US stocks have soared to unsustainable highs and could crash 26% within months, Morgan Stanley's top strategist has warned. In an analyst note the bank's chief US equity strategist, Mike Wilson, said that the current level of stock valuations could be compared to the “death zone,” a term in mountaineering describing an altitude so high that climbers do not have enough oxygen to breathe. “Many fatalities in high-altitude mountaineering have been caused by the death zone, either directly through loss of vital functions, or indirectly by wrong decisions made under stress or physical weakening that lead to accidents,” Wilson wrote. “This is a perfect analogy for where equity investors find themselves today, and quite frankly, where they've been many times over the past decade,” he added.
The metaphor indicates the excessive levels that stock prices have climbed to since the start of this year. Wilson suggested the S&P 500 could tumble to 3,000 points within months, down about 26% from current levels, saying that “it’s time to head back to base camp before the next guide down in earnings.” The grim forecast follows what many analysts have called the worst year for the stock market since the 2008 financial crisis. All three indexes tumbled in 2022 with the Dow Jones Industrial Average ending the year down 8.8% while the S&P 500 sank 19.4% and the Nasdaq Composite plunged 33.1%. “The bear market rally that began in October from reasonable prices and low expectations has morphed into a speculative frenzy based on a Fed pause/pivot that isn't coming,” Wilson’s latest note said. The strategist has repeatedly warned that the market rally won’t last as he expects inflation to prove stickier than many other economists forecast, forcing the US Federal Reserve to hike rates in order to bring soaring prices under control.
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Credit Suisse, the investment bank whose shares plummeted to record lows this week over fears it could be on the brink of collapse, is selling the five-star Savoy hotel in the centre of Zurich for as much as 400m Swiss francs (£361m).
The bank, whose stock has fallen by more than 40% in the past six months, said on Thursday it had put the 184-year-old hotel on Paradeplatz in the heart of the city’s financial district on the market as part of a regular review of its global real estate assets. “As part of this process, the bank has decided to start a sales process for the Hotel Savoy,” a spokesperson said. “We will carefully assess all offers and potential investors and communicate any decision in due course.” The news was first reported by the financial news blog Inside Paradeplatz. It said the hotel, which is undergoing a major refurbishment and due to reopen in 2024 as Hotel Mandarin Oriental Savoy Zurich, was the bank’s last remaining “trophy asset” and described its sale as a “king-size distress signal”. “The intended sale of the Savoy shows how serious the situation at the big bank is. Despite the conversion and restart as Mandarin in 2024, [Credit Suisse] apparently wants to part with the noble building in a top location as an emergency,” said the blog, which is written by Lukas Hässig and has broken a string of market-moving stories in Switzerland. “The CS bosses feel compelled to throw everything that still has value on the market. You need liquidity to stay afloat – too many customers are running away.” Credit Suisse has had to urgently raise capital, stop share buybacks and cut its dividend after a serious of crises and scandals. The bank plunged from a profit of Sfr2.7bn in 2020 to a loss of Sfr1.6bn last year, driven mostly by big losses on its investments in the failed supply chain finance group Greensill and the hedge fund Archegos – where US authorities have charged founder Bill Hwang and three others with racketeering and fraud offences after its collapse. Credit Suisse has also paid large fines after admitting to fraud over bonds it issued that were supposed to be used to fund tuna fishing in Mozambique but where some of the proceeds were diverted by one of its contractors in the country to pay kickbacks, including to bankers at Credit Suisse. And its private banking division – traditionally a cornerstone of Swiss banking – has been put under pressure after Suisse secrets, an investigation conducted by a consortium including the Guardian that exposed the hidden wealth of clients involved in torture, drug trafficking, money laundering, corruption and other serious crimes. Credit Suisse shares, which were worth more than Sfr9 in January, collapsed to a record low of Sfr3.5 on Monday, but have since recovered slightly to Sfr4.2. British Prime Minister Liz Truss on Sept. 23 unveiled the UK’s biggest tax cuts since 1972 to tackle high energy costs and inflation, and to boost productivity and wages. However, the plan has roiled financial markets, as it lacks detailed forecasts on economic growth, inflation and public finances, and involves no firm commitments to fiscal discipline.
