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Post by marpro on Jan 8, 2023 17:28:32 GMT
“My statements in this post are financial/portfolio management in nature and not political. I'm not looking to start a political discussion here. TIA”
Funny, the thread has become all about politics.
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Post by Capital on Jan 8, 2023 17:48:28 GMT
I agree Capital! The question is how to “fix” this? Gerrymandering has been an issue for many decades, and neither side seems to want to “fix it”. The raise holy He!! Whenever the other side does it, but as soon as they come into power, they do it to elect as many of their party members as possible. Goes on in South Carolina just like Tennessee. Win win1177 , to solve this we need a Constitutional amendment to change the electoral system for the House. Other democratic nations use proportional voting systems. That voting system would eliminate districts and seats would be allocated to parties based upon the proportion of votes cast. Primaries would need to be changed to elect a slate of candidates ranked by votes in the primary. In the general election voters would vote by party. Seats would then be allocated to parties prorata. That is pure proportional method; however, there are variances that allow for some voting for an individual or individuals for a few seats followed by an allocation of additional seats to achieve proportional allocation. Short of changing the Constitution we are left with attempting to revise the method of erecting congressional districts to remove politics from the process. Good luck with that. Constitutionally this is a power given to the individual states; and, as we can see the states have sorely failed in this endeavor. In most states the legislature controls this process. Legislatures are rife with politics and unable to rise above politics IMHO. Asking to give up that control probably won't get that far. I know some states employ a nonpartisan process. I'm not familiar with the workings of those systems; however, I am sceptical that politics is eliminated in those systems. Perhaps someone in one of those states can add to that discussion.
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Post by Capital on Jan 8, 2023 18:02:44 GMT
“My statements in this post are financial/portfolio management in nature and not political. I'm not looking to start a political discussion here. TIA” Funny, the thread has become all about politics. Yes and unfortunately so. I even strayed - my bad. Ok the current situation exists. It can not be changed. How do we best prepare for it? I'm open for other suggestions. My taxable account exposure will be less than 2% by May. I can live with that. The best suggestion I have heard today for my IRAs is to move the cash positions to CDs. That will probably be what I do. I can live with a less than 2% allocation to this risk. Unfortunately we will all face risks to our equity positions from this. I'm not necessarily happy with that but see no way out of what I hope to last no more than the two years this situation hopefully exists. I sincerely hope this group of 20 will show us something to give us faith in their intentions. That would go a long way to help.
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Post by uncleharley on Jan 8, 2023 18:16:30 GMT
My suggestion of moving a part of ones portfolio to precious metals would be helpful "if" the trend for a weaker USD continues. The current negative trend in the USD is a larger problem which a threat to default would aggravate or accelerate. My focus right now is on the larger trend which is not being helped by current political events.
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Post by Chahta on Jan 8, 2023 20:35:16 GMT
Really? Referring to 20 obstructionists is not political? They are obstructionists if you don’t agree with them I suppose. It was always going to be an R speaker. It was only the process to get there. Their issues do not directly correlate with any debt ceiling. The ceiling is for past spending not future spending.
There will never be a default. There may be inflation ahead no one knows about. In fact when will this round of inflation be over. There are plenty of things to conjure up bad investing.
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Post by roi2020 on Jan 8, 2023 20:43:30 GMT
After watching the House elect a Speaker, I now have concerns holding US Treasuries and Treasury/Government backed investments. From all accounts it appears the debt ceiling will need to be raised before or during Q3-2023 of we will face a default. I have serious concerns that the current makeup of the US House can do what is necessary to avoid a default. Currently I have Treasuries maturing thru March 2023 and will not be buying Treasuries for the next 2 years at least. Next, I now have concerns with holding funds in Treasury or Government Money Market Funds. I am looking for alternatives as to where I can place these funds. Looking for options - do you have any. I probably will not start moving liquid assets until April-May 2023; however, I am working on the plan to do so. Let's discuss the options. My statements in this post are financial/portfolio management in nature and not political. I'm not looking to start a political discussion here. TIA If there is an actual default there will be no safe havens except possibly gold. I don't anticipate a default although I assume there will be plenty of drama regarding debt ceiling legislation. I'm not making any tactical portfolio changes in response to the situation.
