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This “Unprecedented” Fiscal Doom Loop Is Getting Worse

This "Unprecedented" Fiscal Doom Loop Is Getting Worse

Submitted by QTR’s Fringe Finance

Friend of Fringe Finance Lawrence Lepard released…

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This "Unprecedented" Fiscal Doom Loop Is Getting Worse

Submitted by QTR's Fringe Finance

Friend of Fringe Finance Lawrence Lepard released his most recent investor letter this week.

I believe Larry to truly be one of the muted voices that the investing community would be better off considering. He gets little coverage in the mainstream media, which, in my opinion, makes him someone worth listening to twice as closely.

Larry was kind enough to allow me to share his thoughts heading into Q4 2023. The letter has been edited ever-so-slightly for formatting, grammar and visuals.

OVERVIEW

It was an interesting quarter. There was a whiff of deflation as the Dow Jones, S&P 500 and NASDAQ all declined in value. But this was not matched by the prices of crude oil and commodities, both of which were strong, and the bond market had a bad quarter as rates continued to rise across the curve. A slowing economy, falling stocks and bonds, and rising commodity inflation spell one thing very clearly to us: STAGFLATION.

In the third quarter of 2023, the Fund increased in value slightly by 0.5% and picked up considerable ground (over 10% outperformance) on our benchmark index the Gold Stock Juniors ETF (GDXJ). A big piece of this outperformance occurred due to our large position in Lavras Gold which we profile on page 21. As we have said before, we manage the Fund aggressively, and in bear markets for gold stocks, we expect that we will do worse than GDXJ. However, we also want to point out that the converse is true in bull markets; in 2019 EMA was up 98% vs. the GDXJ which was up 40%, and in 2020 EMA was up 122% vs. the GDXJ which was up 33%. We believe that when this market turns, the results will be similar.

US FISCAL DOOM LOOP GETS WORSE

In our view, the biggest elephant in the room is the US Fiscal Doom Loop. To refresh: US Government spending is out of control, and there appears to be very little political will to stop it. As the chart below shows, Government spending is up 14% yoy and tax receipts are down 7% yoy.  Fiscal year ended September 2023 is projected to have a deficit of over $2 Billion (or roughly 8% of GDP). In the past, deficits of this magnitude only materialized during significant downturns like the bursting of the Dotcom Bubble, the 2008 GFC and the COVID crisis. It is unprecedented to have deficits of this magnitude with the economy and employment being relatively strong.

 

One can only imagine where the deficit goes when the FED’s monetary jihad of rapid rate increases tips  the economy over. Past economic downturns typically have increased the deficit/GDP ratio by 8-14%.  

So as the economy moves into recession in 2024 (as we believe), the US could be looking at deficits as  high as 20% of GDP ($5 Trillion) if the economy slows dramatically. 

The reason we see it as a “doom loop” is that the current $33.5 Trillion of Federal Debt is continually costing more to service.1The Fed’s rapid increase of interest rates, and elimination of Quantitative Easing  (e.g., Fed buying Treasury bonds) has impacted US Treasury interest costs. Note below how interest  payments have soared over the past two years.

Interest expense on the Federal Debt now exceeds our substantial annual national defense spending of $816B as well as every other category except Social Security and Medicare.

The Doom Loop occurs as higher interest costs drive higher deficits, forcing the Government to sell more bonds to finance the same. Ceteris paribus, more bond sales lead to higher interest rates which then increase the deficit further. Repeat until there is no market for the bonds. Of course, at that point the Fed is forced to step in and become the buyer of last resort for the bonds to keep the bond market functioning.

As the chart below shows, it has been a rough couple of years for the bond market.

