Archive for December, 2018

Hedge Funds On Track For Worst Month Since 2011, As Systematics Throw In The Towel

Courtesy of ZeroHedge. View original post here.

Despite last week's dramatic pension-fund rebalancing, which salvaged December from being the worst month since the Great Depression, hedge funds are still looking at a dismal performance for both the month and the year. As Deutsche Bank notes, long/short equity Hedge Funds are on track for worst month since 2011, with equity hedged strategies down -5% MTD, on track for the worst monthly performance since August 2011.

The ongoing rout has forced hedge fund managers to hunker down, resulting in multi-year low gross leverage even as net exposure has been relatively stable as the market sold off.

Last week we showed a detailed breakdown of the best and worst performing hedge funds according to HSBC, with Odey proudly leading the pack, while a variety of systematic hedge funds (and Greenlight) on the tailing end.

We also showed  the performance of some of the most recognizable hedge fund names. It is clear that almost none of the "hedge" funds was hedged for the events that took place in Q4.

Meanwhile, the recent surge in volatility both – implied and realized – has spooked the other major marginal investor, systematic funds, who have officially thrown in the towel on 2018. VIX spiked above 35, and 1M realized volatility is now above 30, with the resulting jump in realized volatility triggering additional selling by vol control funds.

According to Deutsche Bank, vol control funds sold an additional $25bn in equities on the volatility spike. The higher volatility also prompted risk parity funds to further trim equity allocations, which is approaching 5 year lows.

Meanwhile, as we noted last week, CTAs remain net short S&P 500, which however prompts risks of a short squeeze.

Not surprisingly, the market turmoil led to renewed outflows from equity funds, led by the US. Outflows from equity funds totaled -$9bn last week with -$6.5bn from US. Japan (+$3.6bn) and EM (+0.1bn) continue to see inflows amid outflows from other…
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President Xi Defends China’s Economy As Growth Collapses

Courtesy of ZeroHedge. View original post here.

Shortly after the release of the latest round of disappointing economic data which confirmed that China’s economy likely continued to slow in December, President Xi Jinping delivered a speech to the nation where he defended his economic policies, saying China’s economy expanded “within a reasonable range” during 2018, despite the fact that its stock market was the worst performer among major economies and the rate of growth of its massive economy slowed for the first time in a decade.

On Monday, China’s official manufacturing PMI fell to 49.4 in December, from 50.0 in November, the lowest reading since February 2016, and the weakest reading for a December since 2008 (to be fair, some weakness in the December PMI is typical due to seasonal factors).


Factory orders and other economic indicators released so far this month suggest that China’s economy has slowed for the seventh straight month in December. This comes after China’s GDP grew 6.5% during the third quarter, the slowest rate since 2009.


With negotiations over the US-China trade truce expected to start shortly after the first of the year, Xi insisted that China would remain “resolute” in defending its sovereignty – a reference to China’s dominance of the South China Sea – and press ahead with its “One Belt, One Road” initiative.

“Looking at the world at large, we’re facing a period of major change never seen in a century. No matter what these changes bring, China will remain resolute and confident in its defence of its national sovereignty and security,” he said.

On the domestic front, Xi touted China’s success at lifting another 10 million people out of poverty this year, while praising its efforts to curb pollution in its air, water and soil.

“The improvement of the people’s well being speeded up and their living standards were steadily improved,” he said. “We have also made great strides in our poverty alleviation efforts in the past year. Another 125 poor counties and 10 million poverty-stricken rural residents were lifted out of poverty in 2018,” he said referring to progress to his pledge that China will eradicate poverty by 2020.

Xi’s remarks come after he confirmed that he had a constructive conversation with President Trump over the weekend about a trade war and urged the US to …
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‘Happy’ New Year Jay Powell: Meet The Dreaded Full Frown

Courtesy of ZeroHedge. View original post here.

Authored by Jeffrey Snider via Alhambra Investment Partners,

I’m going to break my personal convention and use the bulk of the colors in the eurodollar futures spectrum, not just the single EDM’s (June) contained within each. The current front month is January 2019, and its quoted price as I write this is 97.2475. The EDH (March) 2019 contract trades at 97.29 currently and it will drop off the board on March 18.

