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Thursday, December 1, 2022


Testy Tuesday Morning

Our levels are holding so far

We came right back to 1,000 on the S&P yesterday but it held like a champ and that gave us the confidence to take a bullish cover on our longer DIA protective puts, right at 3:04, ahead of the usual 50-point stick save but it was a move we initiated right at the bottom at 2:30, catching almost the dead bottom on our roll.  Of course it's total nonsense but it's total nonsense we can count on with 8 stick saves of at least 50 points in the last 90 minutes coming in the last 10 market sessions accounting for 400 points of Dow gains or ALL of our gains since July 20th when we "broke out."

As illustrated in David Fry's SPY chart, the only exceptions to the stick save were the last two Fridays and I said to members in yesterday's chat, perhaps that is somehow significant that the collective we call "Mr. Stick", does not feel confident enough to make bullish plays into the weekend anymore.  Today we should head right back to re-test 1,000 on the S&P but we are much more bearish overall, having taken profits yesterday and covered our unrealized gains in our $100KP – the plan we discussed in yesterday's morning post.

We got a re-test and a re-failure of the Russell at exactly our 574 target right at 11:15 and the the Qs never even mounted a serious threat on our 40 line so it wasn't a tough call for us in the morning.  The other levels we are watching, Dow 9,297, S&P 1,000, Nasdq 2,017, NYSE 6,438, Russell 562 and SOX 308, are looking shaky and may not stand up to another test, especially if we get any bad news on our upcoming data with Wholesale Inventory and Productivity Reports on deck this morning.  Our bearish additions were an ERY spread (3x Energy bear) and COF Sept $40 puts, which are already up 10% from our 12:17 pick.  It wasn't all negative, we liked a couple of buy/write plays and we took a very bullish spread on FRE, which should do very well this morning.  At 12:57 we had noticed FRE moving up and, in Member Chat, we were discussing the merits and my take was this:

FRE/Ifl – The float of FRE is just 650M shares and they are capable of earning $5Bn a year in a stable economy so that would be about $7.50 per share.  If we ignore the fact that they lost $50Bn (10 year’s earnings) by virtue of the fact that it’s been swept under the rug by the government.  Even if you think it would take them 10 years to pay Uncle same back you still paid $1 for a stock that will let you retire on $7.50 a year in earnings.  FRE is not going away, the common stock may end up being liquidated or whatever but, on the off chance it’s not – we were buying them in the spring at .60 on this same premise.  What the hell, you put down $1,000 bucks and maybe get $15,000 a year off it down the road – that’s worth a toss.  Less so at $1.30 but now options come into play again so a world of possibilities like buying it here and selling the Jan $1 puts and calls for .95 for net .45/.73.  You can also spread the Jan $1s with the Jan $2.50s for .34 with a $1.50 upside at $2.50 and in for the same $1.34 as it would cost to buy it now but with less downside delta.

Those $1s should be looking pretty good this morning as FRE reported earning $768M this Q ans said they do not need any more bailout money.  Of course, this ignores the fact that the Fed is buying hundreds of Billions of Dollars of the company's debt at close to face value – THAT they do need to continue or this company will vanish in a puff of smoke so be aware of that before you start chasing them uphill!  Still it should make for a fun short squeeze this morning and, like I said, what a payoff if it hits…  EOG also caught our attention and we put a bearish backspread on them but the margin requirement was too much for the $5,000 Virtual Portfolio, which could use a good sell-off to push WHR and VNO below $59.

Of course the news isn't all bad.  The Wall Street Journal is running a heart-warming story this morning about how cities like Nashville, Tampa and Ontario California are all part of a growing movement of cities who embrace the tent cities that lie on their outskirts as they clearly have no better idea of what to do with the rapidly growing population of homeless people.  According the the WSJ: "After years of enforcing a tough anticamping law to break up homeless clusters, Sacramento recently formed a task force to look into designating homeless tracts because shelters are overflowing. One refuge in the California capital, St. John's Shelter for Women and Children, is turning away about 350 people a night, compared with 25 two years ago, said executive director Michele Steeb."  See – it's a growing business!  Who says this economy doesn't have any thriving sectors?