The concerns over the plan, coupled with the US Federal Reserve’s aggressive rate hikes, Russia’s invasion of Ukraine and fears of a global recession, pushed the British pound to an all-time low against the US dollar last week. Investors also ditched UK bonds as yields spiked amid expectations of ballooning government debt and even higher inflation. British equity markets also fell, with the blue-chip FTSE 100 hitting its lowest level since March. The volatility prompted the Bank of England to intervene by pledging unlimited purchases of long-dated bonds. However, the emergency measure is not expected to have major implications for the British central bank’s monetary policy, as it was deployed mainly to preserve financial stability. At the same time, investors would remain jittery about an ongoing bond sell-off once the two-week intervention period ends on Friday next week. Economists and investment strategists have said the British crisis could spill over to global markets, similar to Russia’s default on its domestic debt in 1998 and the Greek debt crisis in 2009, when domestic crises led to larger financial turmoil. Former US secretary of the Treasury Larry Summers wrote on Twitter on Tuesday that he was worried the British crisis might trigger a global crisis if the Truss government does not take steps to stop the bleeding in the pound and government bonds. As the pound is a global reserve currency, a balance-of-payment crisis in the UK could reverberate beyond the nation’s borders, Summers said. Seven Investment Management LLP strategist Ben Kumar said fear might be contagious and warned that UK equity outflows could prompt parallel selloffs worldwide, Bloomberg News reported on Saturday. More importantly, the UK’s troubles this time around are not just market turmoil caused by its own fiscal policies, but a reflection of the vulnerability of financial markets as policymakers revise their monetary and fiscal strategies after years of ultra-loose monetary policies. Specifically, there is growing tension between monetary and fiscal policymakers, as central banks hike rates to fight inflation while other government agencies prefer low interest rates, tax cuts and other incentives to spur post-COVID-19 economic recovery. Many central banks have raised interest rates and some have adopted quantitative tightening by selling the assets they have accumulated over the years. This two-pronged tightening has led to dramatic volatility in interest rates worldwide and caused global currencies to weaken against the ever-surging US dollar, with the euro falling to its lowest in 20 years, the Chinese yuan dropping to a 14-year low and the New Taiwan dollar looking to test the critical barrier of NT$32 against the greenback. Over the past two years, the world has made a concerted effort to combat the COVID-19 pandemic. However, countries need to work more closely together in the face of a likely vicious cycle triggered by the synchronized rate hikes to avoid a global financial crisis. As for Taiwan, the government must make financial, economic and industrial adjustments to cope with the challenge of a potential global recession.
The S&P 500 also took a nosedive, dropping to its lowest point of the year at 3,667, a decline of more than 15% since March. The Nasdaq fell to 10,847, down 20% since March. The market-wide drop came days after the Fed’s latest 75 basis-point interest rate hike, which brought the current federal funds rate to between 3.00% and 3.25%. The central bank is struggling to tamp down the highest inflation numbers seen in four decades. Although annual inflation fell to 8.3% in August, down slightly from July, the monthly headline figure was up 0.1% over July, a higher reading than expected. That triggered another sharp selloff in markets earlier this month, sending stocks on September 13 to their worst day of trading since June 2020.
The Fed plans to increase rates still further before the end of the year and projects a rise to 4.60% in 2023 before any potential cuts, even as many economists fear further hikes will tip the economy into a full-on recession. Indeed, Fed Chair Jerome Powell has acknowledged that the central bank’s efforts have contributed to “declining activity of all kinds” in the housing market and could cause unemployment to climb. The majority of economists forecast the US entering a recession by mid-2023, according to a survey conducted by the National Association of Business Economics last month, while 20% believe that it is already there. President Joe Biden, however, insisted earlier in the month that things are “going to be fine,” reminding the population that “the stock market doesn’t necessarily reflect the state of the economy, as you well know.” “The economy is still strong,” he claimed. “Unemployment is low. Jobs are up. Manufacturing is good. I think we’re going to be fine.” The decision to remove Tesla from the S&P 500 ESG Index earlier this year seems out of tune with the thinking of many. The world’s largest maker of electric cars is a crucial enabler of a shift away from fossil fuels, yet S&P Dow Jones Indices excluded Tesla from the benchmark index over, among other factors, the company’s labour rights record and lack of a low carbon strategy.