Three-month LIBOR was fixed yesterday at a fraction higher than 2.80%, meaning that if it stays around or above that level someone is losing money on it. The futures price isn’t directly translatable but back-of-the-envelope it works out to an expectation for 3-month LIBOR on that date in March to be less than what it is fixed now.

In other words, the market is seriously betting LIBOR is coming down not two years from now but in the short run. That expectation only grows the further out in time (down the curve).

Inversion, as noted earlier today, had been limited to more distant years centered around 2020. The eurodollar curve now sports inversion from the front month all the way out to September 2020.

This is not a curve, not a normal one anyway, it is a clear signal of trouble right in front of us.

In fact, almost the entire curve is currently below yesterday’s 3-month LIBOR. But strong economy or something. They really don’t know what they are doing.

Central banks are not central.

Happy New Year Jay Powell, the curve sarcastically frowns upon your ridiculously overoptimistic forecasts.

From here on, you are going to want to avoid taking any advice from Bill Dudley on the topic of eurodollar futures and inversions.

2018 Market Lessons – Extremes Can Become Even Extremerer

Courtesy of ZeroHedge. View original post here.

Authored by Sven Henrich via,

Before I issue my 2019 Market Outlook in the days ahead I wanted to highlight some key practical lessons from 2018 as they will help set the stage for next year. Firstly, I think it’s fair to say that markets ended the year quite differently from how most people expected them to at the beginning of 2018. Before you think this is going to be an exercise in “I told you so” it’s not. As I outlined in Lessons on Being Wrong

“Everybody will be wrong at some point or another. Markets are boss and will ultimately humble you”.

Pivotal years such as 2018 can humble, or should humble, a lot of people. Unless one can claim to have gotten every move right (which I seriously doubt and I know I haven’t) everyone will have been surprised by some aspect of markets in 2018.

Recognizing of some of the drivers of the market action is hence key to understanding of what happened and to ultimately help formulate a thesis for what investors and traders will likely face going into 2019.

Key lesson: Extremes can become even more extreme.

Blame the algos and computerized trading if you wish, but 2018 became a year of seeming reason defying moves to the upside and downside.

2018 consisted of 3 distinct phases: Firstly a massive momentum driven move to the upside soaked in optimism and artificial liquidity courtesy tax cuts. It didn’t matter how stretched and one sided the action was, stocks just kept flying higher and fading this move was atrociously difficult. Money kept pouring in, investors threw their cash into passive ETFs and programs kept allocating on autopilot benefitting the largest big cap stocks disproportionally.

How extreme was this move in January? How about the most overbought RSI reading on the $DJIA ever?

Ever is a long time and if history teaches anything it’s that if things get too extreme to the upside something bad will eventually happen.

Hence the initial correction in February was not a surprise, things just got way too hot. That initial 10% correction then initiated phase 2 of 2018 and it was the long road to new highs driven by record buybacks and on ever shrinking volume bringing us to the next lesson.

Key lesson: Patterns

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Howard Marks Says This Is The Only Reason To Buy

By Michelle Jones. Originally published at ValueWalk.

There’s been a lot of talk recently about where we are in the current economic cycle, especially since the bull market entered its tenth year. Investors and market watchers are increasingly wary about the future because the bull market is now the longest ever, and no bull market lasts forever.

Howard Marks Reason To Buy

Most are trying to guess what’s next so they can get out before the next market crash. However, renown value investor Howard Marks of Oaktree Capital says that’s the wrong way to look at things. He spoke at Value Invest New York earlier this week and offered some very simple advice for investors who are trying to forecast the market’s top.

Q3 hedge fund letters, conference, scoops etc

Don’t be average

Marks noted that it’s pretty easy to be average and it’s OK to be average like everyone else, but value investors who want to be above average must think differently than everyone else. One of the key tenets of value investing is buying when an investment’s popularity is understated and then avoiding buying when the popularity and emotions are overstated. He pointed out that value investors must learn how to read the market’s psychology or the way most other investors feel. In many cases, successful value investors are running in the opposite direction of the market herd.