The fundamental issue is that without growing the money supply, there is not enough capital to support the inflated bubble valuations. When the Fed chose violence and went on a campaign of rapid rate increases (taking the Fed funds rate from 0.25% in 2021 to 5.25% today), coupled with the sale of some of its bond portfolio (Quantitative Tightening), it increased the cost and reduced the supply of capital necessary to support all financial markets. Government bond sales (which drive rates higher) are crowding out the debt markets. This is going to have to change or the financial markets as we know them are going to collapse. The only issue is the time scale.  The subject is addressed nicely in the chart below by Lyn Alden:

As you can see, when any person, company or government takes on massive leverage, the proceeds better generate productive economic outcomes to support the debt. (e.g., levering to invest in education or nuclear plants has a payback, but if the money is used to finance War, virtually nothing is gained/produced). Thus, to support an over-levered entity, more financing or money supply growth is required. When markets enter chaotic times, like in 2008-2013 and 2018-2021, the Fed is forced to be very aggressive in growing the monetary base via expansion of their balance sheet (money printing). This is what has taken the Fed Balance Sheet Assets from $800B to roughly $8T in the past 15 years. With debt continuing to grow rapidly we see no reason why this will not occur again, perhaps in short order.


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The Fed’s recent retrenchment in the Base Money Supply (orange line in the chart above) began in February of 2022. There is a lag effect in terms of its impact on the economy. We believe the lag is now starting to bite hard and that is showing up in the numbers as we will detail below.

EVIDENCE OF ECONOMIC SLOWDOWN

Despite recent Wall Street and CNBC cheerleading, we believe the economy is beginning to roll over.

Post COVID, consumers regained confidence and went on a spending spree to maintain their lifestyles despite inflation and rising living costs. They did this by significantly increasing their borrowing on credit cards as seen in the chart below:

What is not shown on this chart is the average interest rate on these credit cards. Five years ago, the average interest rate on these cards was 13%. Today that rate is 22% - a significant burden for consumers carrying credit card balances. These higher costs have had an impact on consumer behavior and as the next chart shows credit card spending dropped sharply in September.

And as the following chart shows, total consumer spending has been dropping significantly year over year in 2023, and the trend is getting worse.

Further, signs of an imminent recession include the level of bank credit growth. The last time it was this negative was in the 2008 GFC. Negative bank credit growth is a very reliable recession indicator.

We believe the economy is very sick. The doctored employment figures are not telling the true story.

THE EVERYTHING BUBBLE IS BURSTING

High inflation, higher interest rates, bonds falling, slowing economic indicators and the stock market starting to look wobbly all lead us to conclude that the “Everything Bubble” that was driven by free money (ZIRP) is in the process of bursting.  We believe that this will lead to a US sovereign debt crisis as the US Federal Government’s fiscal position is not sustainable.

Let’s examine the stock market. As you can see in the chart below, the S&P 500 put in a high in December of 2021, fell hard in 2022 and has now rebounded to retrace a large portion of that loss. We believe the December 2021 high will prove to have been the “top” for this monetary expansion cycle. Absent extremely aggressive money creation by the Fed, the stock market is headed much much lower.

The reasons for that belief are many.  First, the economy is rolling over as detailed above. Secondly, using the “Buffet Indicator” of Market Cap to GDP, the stock market is still almost as expensive as it was at the 2000 peak. Another good measure is to look at the Earnings Yield which is the inverse of the PE ratio. (e.g., a PE multiple of 20x has an earnings yield of 5%.) As the chart below shows, the S&P 500 currently has an earnings yield of 4.1%. (PE is 24.5x). Still very much on the expensive side of the scale.

 

Furthermore, companies are currently operating at peak profit margins. With inflationary pressures driving costs higher (particularly labor), these margins are sure to get squeezed as soft demand does not allow many companies to pass along price increases.

So, we see nothing but downside in the US stock market. Which feeds consumer confidence and spending via its wealth effect. We believe that when the stock market rolls over again, the current Fed obsession with fighting inflation will turn into employment and recession concerns. Once again, the Fed will realize that they have gone too far. Based upon their past performance, we can reliably predict that they will pivot to monetary accommodation.  In fact, the Fed is already displaying signs of this with the following recent headlines:

  • “If the bond market keeps this up, the Federal Reserve will have less of a reason to hike rates again.”  Nick Timiaros, Wall Street Journal (Nick is often a Fed mouthpiece)

  • Wall Street Journal Headlines: Rising Interest Rates Mean Deficits Finally Matter. Bond Sell Off Might Force Fed to Rethink Shedding Assets.