"If Congress were to ever allow the debt ceiling to lapse and Treasury was forced to default, the consequences would be severe. Interest costs throughout the world would likely increase. Investors would demand higher rates on future Treasury bonds, increasing the interest costs to taxpayers. There would likely be ripple effects throughout the financial system that would increase interest rates on mortgages, student loans, car loans, credit cards, and other debt. A long impasse could prompt a financial crisis and ultimately threaten the US Dollar’s central role in the global financial system. All of this could trigger a severe economic depression, bringing job losses and serious hardship to millions of families in the United States and around the world."
"There is a debate about whether the debt ceiling is useful or needed. Some argue that the debt ceiling is outdated, given the central role that Treasury debt now plays in the global financial system and that we now have a formal congressional budget process that gives Congress a regular opportunity to review and modify overall fiscal policy. Eliminating the debt ceiling would prevent Members of Congress from threatening the full faith and credit of the United States and holding our economy hostage in order to force action on other legislation, and it would allow fiscal debates to take place without the threat of a looming financial crisis. Others argue that Congress should retain control over the debt ceiling as a matter of Congressional prerogative."
Link
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Post by Capital on Jan 8, 2023 20:58:00 GMT
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Post by sabino on Jan 8, 2023 22:07:35 GMT
Will government money markets at various brokerage firms be affected by a potential default as a result of debt ceiling limit stalemate?
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Post by uncleharley on Jan 8, 2023 22:36:09 GMT
Will government money markets at various brokerage firms be affected by a potential default as a result of debt ceiling limit stalemate? No, not directly. Knowing where all the crap will land after it hits the fan is never knowable.
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Post by liftlock on Jan 8, 2023 22:55:29 GMT
I am looking for alternatives as to where I can place these funds. Looking for options - do you have any. If there is an actual default there will be no safe havens except possibly gold. I don't anticipate a default although I assume there will be plenty of drama regarding debt ceiling legislation. I'm not making any tactical portfolio changes in response to the situation.
Link@rio2020, Thanks for posting the link to the article on the debt ceiling by the House budget committee. I agree with your assessment about there being few alternative safe havens if the debit ceiling is not raised. Trying to identify them ahead of time would be difficult to do. Our financial system is built on a house of cards with US Treasury obligations in their various forms being the first card in the deck. Thee value of most other assets in the financial system is relative to value of treasury obligations. Many individuals and organizations rely on Treasuries to fund their cash flows and pay their financial obligations. If Treasuries cannot be redeemed there would likely be a run and collapse in the value of all other types of assets. I suspect the collapse of Lehman Brothers in the great financial crisis would likely pale in comparison to the havoc that would be caused by a failure to raise the debt ceiling. I don't think this problem is worth worrying about. Even if the debt ceiling is not raised, it is unlikely to last very long. The public might enjoy suspending payment of salaries to the members of Congress, but they are unlikely to support the suspension of payments for Social Security, Medicare, Military Salaries and Veteran benefits, etc. I suspect any market volatility caused by a Congressional debt ceiling crisis is likely to be short lived.
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Post by Chahta on Jan 8, 2023 23:24:03 GMT
Seems like the debt ceiling has a purpose. It is like a yearly statement of that years purchases with a balance forward and the only reminder (that is regularly ignored) there is a debt owed. If it was removed then who would pay attention?
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Post by marpro on Jan 8, 2023 23:31:06 GMT
“few alternative safe havens”
There are none. That is why, I am saying, it will not happen.
McConnell will make sure that it never happens. I know that Biden and McConnell negotiated the deal in 2011 and passed the debt limit, in spite of the fact that there was one nameless senator went on an overnight speech and had to give up early 4 AM. It passed early in the morning after that. But, now, who knows? Somebody will have to give up.
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Post by yogibearbull on Jan 9, 2023 1:48:23 GMT
These cat-and-mouse games in DC are dangerous in that mistakes can happen, or something unpredictable happens.