“When the knife is falling and when people are panicking and when they’re near suicidal and they’ve lost all faith in the future and they all say, ‘I don’t want to ever lose any more money and I don’t want to bear any more risk,’ that’s the time you can buy the most at the lowest prices,” Marks said. “After it passes the bottom and starts up, now optimism is in the ascent, and you can’t buy much anymore.”

Another element of market psychology is investors’ attitudes toward risk. He explained that value investors can learn a lot about risk by looking at how others feel about it.

“Other people’s attitudes toward risk are what makes the market safe or risky for you,” he explained.

Why Howard Marks doesn’t believe in forecasts

Marks also emphasized that the one thing he doesn’t do is guess about the future. He…
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One Weird Number Explains… Everything

Courtesy of ZeroHedge. View original post here.


Today we want to expand on a theme we touched on last week: 20-year trailing returns on US stocks. Don’t yawn…. There’s interesting material here. Trust us and read on…

First a quick summary of the data, using the latest market prices:

  • Over the last 20 years, the S&P 500 has compounded at 5.52% annually on a total return basis. Inflation adjusted (using headline CPI), compounded annual returns for the S&P have been 3.4% over the same period.
  • The last 2 decades have been some of the worst for nominal long term returns in US stocks since the periods ending in the late 1970s (6.5% – 6.8% CAGRs) and the late 1940s (2.4% – 4.0%), which includes the Great Depression.
  • The reason why returns look so bad even after a decade-long bull run: two +35% drawdowns in 2008 (-36.6% total return) and the 2000 – 2002 experience (net 37.4% loss).
  • Recent history is much, much worse than prior peaks. At the end of 1999, the S&P had compounded at 17.5% nominal/13.7% real over the prior 20 years. At the end of 1962, the index had grown by a 16.7% nominal/13.3% real CAGR over the prior 2 decades.
  • Average trailing 20-year CAGRs since 1928 are 10.7% nominal/7.3% real, so the last 20 years are also well below average levels.

For example:

Point #1: Low returns explain the rise of passive investing and the growth of exchange traded funds. When stocks are compounding at 11% (their long run average), asset owners are more likely to feel they can afford active management for the possibility of outperformance. When the S&P 500 is cranking along at 5% (like now), it becomes harder to justify active management fees; every basis point counts. Exchange traded funds, which can have lower reported tax impacts than mutual funds, also have an edge in the current environment.

Point #2: Low returns push equity market structure to become more cost efficient. It is no coincidence that the heyday of Wall Street trading desks was in the late 1990s, at the last peak of trailing 20-year returns. Institutional commissions of $0.05/share were an easy ask back then. Now, brokers are happy with a penny or two and that is all clients can afford in

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“I Had To Quit For My Sanity”: Teachers Resigning At Highest Rate Ever Recorded

Courtesy of ZeroHedge. View original post here.

Teachers and other public education employees are quitting their jobs at the fastest pace on record after roughly 10% of the industry quit over a 12 month period ending in October, according to data from the Labor Department.

While US workers overall at the highest rate since 2001 amid a tight labor market and historically low unemployment, quitting a job in education is notable since the field is known for stability and rewarding longevity, reports the Wall Street Journal's Michelle Hackman and Eric Morath. 

The educators may be finding new jobs at other schools, or leaving education altogether: The departures come alongside protests this year in six states where teachers in some cases shut down schools over tight budgets, small raises and poor conditions.

In the first 10 months of 2018, public educators quit at an average rate of 83 per 10,000 a month, according to the Labor Department. While that is still well below the rate for American workers overall—231 voluntary departures per 10,000 workers in 2018—it is the highest rate for public educators since such records began in 2001. -WSJ

Sara Jorve, a 43-year-old fifth-grade math and science teacher from Oklahoma, protested alongside other teachers last spring for better pay and classroom conditions – eventually quitting in May after a dozen years as an educator. Jorve, a single mother, said she had to rely on her parents for financial assistance due to the meager pay – though she returned during the summer to become a cardiovascular ultrasound technician. 

"I had to quit for my sanity," said Jorve.

The rising number of departures among public education workers is in contrast with 2009, when the economy was first emerging from a deep recession. Then, the rate was just 48 per 10,000 public education workers, a record low.

During the recession, education was a safe place to be,” said Julia Pollak, labor economist at ZipRecruiter.

