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Friday, March 31, 2023


Monday Market Maelstrom

A maelstrom is a powerful whilpool, once described by Edgar Allen Poe:

"Here the vast bed of the waters, seamed and scarred into a thousand conflicting channels, burst suddenly into phrensied convulsion – heaving, boiling, hissing – gyrating in gigantic and innumerable vortices, and all whirling and plunging on to the eastward with a rapidity which water never elsewhere assumes except in precipitous descents…  These streaks, at length, spreading out to a great distance, and entering into combination, took unto themselves the gyratory motion of the subsided vortices, and seemed to form the germ of another more vast…  The ordinary accounts of this vortex had by no means prepared me for what I saw…   It appeared to me, in fact, a self-evident thing, that the largest ship of the line in existence, coming within the influence of that deadly attraction, could resist it as little as a feather the hurricane, and must disappear bodily and at once." 

All in all, that's a pretty good description of the market action, especially in the financial sector where even the biggest "ships" are being pulled down to their doom.  It's the same action we first noted back on December 1st, with the Dow still at 8,800, when I said: "In our roller coaster market model, the absence of stimulus (usually in the form of government money) can only lead to gravity taking it’s toll.  As the picture on the right illustrates – is there enough money in the world to push our ships of state free of the relentless downward market spiral?"  I noted that (and see the original post for the image) we were still in the very early stages of a REAL bear market and sadly we have since continued right on that track.

I'm not here to make a bull case or bear case – see my most recent article on media manipulation and the markets starring my "friend, buddy-pal"Jim Cramer for my views on that.  Suffice to say we are deep in the throes of the maelstrom and one side of the ship sees nothing but oblivion while the other side of the ship sees calm seas to the horizon but Poe summed up the current situation very well saying:  "It may appear strange, but now, when we were in the very jaws of the gulf, I felt more composed than when we were only approaching it. Having made up my mind to hope no more, I got rid of a great deal of that terror which unmanned me at first. I suppose it was despair that strung my nerves."

In short – Abandon all hope, ye who enter!  It's a heck of an investing premise for the financials and I mentioned that in Friday's webcast regarding our SKF shorts – yes, the financials can go lower but we also do see clear skies on the horizon and the bears are betting on the rough seas lasting forever.  Even a storm needs energy, while a hurricane may destroy your home, the very act of hitting your home weakens the storm – that is why you cannot have an endless bear market, there is a certain point, even in this nightmare, where value is created, whether is is the $100 home you buy at a foreclosure sale that will make you $10,000 or the highly skilled computer programmer your company is able to hire for $50,000, even a depression creates opportunity – for those who can force themselves to take action that is…

The bears were out in force in the media this weekend.  As I mentioned in my prior post, we had Cramer, the Wall Street Journal, Bloomberg, Dick Shelby and John McCain all telling us we are DOOMED.  The financials are DOOMED, the Dow is DOOMED, the economy is DOOMED.  Even I told you last Monday that if we failed to retake 4,425 on the NYSE, 373 on the Russell, 1,340 on the Nasdaq we were DOOMED.  Well, today we'll see if 6.500 can hold on the Dow along with 670 on the S&P and we can only HOPE (never a good strategy) to get back to our broken-down levels.

Asia was hit very hard this morning and the Hang Seng ran straight to the 5% rule, giving up 577 points to settle 65% off the 2007 highs at 11,344.  The Shanghai fared little better, dropping 7 to 212 and the Nikkei "only" gave up a point to settle at 7,086 at 39% of their top.  Japan recorded its first current account deficit in 13 years (-$1.8Bn) in January due to plunging exports and a big decrease in its overseas financial earnings. "The result was shocking. I'm afraid that Japan's current account will likely be in the red ink for months ahead," said Toshihiro Nagahama, a senior economist at Dai-ichi Life Research Institute. "Because we can't expect that the U.S. economy will hit a trough in the near term, Japan's exports will very likely remain very weak," he said.  See – depression!  His outlook for Japan is based on his poor outlook for the US and now we will lower our outlook based on the poor outlook for Japan and so on and so on…

As I mentioned in Friday's Big Chart Review, the FTSE was our last holdout at the 50% off line and today they slipped right near it (3,377) on the morning dip to 3,450, 100 points off what was, for a moment, a good open – much like our Friday was.  HBC is hitting both Asian and European markets with a 24% drop as that bank is being sold of in bear raids as the bears are hoping they suffer the same fate as LYG, who may rise to 77% government ownership on this latest bailout.  There are a lot of people hoping something positive will come from the G20 meeting but it's not until April 2nd and I don't know if they have that long!