  • FED’s Mary Daly: With The Rise in Bond Yields the Need To Do Additional Tightening By The Fed is Not There

  • FED Governor Laurie Logan: Higher Yields May Mean Less Need to Raise Rates.

With the US stock market threatening to break below its technically important 200 day moving average, these dovish comments by the Fed and its mouthpieces at the Wall Street Journal do not surprise us.

These and other recent statements by several economists that the inflation target should be adjusted upward demonstrate that we are probably very close to the end of this FED tightening cycle. This is reflected in the CME Fed futures which currently predict only a 4% probability of the Fed tightening at their November meeting.

Looking ahead to 2024, despite likely persistent inflation, market dislocations will force the FED to loosen monetary conditions. This will be extremely bullish for sound money assets. It is simply a matter of “when, not if” they will ease and return to lower rates and QE. We believe both lower rates and QE are inevitable because of the mathematics outlined on Lyn’s chart on Page 7. Without growth in the monetary base the system will ultimately implode.   

Recall, in March of this year, things did break in the form of Silicon Valley Bank’s bankruptcy, but they were able to patch that up with a new liquidity program that they claim is not QE (in reality it is QE). So, the next question becomes, when do things break? We have always referred to this as rivets popping.

Also, if this Fed tightening cycle is complete, and after a pause period, their next move will be to drop the Fed Funds rate to respond to a weaker economy, the implications for gold are extremely bullish. This next chart clearly demonstrates gold’s price response when Fed tightening cycles have ended.

As you can see in the chart above, when the blue line (Fed Funds Rate) peaks as it did in 2000, 2008 and 2018, gold prices soar and a gold miner bull market ensues. Gold has been bumping up against its alltime high of roughly $2,050. When gold convincingly pushes through $2,100, we expect it to quickly attain $2,500 and then $3,000. The impact on the gold miners will be explosive.

Part 2 of this letter can be read in full here and includes thoughts on the future of gold, Central Banking and 7 signs of further fissures in the economy that will ultimately force the Fed’s hand to re-stimulate. 

Please read Larry and QTR's full disclaimer here.

Tyler Durden Wed, 10/25/2023 - 00:05

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Government

Mike Pompeo Doesn’t Rule Out Serving In 2nd Trump Administration

Mike Pompeo Doesn’t Rule Out Serving In 2nd Trump Administration

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Former Secretary…

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Mike Pompeo Doesn't Rule Out Serving In 2nd Trump Administration

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Former Secretary of State Mike Pompeo said in a new interview that he’s not ruling out accepting a White House position if former President Donald Trump is reelected in November.

“If I get a chance to serve and think that I can make a difference ... I’m almost certainly going to say yes to that opportunity to try and deliver on behalf of the American people,” he told Fox News, when asked during a interview if he would work for President Trump again.

I’m confident President Trump will be looking for people who will faithfully execute what it is he asked them to do,” Mr. Pompeo said during the interview, which aired on March 8. “I think as a president, you should always want that from everyone.”

Then-President Donald Trump (C), then- Secretary of State Mike Pompeo (L), and then-Vice President Mike Pence, take a question during the daily briefing on the novel coronavirus at the White House in Washington on April 8, 2020. (Mandel Ngan/AFP via Getty Images)

He said that as a former secretary of state, “I certainly wanted my team to do what I was asking them to do and was enormously frustrated when I found that I couldn’t get them to do that.”

Mr. Pompeo, a former U.S. representative from Kansas, served as Central Intelligence Agency (CIA) director in the Trump administration from 2017 to 2018 before he was secretary of state from 2018 to 2021. After he left office, there was speculation that he could mount a Republican presidential bid in 2024, but announced that he wouldn’t be running.

President Trump hasn’t publicly commented about Mr. Pompeo’s remarks.

In 2023, amid speculation that he would make a run for the White House, Mr. Pompeo took a swipe at his former boss, telling Fox News at the time that “the Trump administration spent $6 trillion more than it took in, adding to the deficit.”

“That’s never the right direction for the country,” he said.

In a public appearance last year, Mr. Pompeo also appeared to take a shot at the 45th president by criticizing “celebrity leaders” when urging GOP voters to choose ahead of the 2024 election.