Actually, the homeless may be the fastest-growing segment of our economy with almost 25% of all US mortgage holders currently owing more money than their home is worth, a figure that is projected to rise to 30% by mid 2010.  Wow, what's the name of the company that makes Gortex?  “The negative-equity rate will rise and spin off more foreclosures,” Stan Humphries, Zillow’s chief economist,  “I see a substantial downside risk to prices and don’t think we’ll see a bottom until the middle of next year.”   A glut of unsold homes is also pushing down prices. The 3.8 million homes for sale in June would take 9.4 months to sell at the current pace of transactions, according to the National Association of Realtors. The inventory turnover rate averaged 4.5 months in the six years from 2000 to 2005.  More than 18.7 million homes, including foreclosures, residences for sale and vacation homes, stood vacant in the U.S. during the second quarter.  

So, let's do the math:  There are 3.8M homes for sale and that is a glut of homes that is more than double the rate we had in the "healthy" economy we had in the first half of the decade.  BUT, that does not include at least 14.9M VACANT homes that will, one assumes, either have to be sold by the banks or written completely off to the tune of (at the $186,000 national median) $2,771,400,000,000.  These are real numbers folks, no matter how much you try to sugar-coat it, these numbers eventually come back to bite the economy in the assets.  “We haven’t seen a bottom in home prices, and it could take into 2011 before we see equilibrium in the market,” said Michelle Meyer, an economist at Barclays Capital in New York.

I know – Ouch, ouch and ouch!  You may say: Phil, how can you point to these things and not be reporting from a fallout shelter in the backwoods of Canada?  Well, for one thing, I have faith that all this can be fixed over time – we simply lack the political will so far.  I solved this housing crisis 2 years ago and some of my proposed measures have actually been implemented but not my biggie, where I last posted in February "How to Solve the housing crisis TOMORROW."  Fortunately, I'm not the only problem solver in this country.  Our friends at GM, just 3 years after gasoline first hit $2.50 per gallon, is ready to go to production with a car that gets 230 miles per gallon (city)!  Automobiles use 40% of the world's fuel or 33M barrels of oil a day and most of that is city driving.  Make no mistake about it, OPEC is terrified of this and they have now lowered their forecast for 2009 by 480,000 barrels a day, not based on the GM Volt, but on the already rapid trend of permanent demand destruction as global consumers just say no to conspicuous consumption in a jobless (and homeless) economy.

Another reason you have to love this country is we sure can pull it together when we have to.  Productivity is up 6.4% in Q2 as a frightened worker turns out to be a highly motivated worker.  This was up considerably from the 5.3% gain expected but, unfortunately, Q1 productivity was revised down by 81% from 1.6% to 0.3% so it kind of calls into question yet another set of vital government statistics.  Hours worked dropped an average of 7.6%, something we discussed on the weekend as I had pointed out that the 150M people who do have jobs in this country are making 5-10% less for doing them and that is just like having another 15M people out of work.  Oops, sorry – this was supposed to be the bullish counterpoint…

Well, sorry but, while we're on the subject – I must share.  This was my favorite news item of yesterday as VLO is being sued for cutting their costs by cheating their workers out of millions of dollars in overtime wages and it is just the perfect microcosm of what's going on nationally in the Q2 profit picture.  The class-action lawyer is a vertitable quote machine so I'll let him have the last word on this subject:

"To keep its gas pumps flowing, Valero virtually pumps the lifeblood out of its workers who are expected to be on call 24-7, but are only paid for a fraction of the time they spend working.  This class action aims to turn off this oil Goliath’s unfair pay practices…  When it comes to its employees," adds Mr. Wittels, "the only thing Valero has refined is how best to fleece its employees out of their wages."

So now I've gone on too long and run out of time but Asia was up half a point and nothing interesting happened there.  The BOJ held rates at 0.1% but they won't give us home loans at that rate so what do we care?  Europe is down half a point at 9am with Latvia's GDP falling 19.6%, keeping our premise alive that the Baltics may still sink the EU.  The IMF was forced to lower Romaina's budget limits as well in order to keep that country running on life support and, of course, on a day when oil was testing $70 and OPEC lowered their forecast, it was inevitable that Rent-A-Rebel would come to the rescue and attack a pipeline in Nigeria.  This time it was Shell's turn to knock off a day's production in order for NYMEX traders to have something to hang their hats on as they desperately attempt to talk up the price of oil before it falls off a cliff. 