 We will be happy to get to our Friday upside targets any time this week at this point.  We tested them first thing Friday morning and failed miserably.  They were 6,765 Dow, 700 S&P, 1,350 Nasdaq, 4,400 NYSE and 360 on the Russell and they look pretty far away at the moment with the Dow showing a 60-point drop at the open as of 9 am.  We did get what would normally be considered good news as MRK pulls the $41Bn trigger on a merger with SGP, a considerable premium to that company's $17.63 close on Friday.  While the banks are not willing to finance deals, the companies themselves are getting creative although JPM is committing $8.5Bn in financing into the mix

Piper Jaffray must have been watching my show on Friday as they came out with an upgrade on AMZN this morning with a Buy reccommendation and a $81 price target on the $62.26 stock.  AMZN was the only stock I picked on Friday morning's dip…   We'll be keeping our eye on the Nasdaq in general, we're done with our QID puts and waiting for confirmation that it's time to take the QLD longs.  We're certainly not going to be excited about anything if we can't take back our levels but, as SGP shareholders can tell you – it does get to a point where some stocks just get too low to leave alone!



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Phil, how can the utilities get any traction when the airways  are bombarded  with dirty coal commercials ?                                                                                                                      

banks: securitization does makes the situation opaque. with bad assets and a one-world financial system, it’s the equivalent of the crap hitting the fan and ending up everywhere on the planet.
there are two risks: (1) there is large-scale insolvency and the banks are incorrectly zombified through being propped up.
(2) there isn’t large-scale insolvency, the banks are shot, and either the tax payer or the creditors have to pay for it. if the creditors are put on the hook, that can cause another large-scale panic in the bond market, and stress the solvency of insurance companies, etc.
and it’s a chicken-and egg problem, because the longer the problem goes on, the worse the economy becomes, the more jobs are lost, the more mortgages go into foreclosure, the more good loans become bad loans
in the 90s, we were telling the japanese to shoot the banks. some people say risk 1 is worse, because it’s long-term corrosive effects on the economy are more severe. you can wander in the wilderness forever. and least shooting the banks provides clarity, although painfully .
i’m not personally arguing for either case. if there was an easy answer, it would’ve been done by now.

Here is my 2c on the pharma industry:  I said it back in Sept or so, MRK would buy SGP FWIW.  Just took a bit longer than I thought – MRK and SGP have too many things co-branded.  BMY will be picked up here, and soon.  Not sure if it will be NVS or JNJ or SNY doing the buying.  Someone will pick them up.  AMGN will be bought by someone as well. JNJ is my bet here, which puts them out of the loop for BMY. JNJ and AMGN share rights for the anemia franchise (from what I remember), and Roche has the other half, which is tied up with DNA.  GILD/CELG/BMRN will aslo be bait.  AMLN most likely will be bought by LLY (Ichan is banking on it and did it last year with Imclone and LLY).   There it is.
ARNA, AMAG, ARRY and others are smaller players that have attractive portfolios, but not sure where they will end up.  The Japanese Pharmas are sniffing around, but they usually do smaller companies (ie, ARRY).

 You guys with great charting software can hopefully take a look and provide a more granular rule of thumb, but from my quick glance at the charts it looks like if you had bought DIA puts at 10am and sold them at the close you would have made money EVERY DAY out of the last 8.  The pessimists like Matt that observe such things must be making good cash in this market…

Mr. M, what you’ve stumbled upon is the trend we’re in.  And it’s down.  Going with the trend is always a good thing!  My hesitation for doing so today was that I thought, based on fairly heavy and consistant volume early in the day that we might be reversing in the finance sector.  The volume fizzled and it’s been back and forth ever since.  But since banks are up on a down day.. it could still be the start of a reversal for the sector.  I’ll definately be looking for it the closer we get to oe.
That being said, volume has been a great indicator today and I’ve done well with FAS and SKF.