2024 Race

Mr. Pompeo’s interview comes as the former president was named the “presumptive nominee” by the Republican National Committee (RNC) last week after his last major Republican challenger, former South Carolina Gov. Nikki Haley, dropped out of the 2024 race after failing to secure enough delegates. President Trump won 14 out of 15 states on Super Tuesday, with only Vermont—which notably has an open primary—going for Ms. Haley, who served as President Trump’s U.S. ambassador to the United Nations.

On March 8, the RNC held a meeting in Houston during which committee members voted in favor of President Trump’s nomination.

“Congratulations to President Donald J. Trump on his huge primary victory!” the organization said in a statement last week. “I’d also like to congratulate Nikki Haley for running a hard-fought campaign and becoming the first woman to win a Republican presidential contest.”

Earlier this year, the former president criticized the idea of being named the presumptive nominee after reports suggested that the RNC would do so before the Super Tuesday contests and while Ms. Haley was still in the race.

Also on March 8, the RNC voted to name Trump-endorsed officials to head the organization. Michael Whatley, a North Carolina Republican, was elected the party’s new national chairman in a vote in Houston, and Lara Trump, the former president’s daughter-in-law, was voted in as co-chair.

“The RNC is going to be the vanguard of a movement that will work tirelessly every single day to elect our nominee, Donald J. Trump, as the 47th President of the United States,” Mr. Whatley told RNC members in a speech after being elected, replacing former chair Ronna McDaniel. Ms. Trump is expected to focus largely on fundraising and media appearances.

President Trump hasn’t signaled whom he would appoint to various federal agencies if he’s reelected in November. He also hasn’t said who his pick for a running mate would be, but has offered several suggestions in recent interviews.

In various interviews, the former president has mentioned Sen. Tim Scott (R-S.C.), Texas Gov. Greg Abbott, Rep. Elise Stefanik (R-N.Y.), Vivek Ramaswamy, Florida Gov. Ron DeSantis, and South Dakota Gov. Kristi Noem, among others.

Tyler Durden Wed, 03/13/2024 - 17:00

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International

Riley Gaines Explains How Women’s Sports Are Rigged To Promote The Trans Agenda

Riley Gaines Explains How Women’s Sports Are Rigged To Promote The Trans Agenda

Is there a light forming when it comes to the long, dark and…

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Riley Gaines Explains How Women's Sports Are Rigged To Promote The Trans Agenda

Is there a light forming when it comes to the long, dark and bewildering tunnel of social justice cultism?  Global events have been so frenetic that many people might not remember, but only a couple years ago Big Tech companies and numerous governments were openly aligned in favor of mass censorship.  Not just to prevent the public from investigating the facts surrounding the pandemic farce, but to silence anyone questioning the validity of woke concepts like trans ideology. 

From 2020-2022 was the closest the west has come in a long time to a complete erasure of freedom of speech.  Even today there are still countries and Europe and places like Canada or Australia that are charging forward with draconian speech laws.  The phrase "radical speech" is starting to circulate within pro-censorship circles in reference to any platform where people are allowed to talk critically.  What is radical speech?  Basically, it's any discussion that runs contrary to the beliefs of the political left.

Open hatred of moderate or conservative ideals is perfectly acceptable, but don't ever shine a negative light on woke activism, or you might be a terrorist.

Riley Gaines has experienced this double standard first hand.  She was even assaulted and taken hostage at an event in 2023 at San Francisco State University when leftists protester tried to trap her in a room and demanded she "pay them to let her go."  Campus police allegedly witnessed the incident but charges were never filed and surveillance footage from the college was never released.  

It's probably the last thing a champion female swimmer ever expects, but her head-on collision with the trans movement and the institutional conspiracy to push it on the public forced her to become a counter-culture voice of reason rather than just an athlete.

For years the independent media argued that no matter how much we expose the insanity of men posing as women to compete and dominate women's sports, nothing will really change until the real female athletes speak up and fight back.  Riley Gaines and those like her represent that necessary rebellion and a desperately needed return to common sense and reason.