2 examples:
In September 2008, when the Treasury and the Fed decided to let Lehman go, EVERYONE went to sleep thinking that EVERYTHING foreseen had been taken care of and those were controllable. But NOBODY saw that the next day a run on the Reserve Primary money-market fund would start because it was holding lots of Lehman paper, and cascading market event started. The US had to promise to the Europeans later not to let stuff like Lehman ever again.
In August 2011, EVERYONE (Congress, WH, markets) thought that crisis was over because the debt-ceiling was passed in the last hours of August 1 (the House) and August 2 (the Senate) and stuff was signed off by the President. But then came the S&P downgrade of the US out of the blue on August 5, and the crisis spilled all over.
Stuff like this can happen when things are taken to the brink thinking that things will work out every time.
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Post by Chahta on Jan 9, 2023 2:33:46 GMT
You are 100% correct yogibearbull. It’s been broken for a long time. And there is no understanding by most why that is. I have no comprehension of how we can ignore a debt ceiling and keep raising it without consequence. They all pretend it means nothing. In the mean time we try to protect what we have while we hope the ceiling is raised to temporarily fix things.
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Post by fred495 on Jan 9, 2023 2:46:39 GMT
I don't have a plan as yet, but, as Capital has pointed out, "The coming default will affect all markets". I am also looking for options that will minimize the damage to my portfolio in case of a US government default. After reading all the responses to Capital's OP, I see only two options that I, as a retired and conservative investor, would consider under these hopefully unlikely circumstances: a combination of a US Treasury only money market fund and FDIC insured CDs from large national US banks. In the meantime, I will continue to look for other possibilities that would minimize the effect of a default on my portfolio, and that are not too difficult to implement and manage for a man of my age. Good luck, Fred
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Post by Chahta on Jan 9, 2023 2:49:53 GMT
The plan should be to hound them relentlessly to handle our money correctly. But I believe too few of us even care.
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Post by richardsok on Jan 9, 2023 3:09:28 GMT
My suggestion of moving a part of ones portfolio to precious metals would be helpful "if" the trend for a weaker USD continues. The current negative trend in the USD is a larger problem which a threat to default would aggravate or accelerate. My focus right now is on the larger trend which is not being helped by current political events. Meanwhile GDX, GDXJ, GDMN, GGN and GNT are all trending strong
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Post by chang on Jan 9, 2023 8:36:14 GMT
My suggestion of moving a part of ones portfolio to precious metals would be helpful "if" the trend for a weaker USD continues. The current negative trend in the USD is a larger problem which a threat to default would aggravate or accelerate. My focus right now is on the larger trend which is not being helped by current political events. Meanwhile GDX, GDXJ, GDMN, GGN and GNT are all trending strong RIO has climbed 10% in the last three weeks. I wonder if I should add… it’s my biggest divvy payer.
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Post by Chahta on Jan 9, 2023 12:56:06 GMT
fred495, you say “coming default” as if it is a fact. Seems like the probability should be weighed. Do you believe it’s 50/50 or 90/10 to happen? There is a far larger majority of both sides together that would be against a shut down.
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Post by liftlock on Jan 9, 2023 14:04:58 GMT
Meanwhile GDX, GDXJ, GDMN, GGN and GNT are all trending strong RIO has climbed 10% in the last three weeks. I wonder if I should add… it’s my biggest divvy payer. RIO remains inexpensive trading at 5.1 times cash flow which seens supportive of the 9.2% dividend yield. It scores 98 out of 100 at Valiea.com with strong scores for value, quality, price and fundamental momentum. I own shares.
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Post by fred495 on Jan 9, 2023 14:53:58 GMT
fred495 , you say “coming default” as if it is a fact. Seems like the probability should be weighed. Do you believe it’s 50/50 or 90/10 to happen? There is a far larger majority of both sides together that would be against a shut down.
I am quoting Capital from his post on the Armchairinvesting forum: "The coming default will affect all markets".
Sorry, I don't know what the odds are. As I said, hopefully this will be an unlikely event. But, I want to be prepared, just in case it does happen.