 Steve, and the rest of you guys that follow shippers, are any of you following FREE?  Have any opinion long term?  If they don’t cut their dividend (a giant IF), my Fidelty research screen shows the current dividend at .625 for a yield of 100%!

Pharm – Thx. Your comments and suggestions, like always, they are valuable and appreciated. BTW thx for the confirmation of the DNA play. It worked for me.

Interesting that you could have made money shorting the DOW at 10 today but you could have also done so shorting SRS at 10, and these two are not usually positively correlated.  Means what?

Phil – Chart looks great.  Easy to open in new tab too, so I can blow it up!  Feel free to do more charts as needed. 
As to your video Friday, I find it too distracting (even before Daleela-wow).  Hope you don’t do it regularly.  Now if you want to do a series of video lessons to access under "trading education", that would be useful.  Maybe do a weekend video explaining a trade of the week. 

 Can anyone here explain the significance of the $TRIN and $TRIN/Q ?

There’s one positive from today, we’re getting closer to the bottom….

kustomz – I ‘ll remember that the next time my parachute fails.  Is the day over already?

Bro – U R welcome.  T’is a trying time in the field, and whilst I cannot keep up with all companies, I do see and have seen my fair share of failed drugs.  Biotech will become thet spokes that feed into the Pharma engine.  There is no way the big boys can keep up their own research engines.  Biotech is eating their lunch, the question remains, how long?? 
ESRX and MDH are still taking a beating on the prescription front.  I think a nice leverage into them would be worthwhile.  Phil, since neither company pays a dividend, maybe a calendar spread?  I know the market sucks, but these two are the big players here, as Rite Aide sucks, Walgreens is trying hard, Costco is working it little heart out to break in, and WMT wants this area BAD. 

Phil; SNL; as always with you, its all Bush’s fault !

You said earlier, we can review my planned actions after the market closes:

You prefer getting one at a time or in groups of 5  ?
CAT, have stock, have no caller but mar 30 putter,

action: sell 1x apr 27 call for 1.24$
and roll mar 30 putter to 1x apr23 for 2$, set stop at 20 % gain,

comment please.

Phil, in Matt’s defense, Obama’s handling of this crisis to date is completely relevant to our participation and success (or lack thereof) in the market.  I was about to make some comments about that post; but Phil, since I don’t want to tick you off, I won’t.

Chart — good chart; I assume you mean break out to the upside !

Mocha, you are so right about the 10 am selloff; but that can’t continue forever (can it ?).

Matt; what volume were you talking about as a great indicator.
Best I can tell, the volume in the SKF was on the downside.

SKF down about $5 after hours (meaningless I know..) any reason ?

 Way to go on the political "crap" Phil. But I enjoy your political comments having said that.
It’s the anger of the right I don’t like. If they were funny or fun or even just fair it would be fine 
but its the false logic and lack of human kindness that makes it hard to read – but we can skip over 
it mostly.


XLF …. I would like to see a run to $7 or higher sometime this week to blast SKF lower.

In defense of ME, it’s not like the op-ed was completely unrelated to the stock market.  I think it’s very related.  And I’m not a Republican.  I’m an independent.  How can ANYONE be a member of either of these two terrible self-interested, self-preserving parties??
SKF volume, I wasn’t using it to make my call earlier.  I was using FAS.  I looked at FAS/UYG/SKF and FAS volume was up significantly over the previous open.  Taking that with the huge stick save on Friday I thought we might be having follow through today.  I do believe something is afoot though.  Banks are never up in a down day.  And after hours it would appear that they’re putting a lid on FAS rising any higher then 2.75.  If FAS isn’t up again tomorrow by end of day then I’ll chalk up my observations as abberations and a knee jerk reaction.

Phil – for the insurers – I noted hear last year that the insurers would fall soon after the banks.  Insurers were selling annuities with guarenteed returns, but they now face huge losses.  Those people that bought these for the returns will seek their money sooner rather than later, and it will not be there, wiping out another round of wealth.  AIG is the first one to have fallen, but others will crumble as well. 

