want anymore SA exposure with owning Harmony as well as SBGL and Anglogoldashanti (although they are no longer SA mostly).Im no gold bug,its only recent iv been buying the space,but i think in the following months and years people might once again see gold (and silver) as the primary safe haven assets to protect wealth and avoid massive financial pain.Whatever happens i really would not be without some exposure going forward.

Do you see silver as a good bet?

I was wondering because most of the supply is as a by product of mining for other metals (copper, lead, zinc etc) so if the economies go into recession and demand for the industrial metals falls so will the supply of silver.

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No Duff (troll)
18 hours ago, leonardratso said:

.....seems to be a lot faster as well.

And works with the Opera browser!

Just now, No Duff said:

And works with the Opera browser!

And (laugh) no property ads!

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Will be following this with interest.

Just heard about two instances in Northern Ireland recently of people camping out overnight outside EA's to get houses. Last time I heard about that was 2006 just before the big collapse.

Another anecdotal about a 3 bed house on for £400K in Belfast that's currently at £500K after two weeks of bidding. £500K for a 3 bed house ANYWHERE in Belfast is mental. Utterly mental.

It feels like the calm before the storm, house prices up up up, even heard my Dad saying "prices will only go up", which I remember him saying 10 years ago before they collapsed. And this house price inflation is set against a background of the high street seemingly dying a death.

I've fucked up massively the last 5 years by staying in cash; I should start to diversify now because I agree with @Frank Hovis's post that they'll try and destroy the currency, and hence the debt, via inflation. If most of the UK is up to their arse in debt, they're not going to try and save the savers, are they?

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No Duff (troll)
7 minutes ago, JoeDavola said:

It feels like the calm before the storm, house prices up up up, even heard my Dad saying "prices will only go up", which I remember him saying 10 years ago before they collapsed. And this house price inflation is set against a background of the high street seemingly dying a death.

I've fucked up massively the last 5 years by staying in cash; I should start to diversify now because I agree with @Frank Hovis's post that they'll try and destroy the currency, and hence the debt, via inflation. If most of the UK is up to their arse in debt, they're not going to try and save the savers, are they?

+1

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DoINeedOne
10 minutes ago, JoeDavola said:

Will be following this with interest.

Just heard about two instances in Northern Ireland recently of people camping out overnight outside EA's to get houses. Last time I heard about that was 2006 just before the big collapse.

Another anecdotal about a 3 bed house on for £400K in Belfast that's currently at £500K after two weeks of bidding. £500K for a 3 bed house ANYWHERE in Belfast is mental. Utterly mental.

It feels like the calm before the storm, house prices up up up, even heard my Dad saying "prices will only go up", which I remember him saying 10 years ago before they collapsed. And this house price inflation is set against a background of the high street seemingly dying a death.

I've fucked up massively the last 5 years by staying in cash; I should start to diversify now because I agree with @Frank Hovis's post that they'll try and destroy the currency, and hence the debt, via inflation. If most of the UK is up to their arse in debt, they're not going to try and save the savers, are they?

Same here been cash mostly via business accounts for too long be wanting to diversify for a while it's actually this thread over at HPC that made me pull the trigger and just start

Crypto, Cash, Premium Bonds, Shares, Gold Miners and still learning 

 

Whilst Premium bonds are my house deposit but most months in getting £25-£100 in prizes certainly better than Halifax account

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7 minutes ago, DoINeedOne said:

Same here been cash mostly via business accounts for too long be wanting to diversify for a while it's actually this thread over at HPC that made me pull the trigger and just start

Crypto, Cash, Premium Bonds, Shares, Gold Miners and still learning 

 

Whilst Premium bonds are my house deposit but most months in getting £25-£100 in prizes certainly better than Halifax account

I'm hoping this topic can end up being a knowledge base of sorts as well as tracking what's currently happening so that we can try and make the most of what's coming.

I've got £170K savings, a £40K income, and no house (I rent @ £500/month).

I'm not too keen on spending £200K+ for a house at the moment (and that wouldn't even be a nice house; a nice one would be £300K+), because doing so would land me with at least £200 a month in bills that I currently don't have....more like £250 a month actually. So I'd be £200K down and maybe £250 better off a month if I'm lucky.

My wages aren't likely to go up, and I don't stand to inherit much money so it really matters what I do with this. If this get inflated to fuck all by the time I'm 40 in 5 years, it'll be like starting anew when I was 20....except I'll be fucking 40 ;)

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Yellow_Reduced_Sticker

is the canadian criminal dummy about to have his hands FORCED and RAISE IR's next month ?

Data backs Bank of England view that first-quarter slowdown won't last - Ramsden

https://uk.finance.yahoo.com/news/data-backs-bank-england-view-first-quarter-slowdown-150545225--business.html

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23 minutes ago, DoINeedOne said:

Same here been cash mostly via business accounts for too long be wanting to diversify for a while it's actually this thread over at HPC that made me pull the trigger and just start

Crypto, Cash, Premium Bonds, Shares, Gold Miners and still learning 

 

Whilst Premium bonds are my house deposit but most months in getting £25-£100 in prizes certainly better than Halifax account

In a similar position but wouldnt touch cryptos.

Got all my money out the stock market before the last crash and been too hesitant to jump back in ever since.

Seems this thread is saying buy a UK property if you have significant savings which is pretty much enough to buy a house, as they'll be wiped out in the coming few years.

 

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