In a recent interview on the Joe Rogan Podcast, Gaines related some interesting information on the inner workings of the NCAA and the subversive schemes surrounding trans athletes.  Not only were women participants essentially strong-armed by colleges and officials into quietly going along with the program, there was also a concerted propaganda effort.  Competition ceremonies were rigged as vehicles for promoting trans athletes over everyone else. 

The bottom line?  The competitions didn't matter.  The real women and their achievements didn't matter.  The only thing that mattered to officials were the photo ops; dudes pretending to be chicks posing with awards for the gushing corporate media.  The agenda took precedence.

Lia Thomas, formerly known as William Thomas, was more than an activist invading female sports, he was also apparently a science project fostered and protected by the athletic establishment.  It's important to understand that the political left does not care about female athletes.  They do not care about women's sports.  They don't care about the integrity of the environments they co-opt.  Their only goal is to identify viable platforms with social impact and take control of them.  Women's sports are seen as a vehicle for public indoctrination, nothing more.

The reasons why they covet women's sports are varied, but a primary motive is the desire to assert the fallacy that men and women are "the same" psychologically as well as physically.  They want the deconstruction of biological sex and identity as nothing more than "social constructs" subject to personal preference.  If they can destroy what it means to be a man or a woman, they can destroy the very foundations of relationships, families and even procreation.  

For now it seems as though the trans agenda is hitting a wall with much of the public aware of it and less afraid to criticize it.  Social media companies might be able to silence some people, but they can't silence everyone.  However, there is still a significant threat as the movement continues to target children through the public education system and women's sports are not out of the woods yet.   

The ultimate solution is for women athletes around the world to organize and widely refuse to participate in any competitions in which biological men are allowed.  The only way to save women's sports is for women to be willing to end them, at least until institutions that put doctrine ahead of logic are made irrelevant.          

Tyler Durden Wed, 03/13/2024 - 17:20

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RFK Jr. Reveals Vice President Contenders

RFK Jr. Reveals Vice President Contenders

Authored by Jeff Louderback via The Epoch Times,

New York Jets quarterback Aaron Rodgers and former…

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RFK Jr. Reveals Vice President Contenders

Authored by Jeff Louderback via The Epoch Times,

New York Jets quarterback Aaron Rodgers and former Minnesota governor and professional wrestler Jesse Ventura are among the potential running mates for independent presidential candidate Robert F. Kennedy Jr., the New York Times reported on March 12.

Citing “two people familiar with the discussions,” the New York Times wrote that Mr. Kennedy “recently approached” Mr. Rodgers and Mr. Ventura about the vice president’s role, “and both have welcomed the overtures.”

Mr. Kennedy has talked to Mr. Rodgers “pretty continuously” over the last month, according to the story. The candidate has kept in touch with Mr. Ventura since the former governor introduced him at a February voter rally in Tucson, Arizona.

Stefanie Spear, who is the campaign press secretary, told The Epoch Times on March 12 that “Mr. Kennedy did share with the New York Times that he’s considering Aaron Rodgers and Jesse Ventura as running mates along with others on a short list.”

Ms. Spear added that Mr. Kennedy will name his running mate in the upcoming weeks.

Former Democrat presidential candidates Andrew Yang and Tulsi Gabbard declined the opportunity to join Mr. Kennedy’s ticket, according to the New York Times.

Mr. Kennedy has also reportedly talked to Sen. Rand Paul (R-Ky.) about becoming his running mate.

Last week, Mr. Kennedy endorsed Mr. Paul to replace Sen. Mitch McConnell (R-Ky.) as the Senate Minority Leader after Mr. McConnell announced he would step down from the post at the end of the year.

CNN reported early on March 13 that Mr. Kennedy’s shortlist also includes motivational speaker Tony Robbins, Discovery Channel Host Mike Rowe, and civil rights attorney Tricia Lindsay. The Washington Post included the aforementioned names plus former Republican Massachusetts senator and U.S. Ambassador to New Zealand and Samoa, Scott Brown.

In April 2023, Mr. Kennedy entered the Democrat presidential primary to challenge President Joe Biden for the party’s 2024 nomination. Claiming that the Democrat National Committee was “rigging the primary” to stop candidates from opposing President Biden, Mr. Kennedy said last October that he would run as an independent.

