Monthly Archives: September 2014

“Beautiful Dreamer”

Weekly Market Commentary

September 22, 2014

 

The Markets

 

About 25 years ago, Peter Jennings interrupted General Hospital to tell the nation Coca-Cola had decided to bring back its original recipe. The nation was thrilled and sales soared.

 

The Federal Reserve’s impending rate hike is about as popular as the New Coke; however, no soap operas were interrupted last week when the Open Market Committee statement indicated rates would remain in “the current target range” for a “considerable” period of time after quantitative easing ends.

 

Investors embraced the news pushing both the Dow Jones Industrial Average and the Standard & Poor’s 500 Index up more than 1 percent for the week.

 

On the surface, it appears everything is in perfect order. However, experts cited by Barron’s warned investors to pay attention to the subtleties of the Fed’s statement which seems to indicate monetary policy may be tightened faster than markets expect:

 

“Investors should keep an eye on the nuances of the Fed statement… The Fed’s estimates for the funds rate moved up again to a median of 1.38 percent, instead of 1.13 percent at year-end 2015, and rose also for 2016 and 2017. Such rises suggest that Fed Chair Janet Yellen might face increasing dissent from both rate hawks and centrists on the Fed’s Open Market Committee.”

 

Also of note last week, the Organization for Economic Cooperation and Development (OECD) reduced its economic growth forecasts for the United States and other advanced economies and recommended various economic policy changes suited to the needs of each country.

 

Reuters reported the organization has also recommended the implementation of measures designed to prevent multinational firms from shifting profits to low-cost tax countries. The topic was a point of discussion at the G20 summit last weekend. The measures could help countries recoup billions of tax dollars and potentially affect the balance sheets of companies targeted.

 

Data as of 9/19/14 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.3% 8.8% 16.7% 18.6% 13.6% 6.0%
10-year Treasury Note (Yield Only) 2.6 NA 2.8 1.9 3.5 4.1
Gold (per ounce) -1.0 1.5 -10.7 -12.1 4.1 11.7
Bloomberg Commodity Index -1.5 -5.0 -8.1 -8.3 -0.9 -2.0
DJ Equity All REIT Total Return Index -0.2 15.1 11.0 14.3 15.7 8.8

S&P 500, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

A Pharmacist has a headache. Does she choose the name brand aspirin or the store brand? That’s the subject of a working paper (Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium, August 2014) written by a pair of economics professors at the University of Chicago Booth School of Business and their co-authors. The team found:(Page 24)

 

“More informed shoppers buy more store brands and fewer national brands. Consumer information plays a quantitative role in health categories where our estimates imply that expenditures and market shares would change significantly if all households behaved like expert shoppers. By contrast, the role of consumer information is smaller in food and drink categories where our estimates suggest much smaller gaps between expert and non-expert shopping behavior.”

 

How much less would Americans spend if everyone were an expert shopper? Currently, we pay about $196 billion for packaged consumer goods (medications, juice, frozen foods, etc.) each year. If we bought store brands rather than name brands, we’d save about $44 billion dollars annually.(Page 2) That’s quite a chunk of change.

 

So, why do we buy premium brands? It may be because we believe they’re better. Freakonomics Radio recently held a peanut butter and jelly (PB&J) sandwich taste test. Tasters were told one sandwich was made with premium brands of PB&J and the other with store brands. The tasters universally preferred the premium-brand sandwich. As it turns out, both sandwiches were made with identical store-brand ingredients.

 

Consumers’ inclination toward national brands may reflect advertising-induced misinformation, according to some economists; other economists suggest premium products may indeed offer greater value to consumers. The working paper concluded, “…A more informed population of consumers might change whether and how much firms choose to advertise their products as well as which products are introduced to the market.”(Pages 2 and 24)

 

Now, getting back to the original question, it turns out 92 percent of pharmacists buy store- brand headache remedies. Just 74 percent of the rest of us do (although that statistic is somewhat skewed since doctors, nurses, and other healthcare professionals tend to buy store brands more often than other people). Either way, it’s a big difference.