That year, the unemployment rate touched 10%, the highest since the 1980s. This year, the jobless rate fell to 3.7%, the lowest reading since 1969. That has created very different incentives for teachers

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Tesla Slides on Report of Over 3,300 Model 3s in Inventory

Courtesy of ZeroHedge. View original post here.

The end of the year push to try and sell vehicles using a $7,500 Federal tax credit as a bargaining chip appears to be falling flat on its face for Tesla. A new report by electrek published on New Year’s Eve says that Tesla still has over 3,300 Model 3 vehicles in its U.S. inventory, which sent the stock sliding lower by about 2% in morning trading.

The inventory is despite Elon Musk pumping that deliveries were available on Twitter – and the company even trying to get its own employees to purchase a vehicle in order to move inventory.



At one point, Musk even told Tesla employees that they could apply their accrued time off toward the purchase of a vehicle. 

The Federal tax incentive dropping to $3,750 at the beginning of 2019 was supposed to be a huge end-of-year demand driver for the company, who reportedly had the goal of liquidating every car it had in inventory in the United States as it closes out a crucial fourth quarter. Now, not only does it look like this isn't going to happen, but according to the electrek report, Tesla actually “managed to build some inventory" instead. 

The consensus from Tesla supporters was that the phaseout of the tax credit would easily push the company past its goal for the quarter. Despite the fact that 3,300 vehicles isn’t a significant sum of inventory, the notion that inventory is reportedly building, instead of being drawn upon, may be a red flag.

This, again, comes on top of recent news that Tesla is now has offered to shell out cash for those who have who will miss the full tax credit benefit due to delivery problems – and that Tesla had again lowered its prices in China, where work on its new Gigafactory 3 appears to be on hold.

For now, we'll leave you with the analysis of the pro-Tesla bloggers over at electrek, who stated…

Tesla might be seeing peak demand

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US Stocks Tumble Into Red As Europe Ends Worst Year In A Decade

Courtesy of ZeroHedge. View original post here.

Having hovered higher overnight, US stock markets slid from their open and dropped into the red for the day as European markets closed their worst year since 2008…

Will stocks catch down to bonds?

Europe was a bloodbath with the Stoxx 600 down 13% in 2018, its biggest loss since 2008…

And as Project Fear kicked in, The FTSE 100 ended 2018 down 12% – also its worst year since 2008…but Germany’s DAX was worst


By Jacob Wolinsky. Originally published at ValueWalk.

Logos LP year end commentary discussing the Santa Claus rally and what they think of 2019.

Santa Claus rally? No Santa Claus rally? Naughty or nice? One thing is for sure the last two weeks on Wall Street have been gut wrenching. Not for the faint of heart. During that time, the major U.S. stock indexes have suffered losses that put them on track for their worst December performance since the Great Depression. Investors have also been gripped by volatile swings in the market as they grapple with a host of issues.

The S&P 500 has logged six moves of more than 1 percent over the period, three of which were of more than 2 percent. For context, the broad index posted just eight 1 percent moves in all of 2017.

Q3 hedge fund letters, conference, scoops etc

The Dow Jones Industrial Average, meanwhile, has seen seven days of moves greater than 1 percent. Its intraday points ranges also widely expanded. The 30-stock index has swung at least 548 points in eight of its past nine sessions, and also posted its first single-day 1,000-point gain ever on Wednesday. The index ended down 76 points Friday after vacillating throughout the session.

These moves are remarkable and what has been equally remarkable has been that fact that many pundits and astute market veterans haven’t had much of a satisfying explanation; fears of the Fed after Chairman Jerome Powell said he did not anticipate the central bank changing its strategy for trimming its massive balance sheet, a U.S. federal government shutdown, disfunction in Washington (almost every part of Trump’s life is now under investigation), slowing global growth, weaker data coming out of the U.S., “end of cycle”, and thus fears of a recession. All of which seem convincing as a root cause of this vicious selling. Watching CNBC has been almost comical with pundits like Jim Cramer recommending gold one day only to see markets move higher and then recommends nibbling on stock the next.

2018 was the year nothing worked: In fact, in 2018, just about every single asset class one can invest in — from stocks around the globe to government debt to corporate bonds to commodities
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Phil's Favorites

The Investigation: A Search For the Truth in Ten Acts.