We're just waiting for the Fed tomorrow and then it's July Retail Sales on Thursday so nothing that happens today matters all that much but the Nasdaq already blew it's levels and we have some serious tests coming up on the rest.  We're already bearish so it's the bull plays we'll be eyeing today, especially the ones we reviewed over the weekend but, as I said last week – watch the newsflow in the MSM.  If it starts to get negative, look out below!



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Phil-  Thoughts on how this could affect SRS over the next couple of days or weeks?
Aug. 10 (Bloomberg) — The collapse in commercial real estate is preventing Federal Reserve Chairman Ben S. Bernanke from declaring the economy and financial markets are healed.
Property values have fallen 35 percent since October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year, pressuring companies such as Maguire Properties Inc., the largest office landlord in downtown Los Angeles, to put buildings up for sale.
The industry is likely to be high on the agenda when Bernanke and his colleagues sit down in Washington tomorrow for the Federal Open Market Committee meeting on monetary policy. Lawmakers including Barney Frank and Carolyn Maloney are pushing the central bank to extend an aid program designed to restore the flow of credit.
If nonresidential real estate remains in the doldrums, the Fed may be forced to leave emergency-lending programs in place and keep its benchmark interest rate close to zero for longer than some investors expect, given positive signs elsewhere in the economy.
Commercial property is “certainly going to be a significant drag” on growth, said Dean Maki, a former Fed researcher who is now chief U.S. economist in New York at Barclays Capital Inc., the investment-banking division of London-based Barclays Plc. “The bigger risk from it would be if it causes unexpected losses to financial firms that lead to another financial crisis.”
‘Close Attention’
The Fed is “paying very close attention,” Bernanke, 55, told the Senate Banking Committee on July 22, the second of two days of semiannual monetary-policy testimony before the House and Senate. “As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices, and so, more pressure on commercial real estate.”
The pressure may be easing in other areas of the economy. Gross domestic product shrank at a better-than-forecast 1 percent annual pace in the second quarter after a 6.4 percent drop the prior three months, and residential housing starts rose unexpectedly by 3.6 percent in June as construction of single- family dwellings jumped by the most since 2004, according to data from the Commerce Department.
Employers cut fewer workers than anticipated last month as the jobless rate fell to 9.4 percent from 9.5 percent in June — the first decline since April 2008, based on Labor Department figures.
‘Danger Zone’
Amid such glimmers of improvement, commercial real estate is a “particular danger zone,” said Janet Yellen, president of the Federal Reserve Bank of San Francisco, in a July 28 speech in Coeur d’Alene, Idaho. The market may be “under stress for some considerable period of time,” William Dudley, chief of the New York Fed bank, said the following day in New York.
Nonresidential construction may decline as much as 9 percent this year and another 5 percent in 2010, predicts Kenneth Simonson, chief economist at Associated General Contractors of America, an Arlington, Virginia, trade group whose members include Essen, Germany-based Hochtief AG’s Turner Construction Co. in New York, one of the largest U.S. builders. In the second quarter, it accounted for 3.6 percent, or $509 billion, of U.S. gross domestic product on an annual basis, down from 4.3 percent in the final three months of 2008.
A dozen lawmakers questioned Bernanke on the topic during his July testimony. Some asked about extending the Term Asset- Backed Securities Loan Facility, the emergency program the Fed began in March to restart the market for securities backed by auto, credit-card and education loans. The central bank expanded the facility in June to cover as much as $100 billion in loans to support commercial mortgage-backed securities.
One-Year Extension
Forty-one House members — including Frank, 69, a Massachusetts Democrat who chairs the Financial Services Committee, and Maloney, 61, a New York Democrat who heads the Joint Economic Committee — signed a July 31 letter seeking a one-year extension through December 2010 and asking for a decision by mid-August.
Fed policy makers will prolong the program if they judge financial markets are still “some distance from normal operation,” Bernanke said during his July 22 testimony. “We will certainly be monitoring the situation.”
The Fed likely will change the end date — just not right away, said former central-bank Governor Lyle Gramley.
Market Developments
“They’re probably going to want to wait a while to see how markets develop,” said Gramley, 82, now senior economic adviser with Soleil Securities Corp., a New York-based investment- research firm.
A six-month continuance is more likely than the one year industry officials want, said former Fed Governor Laurence Meyer, Washington-based vice chairman with consultant Macroeconomic Advisers LLC of St. Louis.
That would still be useful and “provide more of a runway” for the TALF to be effective, said Jeffrey DeBoer, president of the Real Estate Roundtable, a Washington group representing 16 trade associations and property owners including New York-based Vornado Realty Trust, the third-largest U.S. real-estate- investment trust by market value.
Any sales of mortgage-backed bonds would be the first new issues in the $700 billion U.S. market for commercial-mortgage- backed securities since it was shut down by the credit freeze in 2008.
About $3 billion are in the pipeline, and the success of these sales may foster as much as $25 billion in total deals in the next six months, said Kenneth Rosen, who runs a $310 million hedge fund in real-estate securities and heads the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley.