 

Weekly Focus – Think About It

 

“Oh yeah, I’ll always buy the most expensive golf ball, because if there’s even the tiniest chance that there’s a little magic in there, then I want that magic.”

–Steve Levitt, Co-author of “Freakonomics”

 

Best regards,

 

John Raudat, AIF, CFS, PPC

 

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

 

Securities offered through LPL Financial, Member FINRA/SIPC.

 

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* Stock investing involves risk including loss of principal.

* To unsubscribe from the Market Commentary, please reply to this e-mail with “Unsubscribe” in the subject line.

 

Sources:

http://content.time.com/time/specials/packages/article/0,28804,1913612_1913610_1913608,00.html

http://www.federalreserve.gov/newsevents/press/monetary/20140917a.htm

http://online.barrons.com/news/articles/SB52133021052493823286804580156051895490276?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-22-14_Barrons-Fervor_for_Large-Caps_Drives_Dow_to_New_High-Foonote_3.pdf)

http://www.oecd.org/newsroom/global-growth-continuing-at-a-moderate-pace-oecd-says.htm

http://www.reuters.com/article/2014/09/20/us-g20-australia-idUSKBN0HE0PD20140920

http://faculty.chicagobooth.edu/matthew.gentzkow/research/generics.pdf (Pages 2 and 24)

http://freakonomics.com/2014/09/11/how-to-save-1-billion-without-even-trying-full-transcript/

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“Yellow Submarine”

Weekly Market Commentary

September 15, 2014

 

The Markets

 

If you’re familiar with fairy tales, you’ve probably encountered a story or two that involves the granting of wishes. Usually, these are cautionary tales. Well, there was some wishing going on around the globe last week and, if the wishes come true, the outcomes may be less beneficial than anticipated.

 

In the United States, some folks wish Chairwoman Janet Yellen and her peers at the Federal Reserve would set a timetable for rate hikes. Barron’s offered the opinion that abandoning a data-driven process in favor of a calendar-driven one would be a mistake. Recent improvements including a slight spike in consumer confidence, somewhat stronger consumer spending, and a generally improving job market remain mired in residue of the Great Recession. For instance:

 

“Housing remains in the doldrums as potential buyers cite insufficient savings, excess debt, poor credit scores, and, yes, their incomes as stumbling blocks on the road to home ownership. Higher rates won’t fix any of those problems, and even setting a schedule for rate hikes could create head winds if it causes loans to become harder to get in anticipation of the change.”

 

Across the pond, the United Kingdom of Great Britain and Northern Ireland (U.K.) may cover a lot less territory if Scotland wins independence in next week’s referendum. Until recently, few thought the measure had enough support to pass, but the latest polls say that it may happen. While independence may seem like a reasonable objective, there are economic and other challenges attached that could profoundly affect the new country. These include:

 

  • What currency will the Scots adopt? (U.K. leaders have said Scotland cannot keep the Pound.)
  • How will the U.K.’s national debt be divided? (By population? By gross domestic product?)
  • How will markets respond to Scottish independence? (Will Scotland establish its own stock market? Will companies relocate to England?)
  • How will the remainder of the United Kingdom be affected?

 

There is an adage that may prove appropriate here: Be careful what you wish for because you just might get it.

 

Data as of 9/12/14 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -1.1% 7.4% 18.0% 19.5% 13.6% 5.8%
10-year Treasury Note (Yield Only) 2.6 NA 2.9 1.9 3.4 4.2
Gold (per ounce) -2.7 2.5 -7.3 -12.4 4.3 11.9
Bloomberg Commodity Index -2.8 -3.5 -6.6 -8.8 -0.5 -1.7
DJ Equity All REIT Total Return Index -5.0 15.3 16.1 14.9 16.6 8.8

S&P 500, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

Beware unpaid internships! For decades, internships have offered opportunities to learn new skills and find gainful employment. However, a rise in of lawsuits involving unpaid interns and the companies where they worked has focused new attention on the subject. In an article on the topic, The Economist offered some information worth pondering:

 

“Banks and accountancy firms now hire more than half of their recruits through their internship programs; careers in politics, medicine, the media, and many other fields nearly always begin with an internship. Two-thirds of American students have at least one internship under their belts before they leave college. But they are often badly compensated: nearly half the internships in America are completely unpaid. How do unpaid internships exist in countries that have minimum-wage laws?”