Tesla board member Hiromichi Mizuno, a Japanese champion of sustainable investment, said that current ESG ratings give too much weight to negative impacts and not enough to positive. There may be some truth here, but it is also clear that a single, data-driven ESG index cannot be everything at once. At a minimum, there should be two distinct ratings: one to reflect a company’s positive impacts and another its negative externalities. Attempting to capture both in one score dilutes the informational value of the final rating: the positives and negatives inevitably cancel each other out, resulting in a rating that fails to represent either and can’t be relied upon to guide capital allocation decisions. One option is to focus the ESG (environmental, social and governance) rating on the negative externalities while using the United Nations sustainable development goals (SDG) framework to assess which business activities are critical to addressing challenges like climate change. Tesla, for example, would have a high SDG score because its revenue comes from selling electric vehicles and other green tech products, which are important in the push to reach net zero carbon emissions. If an investor’s goal is to allocate capital for climate solutions, then the SDG rating should be the driver. If the goal is to invest in companies that behave in an environmentally and socially responsible manner, then the ESG rating should dominate. In practice, the two could be used together. There are technical reasons current ESG ratings don’t fully capture a company’s level of sustainability. One reason is that ratings providers often combine varying environmental, social and governance scores into a headline rating. This approach works better the closer it gets to either end of ESG spectrum. For example, a very high ESG rating usually indicates that a company is performing well across all three pillars. For most companies that fall in the middle, however, the headline ESG rating could be misleading. A company with poor environmental practices could still be included if its environmental score is sufficiently smoothed out by an above-average performance in social and governance terms. This explains why fossil fuel companies with little interest in the energy transition may have an unexpectedly high ESG score, even as a company like Tesla falls down the rankings – and why investors need to pay close attention to ESG fund holdings. It also matters whether companies are scored on a relative or absolute basis. In this scenario, a company that performs poorly on ESG on an absolute basis could get a top rating because its peers are doing even worse. At a portfolio level, such an approach can be meaningless. A portfolio of best-in-class coal mining companies, for example, could appear to be doing better on ESG than one of average finance companies. The current and open fraud regarding the paper gold price in the COMEX market is now as plain to see as the open desperation in the global financial system, which is unravelling in real-time all around us. As risk assets tumble foreseeably into bear territory before a headwind of deliberately rising rates, precious metals have seen headline-making falls as well. Tracking the Paper Gold Price —The Standard Answer In prior reports, we’ve noted that precious metals typically behave sympathetically when markets tank; thereafter, gold then surges north. We saw this pattern in October of 2008 and March of 2020. Furthermore, when a Hawkish Fed pursues a temporary yet face-saving policy of rate hiking and quantitative tightening, this makes the USD the relatively stronger horse in the global currency glue factory. And a relative rise in the USD, of course, is a headwind to gold. Explaining the Paper Gold Price —The Rigged Answer But let’s get to the real heart of the matter, namely: Legalized paper gold price manipulation (i.e., fraud) in the COMEX market, a topic we’ve addressed more than once. As we’ve openly argued for years, nothing embarrasses an otherwise discredited fiat currency like a rising gold price. As I’ve described it, rising gold prices are a middle finger to debased currencies whose declining purchasing power are the DIRECT result of the failed and drunken monetary policies (i.e., mouse-click trillions) of a central bank near you. Or as Ronan Manly more distinctly observed: “Gold to central bankers is like sun to vampires.” And that, folks, is precisely why the big banks (under the direction of the BIS) are deliberately (and if law school serves me correctly) as well as fraudulently manipulating the paper gold price. Facts vs. Manipulation In the first quarter of 2022, we saw record high purchases of ETF gold, physical gold and central bank gold. Even Goldman Sachs’ head of commodity research was targeting $2400 gold this year. Instead, the gold price has been falling as gold demand has been rising. Huh? It reminds me of 2008 when mortgages were defaulting en masse yet the ABX index for sub-prime mortgages was rising. In short, complete (and temporary) manipulations were going on behind the curtains of a few wayward banks, including Morgan Stanley. Today’s gold behavior (i.e., surreal manipulation) is no different and no less of an insult to the natural forces of supply and demand, which central bankers have attempted to destroy for well over a decade. But the jig will soon be up on these masters of open fraud and Wall Street socialism. The Paper Gold Price & The Horse’s Mouth For now, and in case you fear I’m just acting as a “gold bug” apologist, let’s go straight to the horse’s mouth and examine the confessions and facts of open price manipulation in the precious metal markets. And I swear, you really