Fed focusing on Commercial Real Estate at FOMC meeting.
How would this impact SRS?

The computers aren’t playing today. Surely they are not just programmed for UP ?

Phil u wrote
"DIA/Morx – Right now the correct stance is the Dec $95 puts, now $6.80, 1/2 covered with the Aug $93 puts, now $1.65 after stopping out 1/2 at $1.50 (.10 loss).  The Aug $93 puts can be rolled even to the Sept $90 puts so no worries at all there as we still have 250 points to go before puttiing that 1/2 sale in the money and that should be a 25% gain on the long puts by then."
Qn : Just want to clarify the post as I am trying to get the language right.
Qn: When would we roll it to the Sep 90’s or is this how you would want someone to start with a clean slate?
Qn: Why Dec 95 PUTS i.e. why not anything earlier?
Sorry for the barrage. I am soaking up your articles on the mattress play but still have many qns.Thanks.

If I wanted to go short on the Chinese market, what’s the best way to do it? FXP calls? FXI puts? Something else?

Okay thanks for your help. Here is my question with an example. Stock vari with the option iuakk was has lots of action. According to what you are saying, since they are closer to the ask price than they must have bought the calls. sound right?

PRXL – "THAT’S the difference between buying something you believe in an buying something for a bet."  Dude (! – stop with the !s) it’s called the Oxen GAMBLE of the Day.  lol.

Beaches.  First of all, I play an actual sport on vacation: tennis.  Games are fine tho.   No re Greece – GNK has soured me on the Greeks.  (Still like delta tho, of course).   Compared to various worldwide contenders, hard to love any Cali beaches, but we just spent a couple weeks at Rancho Valencia outside LaJolla and Del Mar Beach is cool.   But Tuesday (drum roll – and, no, I don’t care about the heat cuz in truth the temp down there is virtually the same all year), before the big daughter starts middle school, we’re off to…

MBI – oh well I musta misread the posts. Long stock at 5.41 sold sep 5’s for 1.65 so I have room. Am thinking todays move is overreaction and just ride them out. Was curious if you read it different.

Commercial/GS – If they are honest about it then SRS should double in a day.  Don’t expect that.  There is nothing more insane in the market right now than this ostrich stance on commercial real estate.  10% less workers means companies need 10% less space.  Not only that but I don’t think there are any big plans for expansion so, even if jobs do come back over 2 years, it’s still very unlikely companies will be making any new 5-year commitments to space until they are literally stacking workers on top of each other.   We’re not even getting into the retail arena, where you could probably just demolish half the malls in America and they’d still look emptier than they did two years ago.   That means commercial real estate stays down for a couple of years at least and this return to the 40% line by VNO and BXP is very irrationally exuberant.
Phil- I was thinking the opposite.  The discussion of how CRE  could hurt the economy could potentially cause the gov to bail them out by buying their current loans and refinancing them when no one else in the world would….no?

Jersey.  Accidental resident.  If it’s not at least Montclair, I’m not buying it.  Took daughter to see Rock of Ages two weekends ago and she had to visit the Cake Boss (TLC channel i think) location (Carlo’s Bakery) in Hoboken.   I won’t get into how our driver got lost on the 7 mile drive to catch the Acela at Newark’s Penn Station (I figured why drive back into Manhattan), but that station makes Newark airport look like the Taj.   Jesus.  Carrying a ton of FAO and American Girl crap and a hundred bucks worth of "fresh" canollis – good god.   What a horror story.  But Rock was great!