Tune in to a star-studded live stream event ripped straight from the pages of the Mueller Report called The Investigation: A Search for the Truth in Ten Acts.


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Zero Hedge

2 Year Auction Unexpectedly Strong Just As Powell Pours Cold Water On Treasuries

Courtesy of ZeroHedge. View original post here.

In the chaos over Powell's unexpectedly less dovish comments which hit the tape at exactly 1pm, when sent stocks lower, and the dollar and bond yields sharply higher, the primary market had no time to react as it had already submitted its indications for today's $40 billion 2 Year auction when Powell suddenly pulled the rug from under the bond market, sending 2Y yields higher and yet since there was solid demand for the auction before Powell's commentary, the sale of 2Y bonds was a smashing success, stopping at a high yield of 1.695%, 1bp inside the 1....

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Beyond Meat vs Impossible Burger: Comparing The Vegan Meat Burgers


Beyond Meat vs Impossible Burger: Comparing The Vegan Meat Burgers

Courtesy of Vikas Shukla, ValueWalk

Pexels / Pixabay

The trend of vegan food has been gathering momentum in the last few years as people become more health conscious. They have also begun to realize the environmental impact of raising meat for human consumption. According to PETA, it takes an estimated 1...

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Kimble Charting Solutions

Wilshire 5000 Creating A Triple Top? An Important Breakout Test Is In Play!

Courtesy of Chris Kimble.

The stock market has been on fire of late, rallying up to the edge of price resistance on several indexes. Today, we look at one of those stock market indexes: the Wilshire 5000.

The Wilshire 5000 tracks all of the stocks in the US market, so it is a broad-based index that carries significant importance when gauging the health of the overall US stock market.

Looking at the long-term “weekly” chart above, it is pretty clear that the index is at an important price juncture.

The Wilshire 5000 spent the last 25 years trading within a rising price channel (1)...

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Insider Scoop

Jefferies Upgrades Deere, Cites 'Significantly Improved Farmer Income Outlook'

Courtesy of Benzinga.

Farmer buying power will remain pressured for 2019, but this will change for the better next year and will help support Deere & Company (NYSE: DE), according to Jefferies.

The Analyst

Jefferies' Stephen Volkmann upgraded Deere from Hold to Buy with a price target lifted from $150 to $190.... more from Insider

Chart School

Formula for when the Great Stock Market Rally ends

Courtesy of Read the Ticker.

When valuations for the boring water company or the boring electric company is trading like your Facebook, Apple, Amazon or Netflix or Google (ie FANG) you know something is wrong.

This is when a seriously over valued market is screaming at you.

Of course the reader must understand in a world where money printing goes super nuts (Zimbabwe style) the stock market may go hyper inflationary and picking a time frame for a top is never a good idea, but we are not there yet. There is no Ben Bernanke helicopter money to the masses yet (ie MMT). 

To see when water company's (and such like) are nearing the crazy FANG like valuations a review of the Dow Jones Utility Index channel shows us how history can repeat. The c...

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Digital Currencies

Cryptocurrencies are finally going mainstream - the battle is on to bring them under global control


Cryptocurrencies are finally going mainstream – the battle is on to bring them under global control

The high seas are getting lower. dianemeise

Courtesy of Iwa Salami, University of East London

The 21st-century revolutionaries who have dominated cryptocurrencies are having to move over. Mainstream financial institutions are adopting these assets and the blockchain technology that enables them, in what ...

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Consumer genetic testing customers stretch their DNA data further with third-party interpretation websites

Reminder: Pharmboy is available to chat with Members, comments are found below each post.


Consumer genetic testing customers stretch their DNA data further with third-party interpretation websites

If you’ve got the raw data, why not mine it for more info? Sergey Nivens/

Courtesy of Sarah Catherine Nelson, University of Washington

Back in 2016, Helen (a pseudonym) took three different direct-to-consumer (DTC) genetic tests: AncestryDNA, 23andMe and FamilyTreeDNA. She saw genetic testing as a way...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...

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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism


The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...

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Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.


This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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Free eBook - "My Top Strategies for 2017"



Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:


·       How 2017 Will Affect Oil, the US Dollar and the European Union


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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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