can’t make this stuff up, it’s just that obvious and distorted. In a recent article by Peter Hambro published by the British news site, Reaction, a 3rd generation gold insider (Petropavlovsk, Bank Hambros) made the open secret of paper gold price manipulation abundantly clear and incontrovertible. It’s also worth adding that Mr. Hambro’s entire career was that of an heir to a banking dynasty all too familiar with the insider machinations of the London bullion markets and London Stock Exchange. In short, when Mr. Hambro discusses gold price manipulation, it’s worth listening. A Chart Says a Trillion+ Words More importantly, and for those who prefer facts over human confessions or “gold bug whining,” the following chart from the U.S. Office of the Comptroller of the Currency (OCC) clearly reveals the extreme extent by which just a handful of highly pocketed (and central bank supported) banks like JP Morgan and Citi can use extreme turns of derivative-based leverage to short (i.e., keep a permanent boot to the neck of) the paper gold price: That rising bar on the far right is nothing more than crime scene evidence. As Hambro remarks, a long history of media and bank supported mis-information has tried to keep a lid on the desperate attempts by just a small number of BIS minion banks like JP Morgan and Citi to effectively prevent free market price discovery on the paper gold price. Despite thousands of daily long contracts (i.e., buy orders) in the OTC forward contract markets, if just 7-8 banks wish to use massive leverage (rising bar on the right) to short the same metal, they can effectively fix the gold price via artificial manipulation of derivatives contracts, to which only a small number of banks have access. All of this open yet legalized fraud is managed by the central-banks central bank, namely the Swiss-based Bank for International Settlements. The Jig (Rig) is Up We may be a bit jaded and realistic, but that doesn’t make us naive. Gold will get the last and honest laugh over such a corrupt and dishonest “policy.” As central banks continue to lose more and more credibility, and as investors become more and more fluent in, and aware of, the absurdity of the lies that have been sold to us for years by central bankers and MMT midgets who claim that a debt crisis can be solved with more debt, which is then paid for with trillions created out thin air, the system unwinds. As the inevitable inflation crisis emerges from precisely such absurd “policies,” the central bankers can no longer blame the obvious and long-dated/repressed inflationary consequences of their drunken monetary policies on a virus or Putin. Nor can they continue to peddle the lie that inflation was merely “transitory,” a fact we made clear long before Powell confessed it was not so. Stated otherwise, more and more folks are catching on to the fraud. The math plainly shows that expanding the broad money supply (and central bank balance sheets from $6T to $36T in just over a decade) is the real cause of the inflation in your neighbourhood and the debasement in your wallet. The First Cracks & the Last Straws
Geopolitical shifts, assassinated prime ministers, fired prime ministers, angry truck drivers, stormed capitals and Sri Lankan protestors are just the first tragic cracks in a growing social unrest driven by declining wealth and growing wealth disparity, all classic and historic symptoms and patterns of when a debt crisis leads to a political crisis, and sadly (and ultimately) more centralized controls over our markets and lives. But as even Hambro observes, eventually the last straw breaks the back of a rigged camel, and the “straws blowing in the wind are often said to presage great tempests and I believe that {the chart above] shows just such a straw.” Years of distorted, rigged and entirely reckless debt-and-print polices have made global economies and currencies weaker, not stronger. Dying Faith, Rising Gold After years of profligate central bank policies, the so-called “developed economies,” which are now little more than glorified banana republics, are losing credibility, options and most importantly public faith. This is critical. In the end, when faith in a system ends, so does its currency. We’ve written before how impossible it is to market time “the end of faith,” but charts like the one featured herein help to point out the rigging and hence accelerate the inevitable end to derivatives-based fraud, centralized price-fixing and, eventually, the OTC casino in particular. Meanwhile, the current buy window for repressed precious metals is remarkable, and once central banks cripple the markets to their deflationary pain points, chaos will return, along with the inflationary money printers—all of which will send precious metals higher and fiat currencies and markets to their mean-reverting lows. Thanks to Matthew Piepenburg The euro slumped to a near two-year low on Thursday after the European Central Bank (ECB) remained vague about when it will raise interest rates in the face of soaring inflation. The drop in the single currency helped boost European stocks, while Wall Street equities resumed a downward slide amid worries over tightening U.S. monetary policy. The ECB stood still in the face of record eurozone inflation, keeping its stimulus plans and rates unchanged, as the fighting in Ukraine cast a pall over the eurozone economy. Meeting for the second time since the outbreak of the conflict, the bank's 25-member governing council stuck to a plan that "should" see its bond-buying scheme come to an end in the third quarter. An interest rate hike would follow "some time" after the stimulus program comes to an end, and any increases "will be gradual."