Phil: how does the yesterday’s MRK play look today, I did not get filled yesterday ?

SDS.  Okay – as a "fool" (by implication) I’m gonna roll-up my Aug 47s (more conservatively than you’d like) to September $?? for a net credit at least.  I might go as wimpy as 49.  

Beaches.  Ten years and counting, baby, the best:  http://www.caneelbay.com/.   A little day trip or two to Little Dix and-or Jost Van Dyke (including a few communist cigars) and yessiree.  Caneel?   No phones or TVs in the rooms.  Great family therapy and some adult-only beaches.  BUT fricking girlz (at  8 and 11) are big enuf to require two rooms.   Let’s get them paid for this week, Daddio. lol

Phil: when is it opportune to roll caller WMT aug 50 to sep50 ?

Phil – my GLD vertical are spread puts, your rolls were to calls, did you mean that, does it make any difference? see below?
"Phil – Advice on GLD Bull Put vertical:  Short AUG 93 put – Long AUG 90 put? thx"
GLD/Concreata – You are at the mercy of the Fed on that one.  You can roll the caller to the Sept $91s at $3.05 (+$2.10) and that takes almost everything off the table.  Their delta is .63 and yours is .85 so no issue to the upside and, if it heads down, you can use that $2.10 to roll below the Sept caller (Sept $89 calls are $4.40).  So that’s what’s in the bush – you have $2 in the hand and this, in a nutshell, is exactly what’s bad about verticals – the trap, even just a week before expirations…

SDS/Dstil – ANYONE who has an Aug put or call that they bought (not sold) after tomorrow is a fool as the premium deteriorates at a rate of about 15% per day and any move that goes against you leaves you with no time at all to adjust the position.  If you don’t like a positiion enough to roll it to September – CLOSE IT!
SRS August calls are an exception to this rule….aren’t they? 

SRS, my calls sep 10 are green, went from 2.3 to 2.75$: will this run more or take the 20% ?

 Phil.  I’m confused also about your recomendation on the DIA puts – could you clarify.

Phil – Good call on Lerici, I have a photo on my office wall that I took there in the 80s – colorful buildings and boats, makes me smile every time I look at it.  La Spezia is paradise.

I haven’t heard anything about the MOS Aug. $50 puts lately, can you update please?

Phil, have been a basic subscriber, now added premium and canceled basic.  Will I get any credit for the remaining basic period, which ran 07/22/09 – 08/22/09?

Hey Folks

I don’t know if anyone took that DIG short, but based on my entry at 28.80, we just hit 2% at 28.24. I think an exit here is strong, we might even be able to get to 28.10 area.

You can see more on my DIG and PAAS trade in my Midday Alert I just put out.


!!!  LOL.  Anywho, craps may appear to have decent odds, but its too fast to actually win.   And take it from a former (wayyy former – back in the single and 3-4 deck days) card counter, never bother to play blackjack in AC (the non-Vegas-Strip rules are not player friendly) – so both games are brutal gambles.   So I guess we’ve resolved to drop PRXL for discussion purposes and classify David’s related picks as throwing the dice.  Okay.  I can live/die with that.

EOG/Phil – The bearish EOG play was a good call!  I first had some question on how to do a backspread on TOS’s platform.  And then I hesitated.  And the market closed, and I missed it.  I’m not going to chase it now.
Oh, well.  It’s always that way, isn’t it?  When I hit the button real quick, the price goes against me.  When I hesitate, I miss it.

Nibbling at BAC 17 calls here for a quarter just for fun in case it has a gangbusters OpEx week…

On the Oxen Gamble, it is not like I just throw darts at 20 stocks and which one I hit I pick. A lot of logic and care goes into the pick. It is very high risk sure, but it is more like if you played poker and knew what everyone else had and then guessed on your hand based on that.

PRXL taking out the one time charges hit its EPS expectations, so I mean it wasn’t as bad as things are showing. The accounting mistakes just really overshadowed this fact as well as lowered FY revenues. Nothing that we saw in any of the other three companies I compared PRXL with. Totally a miss, and I apologize.