 

It’s an interesting question and one that’s answered in Fact Sheet #71 from the U.S. Department of Labor. The sheet sets forth six criteria that must be met for interns to work without pay. In broad terms, unpaid internships:

 

  1. Must be similar to training provided in an educational environment
  2. Must benefit the intern
  3. Must not displace regular employees
  4. Must not provide immediate advantage to the employer
  5. Do not necessarily end in employment
  6. Are clearly understood to be unpaid by both employer and intern So, which internships, paid or unpaid, are most likely to help someone land a job? A recent study from LinkedIn examined the availability of internships by field as well as the likelihood of an internship leading to a full-time position. The best bets for prospective interns were accounting, computer networking, semiconductors, aviation and aerospace, investment banking, design, and consumer goods.

 

 

Weekly Focus – Think About It“Individual commitment to a group effort – that is what makes a team work, a company work, a society work, a civilization work.”

–Vince Lombardi, Coach of the Green Bay Packers (1959-1967)

 

Best regards,

John Raudat, AIF, CFS, PPC

 

Securities offered through LPL Financial, Member FINRA/SIPC.

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

 

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.* You cannot invest directly in an index.* Stock investing involves risk including loss of principal.

Sources:

http://online.barrons.com/news/articles/SB51005578970899454132304580141961085594610?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-15-14_Barrons-The_70s_in_Reverse-Footnote_1.pdf)http://www.businessweek.com/articles/2013-06-27/unpaid-intern-lawsuits-explainedhttp://www.dol.gov/whd/regs/compliance/whdfs71.htmhttp://www.brainyquote.com/quotes/quotes/v/vincelomba129818

 

http://blog.linkedin.com/2014/08/21/an-internship-can-lead-to-a-full-time-job-but-your-industry-matters/

http://www.economist.com/blogs/economist-explains/2014/09/economist-explains-7#sthash.Qk6xTa7e.dpuf (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-15-14_The_Economist-Are_Unpaid_Internships_Illegal-Footnote_4.pdf)

http://www.economist.com/blogs/buttonwood/2014/09/markets-0 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-15-14_The_Economist-What_if_the_Scots_Say_Yes-Footnote_2.pdf)

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* To unsubscribe from the Market Commentary, please reply to this e-mail with “Unsubscribe” in the subject line.

* Consult your financial professional before making any investment decision.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

 

 

 

 

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“Day Tripper”

Weekly Market Commentary
September 8, 2014

The Markets

It’s déjà vu all over again!

Last year, pundits and analysts tried to discern when the Federal Reserve might begin to end quantitative easing by reading economic tea leaves. For months, bad economic news proved to be good news for stock markets. This year, investors are seeking signs which might indicate when the Fed will begin to raise interest rates and, once again, bad news has become good news. Last week’s weaker-than-expected unemployment report helped push U.S. stock markets higher, according to Reuters, because it was interpreted to mean the Fed would not raise rates soon.

The week before, the Commerce Department announced household spending slowed during July. Consumer spending was up just 3.2 percent annualized through mid-summer which is the smallest increase in spending in five years. As it turns out, spending fell because Americans are saving more. During July, households set aside 5.7 percent of income, on average. While that’s good news with respect to American households’ financial security, it’s not such good news for U.S. gross domestic product, according to Barron’s:

“Unfortunately for the U.S. economy, a penny saved is not a penny earned. While the decision by Americans to cut back on their profligate ways isn’t necessarily a bad thing – it was spending beyond our means that helped spur the Great Recession in the first place – it’s only consumer spending, not saving, that counts when computing gross domestic product. So when consumers spent less in July than they did in June, it caused economists to ratchet down their third-quarter economic-growth forecasts which now sit below 3 percent.”