Matt, I am with you bro !  A pox on all of them (Phil thinks I am a Republican; not that there’s anything wrong with it !)
Banks … not all were up.  GS down again.  I look at "financials" vs. banks.

have stock, have no caller but have mar 11 putter,
action: sell 1x jul 10 call for 1.05$
and roll mar 11 to 1x jul 8 put for 2.05, set stop at 20 % gain,

have stock, have no caller but have mar 26 putter,
action: sell 1x apr 18 call for 2.2$
and roll mar 26 putter to 2x apr17 for 3.2$, set stop at 20 % gain,
have stock, have no caller but have mar 15 putter,
action: sell 1x apr 12.5 call for 0.9$
and roll mar 15 putter to 1x apr10 for 1.4$
have stock, have no caller but have mar10 putter,
action: sell jun call 7.5 2x for 0.5$ and roll to jun7.5 put 2x for 3.5$,
have stock, no caller but mar 28 putter,
action: sell jan call 20 and jan 17.5 put,
comments please,
if callers and putters gain and move ITM, close 25%/25% gain, another 25%/50% gain, if bullish, roll to higher strike,
if callers/putters move OTM, close when 70 % of timevalue is gone, if bearish, roll to lower strike.

GS earnings is next week (I couldn’t get the exact day yet).  For IV crush plays, we can do calendar spread, Jul 75/Apr 75 for $6.2.  Profit range in ToS Analyzer is $60 to $100 given the current volatility.  You can get fancy and add a calendar spread to each side Jul 55/Apr 55 PUT, and 1/2 Jul 95/Apr 95 CALL to widen the profit range, but lower the peak (but it maybe fine as GS would unlikely to stay at this price in 6 weeks).
For more extensive margin, we can try short strangle of Sell GS Apr 45 PUT/GS Apr 100 CALL for $3.4.  Profit range is $42 to 103 at Apr expiration. 
Lastly, we can do a Back Ratio PUT, which is less margin intensive.  Sell 20 GS Apr 50 PUT, Buy 10 GS Apr 55 PUT for $1.64 credit.  Breakeven point is $43.  Max profit of $6.5 if GS expired exactly at $50 in April.  Profit of $1.64 from $56 to infinity.   If you are bearish, you can do the reverse with Back Ratio CALL.

S&P to bottom at 600 points in October: Merrill
Sounds to me like a rather bullish call for a bottom, although they did revise it one time already.  We can easily deal with a bottom that is "only" 13% lower with the buy/write and other strategies.

Phil: txs for you help indeed,
when a stock drops and a putter gains in value, that is what I think is a loss, so I have to stop this by closing/rolling, your figures for selling puts and the stops you quote(example: UNH jun18 put at 3.05$ with stop at 4$ means 4/3.05 is 31 % higher value for the putter), looks as if I am dividing the wrong numbers ?? is this NOT correct ?
When callers or Putters move ITM and their value/price goes up, at a certain level it is necessary to close or roll otherwise its gets away too far to recover (has been my problem), I thought at a 50 % change UP its time to act, (previously it was the 25%/then another 25%/then roll), time to OPEX is, I think of lesser concern, I have been burnt too often to wait for a reversal, closing/rolling is safer but it must be in time. Rolling Up a caller or down a putter does of course bdepend whether one is bullish or bearish, just closing and waiting might be safer though.
If there is a false notion in here, let me know, I must come to grips withy this.
Here are 5 more PUTTER situations:
for all 5 I have the stock and NO callers but march putters:
DBC putter march20, sell july20 call and roll putter to july 18,
PFE putter mar17.5, sell jun15 call and roll putter to jun 12.5,
BTU, putter mar22.5, sell mar/apr 25 call and roll putter to apr 20,
PEP, putter march 50, sell apr 50 call, roll putter to apr 47.5,
X, putter mar 30, sell 1x call jan 22.5, and roll putter to 2x jan 17.5.
TXS Phil.

AAPL Apple: Sources confirm Apple laid off salespeople last week – CNET News.com (83.11 -2.19) -Update-

CNET News.com reports despite public statements to the contrary, Apple did lay off around 50 enterprise salespeople last week, CNET News has learned. Sources who wished to remain anonymous for fear of reprisal confirmed reports by Valleywag and 9to5Mac.com that roughly 50 salespeople were let go by the company for "business and economic reasons," according to one source. An entire sales group based in Austin, Texas was let go as well as workers in Cupertino, California, where Apple is headquartered. Those affected were given severance packages and the opportunity to apply for other jobs inside Apple… The layoffs in the sales group did happen, according to several sources that were brought into conference rooms in Austin and Cupertino last Tuesday and given white manila envelopes informing them that they had been laid off, amid plainclothes security officers. It’s still not clear whether or not the Mac Hardware layoffs occurred on Friday.