Okay thanks for your help. Here is my question with an example. Stock vari with the option iuakk was has lots of action. According to what you are saying, since they are closer to the ask price than they must have bought the calls. sound right?
Miracle I think this is a safe assumption, especially if the option trades were under 500 contracts each. I *think* over 500 the ISE for one might allow "block trades" which are agreed off the exchange then subsequently reported to it. These could be buys or sells as they are allowed to be agreed at prices outside the bid/ask shown.

PharmBoy – this is about where I got stopped out of ARRY yesterday so I’m getting back in slowly but using the SEP 2.50 calls as they have almost no premium.  Thoughts?

 die OIH, die !!!!!

The giddy euphoria of yesterday seems to have faded quickly, check out AIG, CIT, MBI, and THMRQ.  A person could make a lot of money shorting giddy euphoria!

The only real worry was they get slammed down below $4 – didn’t happen so you have a nice stock at a discount, which is the entire point of the buy/writes.
Understood. I remember staring at them at $7 thinking it was rich, but I am still learning not to over trade!!!!
I love these buy/writes. I started off my own "investing" selling index spreads. If these went against me I booked a loss and ended up with no stock. Thankyou so much for converting me to these buy/writes, they suit me much better!

MBI: From seekingalpha:
12:36 PM MBIA (MBI) now down 16.2% after JPMorgan Chase cuts the bond insurer to "underperform," saying it thinks the company’s tangible book value is negative, contrasted with MBIA’s own BV report of $2.8B ($13/share).

Phil,                         re:Lerici should also try Levanto first town north of Cinque Terra  on a beautiful bay  with a great beach

Phil, How do you measure relative premiums in a futures contract — is it currently high or low?  For example some have stated that the

Hmmmm.  The speculative AUG calls I own are grinding down in value today and as I thought about Decision Day looming tomorrow (the Wed before OpEx week) I felt some deja vu about July OpEx.  So I looked back at that chart for a reminder, and recalled that last month the week before OpEx was a slow grind down which convinced me to dump my JUL calls on Decision Day, only to see them soar the following week when we exploded upwards.  So the big question you and I must ponder this month is: are we setting up for the same pattern, and do we hold-em, fold-em, or roll-em tomorrow… 

Phil, how do you measure whether premiums in futures contracts are high or low? For example, it’s been stated that the Sept, Oct and Nov VIX futures are all carrying "very large premiums". How do we know the premium is "large"? Is the measure of "very large" premium being compared to the CBOT VIX we watch each day? Is the amount of premium in a future always measure against cash market or some other way? Thx, brianma.

Jersey.  No – Acela back to DC.   By the time it got to Newark, tho, totally packed.  In response to my very nice request for help in finding two seats (since with kid), he said: "You’ll just have to find two sep seats…"  Needless to say, if you can surmise from my demeanor here, our relationship soured from there.  [We flew up and thought itd be fun for her to train down – if theres a fly leg, best to do it the other way tho – empty train in DC]

Looked Like a Little burst of buying on the indexes at the anouncement of the Bond Auction.  Any thoughts as to how this will effect the rest of the day?

John Harwood (cnbc) is such a hack and Obama fanboy.  Obama gives him a tingle up his leg.

David.  No apology needed, man.  I’m a big boy – I’m hangin’ in and will work my way back out with this one.  Hey, I praised MDAS earlier.  lol  DS

FXP Jan 10 calls are showing a huge spread for me, 2.00/2.45. How would I place an order on that? Split the difference and bid 2.20?

Anyone able to short WFMI ?  

 Phil,  With RUT breakdown would you buy out the AUG DIA covers or wait til 9220 is broken?

one more posn check pls VIX Spread (short Aug 27.5 put long Aug 30 put) – can I assume we are holding through expiration?
I expect the close or roll by tomorrow applies to naked longs, but not necessarily spreads?

Oil.  "Here comes ERY’s doggggggg…"  (to the tune of Mr. Bill’s dog)  With props to SNL. 

Hey all.

Portfolio Results are updated for the day here.

Buy Pick Portfolio almost to $5000.


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