This year, Mr. Kennedy’s campaign has shifted its focus to ballot access. He currently has qualified for the ballot as an independent in New Hampshire, Utah, and Nevada.

Mr. Kennedy also qualified for the ballot in Hawaii under the “We the People” party.

In January, Mr. Kennedy’s campaign said it had filed paperwork in six states to create a political party. The move was made to get his name on the ballots with fewer voter signatures than those states require for candidates not affiliated with a party.

The “We the People” party was established in five states: California, Delaware, Hawaii, Mississippi, and North Carolina. The “Texas Independent Party” was also formed.

A statement by Mr. Kennedy’s campaign reported that filing for political party status in the six states reduced the number of signatures required for him to gain ballot access by about 330,000.

Ballot access guidelines have created a sense of urgency to name a running mate. More than 20 states require independent and third-party candidates to have a vice presidential pick before collecting and submitting signatures.

Like Mr. Kennedy, Mr. Ventura is an outspoken critic of COVID-19 vaccine mandates and safety.

Mr. Ventura, 72, gained acclaim in the 1970s and 1980s as a professional wrestler known as Jesse “the Body” Ventura. He appeared in movies and television shows before entering the Minnesota gubernatorial race as a Reform Party headliner. He was a longshot candidate but prevailed and served one term.

Former pro wrestler Jesse Ventura in Washington on Oct. 4, 2013. (Brendan Smialowski/AFP via Getty Images)

In an interview on a YouTube podcast last December, Mr. Ventura was asked if he would accept an offer to run on Mr. Kennedy’s ticket.

“I would give it serious consideration. I won’t tell you yes or no. It will depend on my personal life. Would I want to commit myself at 72 for one year of hell (campaigning) and then four years (in office)?” Mr. Ventura said with a grin.

Mr. Rodgers, who spent his entire career as a quarterback for the Green Bay Packers before joining the New York Jets last season, remains under contract with the Jets. He has not publicly commented about joining Mr. Kennedy’s ticket, but the four-time NFL MVP endorsed him earlier this year and has stumped for him on podcasts.

The 40-year-old Rodgers is still under contract with the Jets after tearing his Achilles tendon in the 2023 season opener and being sidelined the rest of the year. The Jets are owned by Woody Johnson, a prominent donor to former President Donald Trump who served as U.S. Ambassador to Britain under President Trump.

Since the COVID-19 vaccine was introduced, Mr. Rodgers has been outspoken about health issues that can result from taking the shot. He told podcaster Joe Rogan that he has lost friends and sponsorship deals because of his decision not to get vaccinated.

Quarterback Aaron Rodgers of the New York Jets talks to reporters after training camp at Atlantic Health Jets Training Center in Florham Park, N.J., on July 26, 2023. (Rich Schultz/Getty Images)

Earlier this year, Mr. Rodgers challenged Kansas City Chiefs tight end Travis Kelce and Dr. Anthony Fauci to a debate.

Mr. Rodgers referred to Mr. Kelce, who signed an endorsement deal with vaccine manufacturer Pfizer, as “Mr. Pfizer.”

Dr. Fauci served as director of the National Institute of Allergy and Infectious Diseases from 1984 to 2022 and was chief medical adviser to the president from 2021 to 2022.

When Mr. Kennedy announces his running mate, it will mark another challenge met to help gain ballot access.

“In some states, the signature gathering window is not open. New York is one of those and is one of the most difficult with ballot access requirements,” Ms. Spear told The Epoch Times.

“We need our VP pick and our electors, and we have to gather 45,000 valid signatures. That means we will collect 72,000 since we have a 60 percent buffer in every state,” she added.

The window for gathering signatures in New York opens on April 16 and closes on May 28, Ms. Spear noted.

“Mississippi, North Carolina, and Oklahoma are the next three states we will most likely check off our list,” Ms. Spear added. “We are confident that Mr. Kennedy will be on the ballot in all 50 states and the District of Columbia. We have a strategist, petitioners, attorneys, and the overall momentum of the campaign.”

Tyler Durden Wed, 03/13/2024 - 15:45

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