Here are next 5 situations: (Phil: I got so many as you put them up for consideration, maybe I have too many positions, fewer would be easier to manage)

for all 5 I have the stock:

MDT putter march32.5, sell april27.5 call and roll putter to april27.5,
MCD putter mar57.5, sell jun57.5 call and roll putter to jun 52.5,
SAP, no caller and no putter, sell apr35 call and sell april27.5 put,
WFT, no caller and no putter, sell apr 15 call, sell apr 10 put,
USO, no caller and no putter, sell apr 53 call, sell april25 put.

TXS Phil.

Good Morning Phil & all

Asia Markets :    Tuesday, March 10, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                     7054.98     -31.05    -0.44%
Hang Seng*                         11697.25    352.67     3.11%
China: DJ Shanghai*              246.56        4.86     2.01%
Seoul Composite*                1092.20      20.47     1.91%
Bombay Sensex*                  8160.40   -165.42    -1.99%
Baltic Dry Index                      2262.00      37.00      1.61%

*at Close

Asian Markets Gain, But Rise Seen as Fragile

(Indian Markets are closed for holidays Tuesday and Wednesday. Markets will reopen on Thursday).

Asian markets mostly rebounded Tuesday from a three-session losing streak, while the safe-haven bid on the dollar retreated in moves seen as a momentary reprieve from concerns about the weak outlook for the global economy.Asian share gains were led by banks, however, Japan dipped lower to trade close to a 26-year intraday low, led by worries about the global competitiveness of the country’s drugs sector following a $41 billion merger in the United States.

Japan’s Nikkei finished 0.4 percent lower, with drugmakers such as Astellas Pharma sliding amid worries about their global competitiveness after Merck proposed to take over Schering-Plough.

Seoul shares ended 1.9 percent higher led by banks and energy issues helped by a stronger won, but tech and auto exporters underperformed. Foreign investors were buyers of 176.8 billion won worth of shares, their biggest net purchase since February 5.

Australian shares closed 1 percent higher, recovering from earlier losses as the top banks and property groups staged a revival on hopes for more interest rate cuts. Analysts said the market was also starting to see some value in the battered financial sector, which has been caught up in a global sell-off.  The big four banks climbed.

Hong Kong shares rose 3.1 percent, bouncing off a four-and-half-month low.

Singapore’s Straits Times Index extend gains, up over 1 percent.

China’s Shanghai Composite Index rose as strong loan data outweighed news that China had slipped into deflation for the first time in over six years. Consumer prices fell 1.6 percent in the year to February, the government said on Tuesday; producer prices tumbled 4.5 percent. But the consumer price drop was in line with the market’s expectations and was to a large degree due to volatile food prices and seasonal factors.

Euro Stocks Rally, Citi Soothes Bank Fears

European stocks rose on Tuesday morning, gaining ground for the first time in four sessions, as a memo from Citigroup’s chief helped calm fears over the health of the embattled financial sector.

According to the memo from Citigroup’s Chief Executive Vikram Pandit obtained by Reuters, the bank was profitable in the first two months of 2009 and is confident about its capital strength after tough internal stress tests.The memo said the bank was having its best quarter-to-date performance since the third quarter of 2007. Citigroup declined to comment on the memo.

Banking and insurance stocks — which have been Europe’s biggest losers so far in 2009 — were in a rallying mood, with UniCredit gaining 6 percent, ING Groep adding 12 percent, Deutsche Bank up 6.2 percent, Barclays up 5.5 percent and AXA up 3.8 percent.

The DJ Stoxx European banking index is down 37 percent so far in 2009, while the DJ Stoxx European insurance index is down 42 percent.

The FTSEurofirst 300 index of top European shares was up 0.6 percent at 661.66 points. The index, which hit an all-time low on Monday, has tumbled nearly 60 percent since reaching a multi-year peak in mid-2007.