The decision leaves the ECB further out of step with many of its peers. Central banks such as the Bank of England, the U.S. Federal Reserve and the Bank of Canada have already triggered their first interest rate rises in response to soaring inflation. The euro took a knock after the ECB's decision, slipping under $1.08 for the first time since May 2020, falling as low as $1.0758. The ECB "continues to show little sign of looking to hike rates after leaving rates unchanged at their policy meeting today, while being even handed over the risks facing the eurozone economy," said market analyst Michael Hewson at CMC Markets UK. The ECB announcement provided a boost, however, for eurozone stocks, which moved into positive territory and ended the day higher. Musk's Twitter bid Wall Street meanwhile retreated, concluding a holiday-shortened week on a weak note, as the yield on the 10-year U.S. Treasury note surged above 2.8 percent. Treasury yields are seen as a proxy for interest rates. "Right now, we're tied to this correlation between rising yields and falling tech shares," said Art Hogan, strategist at National Securities. All three major indices fell, with the Nasdaq leading the group by falling 2.1 percent. Citigroup gained 1.6 percent, while Goldman Sachs dipped 0.1 percent and Wells Fargo tumbled 4.5 percent. Elsewhere on the corporate front, Tesla chief Elon Musk launched a hostile takeover bid for Twitter, offering to buy 100 percent of its stock and take it private, according to a stock exchange filing. The move follows Musk's criticism of the platform. Some analysts expressed skepticism about the bid, noting Musk's history of outrageous and unpredictable conduct. Amazon.com Inc said on Wednesday its board approved a 20-for-1 split of the e-commerce giant's common stock and authorized a $10 billion buyback plan, sending the company's shares up 7% in extended trading. This is the first stock split by Amazon since 1999 and will give investors 19 additional shares for every share they hold. Trading based on the new share price will begin on June 6. Amazon's share split is similar to the one announced by Google parent Alphabet Inc last month. Several mega cap companies such as Apple Inc, Tesla and Nvidia have split their stocks since 2020. Amazon's stock, which closed at $2,785.58 on Wednesday, has nearly doubled over the last two years, when demand for both its e-commerce and cloud computing business surged in the wake of the COVID-19 pandemic.
"This split would give our employees more flexibility in how they manage their equity in Amazon and make the share price more accessible for people looking to invest in the company," an Amazon spokesperson said. The stock buyback replaces the previous $5 billion stock repurchase authorized by Amazon's board in 2016, under which the company had repurchased $2.12 billion of its shares. After shares declined about 16% amid a tech rout this year, the company's market capitalization stood at roughly $1.4 trillion as of last close. Members of the Federal Reserve indicated at their mid-December policy meeting that they were increasingly uneasy about high inflation, while envisioning an accelerated timetable for raising interest rates this year. This was revealed in the minutes of the Fed's latest policy meeting on Wednesday evening.