Some experts say slower growth is good news because economic expansion may last longer. While that’s all well and good, Robert Shiller, Sterling Professor of Economics at Yale, suggested in The New York Times that U.S. stock markets are looking a little pricey by some measures. He suspects the reason investors remain interested in buying highly-priced shares may ultimately be found, “…in the realm of sociology and social psychology – in phenomena like irrational exuberance, which, eventually, has always faded before.”

Data as of 9/5/14
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.2% 8.6% 21.3% 19.9% 14.4% 6.0%
10-year Treasury Note (Yield Only) 2.5 NA 3.0 2.0 3.5 4.3
Gold (per ounce) -1.5 5.4 -8.6 -12.6 5.0 12.2
Bloomberg Commodity Index -1.4 -0.7 -3.8 -8.2 -0.1 -1.3
DJ Equity All REIT Total Return Index 1.0 21.3 26.8 16.9 19.2 9.0
S&P 500, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

IF YOU LIVE IN THE UNITED STATES, NO MATTER WHERE YOU RESIDE, you are NOT in the top 10 when it comes to the world’s most ‘livable’ cities. The Economist Intelligence Unit’s Global Liveability Ranking and Report was published in August 2014. It relies on 30 factors such as safety, healthcare, educational resources, infrastructure, and environment to determine which of 140 cities around the world are the most livable. The burgs which top the rankings tend to be “mid-sized cities in wealthier countries with relatively low population density.” They include:

1. Melbourne, Australia
2. Vienna, Austria
3. Vancouver, Canada
4. Toronto, Canada
5. Adelaide, Australia
6. Calgary, Canada
7. Sydney, Australia
8. Helsinki, Finland
9. Perth, Australia
10. Auckland, New Zealand

The names on that list haven’t changed since 2011; however, the average global livability rating has fallen 0.7 percent since 2009. The change is due to a decline in stability and safety (down 1.3 percent) among other things. More than 50 of the cities surveyed have seen their ratings move lower during the past five years. This year, the cities that ranked worst for livability included Damascus, Syria; Dhaka, Bangladesh; Port Moresby, Papua New Guinea; Lagos, Nigeria; and Karachi, Pakistan.

The good news for Americans is Washington D.C., Los Angeles, and New York City remain relatively highly ranked and haven’t experienced any change in their livability rankings. None of these is the most livable city in the United States, though. The top honor, here at home, goes to Honolulu (26th) followed by Pittsburgh (30th).

Weekly Focus – Think About It

“If you want your children to turn out well, spend twice as much time with them, and half as much money.”
–Abigail Van Buren, American advice columnist

Best regards,

John Raudat, AIF, CFS, PPC

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through LPL Financial, Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
* Stock investing involves risk including loss of principal.
* To unsubscribe from the Market Commentary, please reply to this e-mail with “Unsubscribe” in the subject line.

Sources:
http://www.reuters.com/article/2014/09/05/us-markets-stocks-idUSKBN0H013X20140905
http://online.barrons.com/news/articles/SB51885783724964273656104580129832001021868?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-08-14_Barrons-Too_Much_Thrift-Footnote_2.pdf)
http://www.nytimes.com/2014/08/17/upshot/the-mystery-of-lofty-elevations.html?_r=0&abt=0002&abg=0 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-08-14_NewYorkTimes-Mystery_of_Lofty_Stock_Market_Elevations-Footnote_3.pdf)
http://www.eiu.com/public/topical_report.aspx?campaignid=Liveability2014 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-08-14_TheEconomistIU-Global_Liveability_Ranking-Footnote_4.pdf)
http://www.economst.com/blogs/graphicdetail/2014/08/daily-chart-13 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-08-14_TheEconomist-Best_Places_to_Live-Footnote_5.pdf)
http://www.cnn.com/2014/08/19/travel/most-liveable-city-2014/
http://travel.cnn.com/explorations/life/worlds-most-livable-city-525619
http://www.forbes.com/sites/kevinkruse/2013/05/28/inspirational-quotes/
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