On the downside, Germany’s E.ON dropped 8.3 percent after lowering its 2010 profit expectations some 10 percent due to the financial crisis, regulation and negative currency effects. Other utility stocks were on the downside, with EDF down 1.1 percent and GDF Suez down 0.7 percent.

Mining stocks gained ground, with BHP Billiton up 3.3 percent and Rio Tinto up 6.3 percent, helped by steady metal prices.

Around Europe, UK’s FTSE 100 index was up 0.2 percent, Germany’s DAX index up 1.1 percent, and France’s CAC 40 up 0.6 percent.

Oil Slips Below $47 after Saudi Supply Report

Oil slipped below $47 a barrel on Tuesday after reports Saudi Arabia was keeping supply allocations to customers steady for April, suggesting OPEC may maintain existing production output quotas on Sunday. OPEC’s largest member, Saudi Arabia, notified customers of largely steady supplies for April from March, traders said on Tuesday, a day after a Saudi-owned newspaper said the world’s top exporter wanted stricter compliance with existing curbs before considering more cuts. Oil traders and analysts said Saudi Arabia appeared to be hinting that there would be no change in production quotas at the Vienna OPEC meeting.

U.S. light crude [ 46.91    -0.16  (-0.34%)] for April delivery fell, having gained more than 3 percent on Monday, on OPEC’s hints of further cuts and after a naval incident between the United States and China. London Brent crude [ 45.81    0.46  (+1.01%)] was up after settling 72 cents lower on Monday at $44.13.

Dealers were also looking ahead to weekly U.S. oil stockpiles data expected to show another fall in inventories. The U.S. Energy Information Administration will release later on Tuesday its monthly short-term energy outlook, which will likely contain a cut in its demand forecast. The EIA’s forecast is the first of three widely watched reports on world petroleum use to be released this week. The EIA has lowered its estimate for 2009 global oil demand in 10 out of its last 13 monthly forecasts.

Analysts polled also expected an 800,000 barrel fall in gasoline inventories and a 200,000 barrel rise in distillates stockpiles.

Dollar Falters, Sterling Stays on Defensive vs Euro

The dollar fell against a basket of currencies on Tuesday, retracing much of the previous day’s sharp gains as investors focused on U.S. stock market futures that pointed to a stronger start for Wall Street. A tentative easing of wariness towards risk allowed the euro a technical bounce against the dollar, while sterling lengthened losses versus the common currency on continued worries about Britain’s banking sector. The yen erased losses and rose versus the dollar, though doubts about its status as a safe port in the global economic storm ensured it kept an overall defensive tone, traders said.

The dollar index,a gauge of its performance against six major currencies,fell 0.9 percent to 88.492,off last week’s high of 89.624.
The euro [ 1.2711   0.0102  (+0.81%) ] rose against the dollar, rebounding from a three-month low of $1.2457 hit last week.
The euro [ 1.0902    -0.0016  (-0.15%)   ] was also firmer against sterling, off a 5-1/2 week high of 92.18 pence.
The pound [ 1.3862    0.0092  (+0.67%)    ] managed to recover from a six-week low against the dollar, rising on the day.
The yen [ 98.29    -0.53  (-0.54%)    ] reversed earlier losses against the dollar to rise,
but the Japanese currency stayed weaker versus a broadly stronger euro [124.95    0.31  (+0.25%)]

Market participants say foreign investors have been reducing long positions in the yen, with expectations fading that it can surpass a 13-year peak of 87.10 yen per dollar hit in January. Recessions in many of Japan’s export markets have dried up overseas demand for its goods, meaning exporters also have fewer dollars to sell in exchange for yen, traders say.

Gold dips, ETF holdings unchanged

Gold dipped on Tuesday, falling below $920 after sinking more than 2 percent in the previous session, as investors reassessed current market levels relative to other assets.

Gold was at $915.50 an ounce as of 0635 GMT, down 0.6 percent from New York’s notional close on Monday. Prices are now down about 9 percent from the 11-month high above $1,000 marked on February 20. It hit a record of $1,030.80 in March 2008.

The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings stood at 1,028.99 tonnes as of March 9, unchanged from March 8 when they dipped for the first time since January. That decline was 0.3 tonnes or 0.03 percent from the record 1,029.29 tonnes first hit on February 26.

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