Most central bank officials foresee three rate hikes before 2022. In September, about half of officials still believed that rate hikes could wait until 2023. In general, participants noted that, given their individual outlook for the economy, the labour market and inflation, it may be justified to raise interest rates earlier or at a faster rate than they previously thought. The minutes also revealed growing concerns among participants that higher inflation could persist and force a more aggressive response from the Federal Reserve, especially as businesses and consumers increasingly begin to expect prices to fall quickly. continue to rise. For months, Fed executives maintained that the higher price pressures in 2021 were mainly caused by supply chain bottlenecks and would subside on their own. But Fed Chair Jerome Powell already said in the run-up to the meeting that he was much less convinced about this. Policy-making committee officials broadly shared his view. Their concerns were reflected in the decision to scale back or phase out bond purchases more quickly. The Fed wants to end this program before raising short-term interest rates to curb inflation. The earlier end of asset purchases - in March instead of June - opens the door for the US central bank to raise interest rates at its second scheduled meeting this year, in mid-March. The next Fed meeting is on January 25 and 26. The pace of decreasing monthly purchases has accelerated from the current $15 billion per month to $30 billion per month. The Fed noted that the pace could be adjusted where necessary. Some officials also believed the Federal Reserve should start shrinking its $8.76 trillion portfolio of bonds and other assets relatively soon once it has started raising interest rates. The federal funds rate remained at 0.00 to 0.25 percent as expected. The discount rate was maintained at 0.25 percent. Gold is a commodity that has historically been viewed as a good hedge against inflation, which is why the precious metal’s price performance over the last year has been a bit puzzling. The SPDR Gold Shares ETF (NYSEARCA:GLD), which is intended to reflect the performance of the price of gold bullion, is down over 8% year-to-date and has been a major underperformer. Meanwhile, inflationary pressures have persisted throughout the year and interest rates have been held at historic lows, which in theory should have led to a strong year for gold investors.
While this commodity certainly hasn’t been the strongest performer as of late, there are still plenty of narratives that support the possibility of a gold rally in 2022. If we continue seeing alarming signs of inflation and if nominal yields are held lower, stocks that offer exposure to the safe-haven commodity could have room to run. That’s why it’s a good idea to get familiar with some of the best gold stocks in the market as we head into the new year. 1. Newmont Corporation (NYSE:NEM) Gold mining stocks offer an interesting way to gain exposure to the commodity, as they typically will rise and fall with the price of gold, yet can also remain profitable companies even if the price of gold is declining. Newmont Corporation is certainly one of the best options to consider if you are interested in gold miners, as it’s the world’s largest gold producer and a company with a rock-solid balance sheet. It’s also a stock that offers exposure to copper, which is another commodity that has been a strong performer in 2021 and could continue benefitting from high demand as the global economy recovers. Newmont has assets and operations in North America, South America, Australia/New Zealand, and Africa, and generates the majority of its revenue from gold from those locations. It’s the type of investment that market participants love to buy when there is volatility and uncertainty at play in the market, which means it’s a great pick if you think next year could be a bumpy ride for the economy. It’s also a stock that offers a very attractive dividend yield of 3.75%, which is certainly appealing given inflation concerns. This could be one of the first stocks to rally should gold prices head higher in the coming months, which absolutely makes it worth watching as we begin the new year. 2. Royal Gold Inc (NASDAQ:RGLD) Another way to add exposure to gold via equities is with gold streaming and royalty companies like Royal Gold. These are businesses that pay fees to mining companies in exchange for either a percentage of the mine’s revenue or the ability to purchase precious metals in the future at a fixed price. This is an attractive model because it allows Royal Gold to potentially take advantage of gains in the precious metals sector without a lot of the costs and risks that are associated with mining operations. The company has a diverse portfolio with revenue from 44 producing properties, and over $1.1 billion of liquidity provides plenty of room for Royal Gold to seek out new deals. The stock is also worth a look thanks to its long history of dividend growth, as Royal Gold announced its 21st consecutive annual dividend increase back in November. After a 17% dividend increase, the stock is certainly one of the more attractive gold stocks to consider for 2022. Finally, it’s worth noting that many of the company’s operating counterparties have dealt with issues related to COVID-19 that stunted mining production, which means a rebound is likely on the cards next year. 3. Franco-Nevada Corp (NYSE:FNV) Finally, we have another gold-focused royalty and streaming company called Franco-Nevada Corp. The company claims to have the most diverse royalty and streaming portfolio by asset, operator, and country, which includes 324 mining assets and 82 energy assets. It’s also worth mentioning Franco-Nevada’s balance sheet strength, as it's one of the only companies in the mining industry without any debt. The strong balance sheet and efficient business model has allowed the company to reward long-term shareholders with annual dividend increases for 14 consecutive years, which is certainly another positive to consider. In Q3, Franco-Nevada Corp reported revenue growth of 13% to $316.3 million and Adjusted EBITDA growth of 15% to $269.8 million. The company is on its way towards delivering a record-breaking 2021, although the share price is well off highs at this time. It’s certainly one of the best gold stocks to watch in 2022, so keep an eye on how it performs in the coming weeks. |
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