Fred
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Post by fred495 on Jan 9, 2023 17:39:26 GMT
FYI, here are two interesting comments by two posters on the MFO Forum:
"In the event of a default, US debt holders would (initially at least) get the highest priority followed by SS/Medicare (potentially with some haircuts). FDIC would imo be behind SS/Medicare and very likely behind federal workforce pay too. [...]
Agree that any dislocation would be "temporary" but the duration of the temporary is unknown -- hours/days/weeks/months?? We have long crossed the line of crazy and "normal" laws do not apply at times of extreme distress or to too big to fail scenarios."
fred495
"To take maximum advantage of the possibility, I would buy Treasuries and Gold, but be prepared to trade into stocks quickly. Other commodities necessary for survival will probably also skyrocket, although since most are priced in Dollars, hard to tell.
I don't think accumulating a month's worth of expenses in dollar bills is a bad idea either, or stocking up on canned goods and booze. I will certainly fill up my gas tank. ATMs and credit cards will probably not work very well."
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Post by mnfish on Jan 9, 2023 18:33:11 GMT
"There is a far larger majority of both sides together that would be against a shut down." +1 Chahta
"I don't think accumulating a month's worth of expenses in dollar bills is a bad idea either, or stocking up on canned goods and booze. I will certainly fill up my gas tank. ATMs and credit cards will probably not work very well."
Really? Remember Y2K? This is the same thing. In the end, money talks and BS walks.
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Post by Chahta on Jan 9, 2023 18:58:10 GMT
Without trying to sound demeaning, there are more important things to worry about. I suppose "the 20" have done a pretty good job of bluffing y'all. The REAL worry is why there is something called a debt ceiling, because it is NOT a ceiling.
The MSM probably has a part in raising fear because that is what they do. I never gave it much thought 'cause I didn't really pay much attention.
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Post by marpro on Jan 9, 2023 19:29:26 GMT
Without trying to sound demeaning, there are more important things to worry about. I suppose "the 20" have done a pretty good job of bluffing y'all. The REAL worry is why there is something called a debt ceiling, because it is NOT a ceiling. The MSM probably has a part in raising fear because that is what they do. I never gave it much thought 'cause I didn't really pay much attention. +1.
There is an op. ed. today, and it is a “Catch 22” for the house Republicans, if they want to shut down the government. It concludes, the power of the purse will be transferred to the president inadvertently. The administration will prioritize the payments, starting debt payment as #1. The administration can say that they will not send the SS money, etc…. Guess, who will fold?
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Post by johnsmith on Jan 9, 2023 20:09:49 GMT
After watching the House elect a Speaker, I now have concerns holding US Treasuries and Treasury/Government backed investments. From all accounts it appears the debt ceiling will need to be raised before or during Q3-2023 of we will face a default. I have serious concerns that the current makeup of the US House can do what is necessary to avoid a default. Currently I have Treasuries maturing thru March 2023 and will not be buying Treasuries for the next 2 years at least. Next, I now have concerns with holding funds in Treasury or Government Money Market Funds. I am looking for alternatives as to where I can place these funds. Looking for options - do you have any. I probably will not start moving liquid assets until April-May 2023; however, I am working on the plan to do so. Let's discuss the options. My statements in this post are financial/portfolio management in nature and not political. I'm not looking to start a political discussion here. TIA IMO - this concern with US debt is unwarranted.
The US government controls the printing press for USD. They can pay and will pay, even if with a delay. Your money has the ultimate safety with US Government debt. There is nothing to be concerned about.
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Post by Mustang on Jan 9, 2023 20:33:10 GMT
According to this report by the Congressional Budget office the Treasury Department had been using extraordinary measures to stay below the debt limit. We obviously didn't go broke in October 2021. Such measures allowed Biden to sign a bill in December raising the debt limit to around $31T. That was expected to allow spending to early 2023. But the report describes many of the extraordinary measures that had to be taken to keep things going a little while until the debt ceiling could be raised. www.cbo.gov/publication/57517"P.L. 116-37 specified that the amount of borrowing that occurred during the suspension of the debt limit would be added to the previous ceiling of $22.0 trillion. On August 1, 2021, the debt limit was reset to $28.4 trillion to match the amount of outstanding debt." "As of August 31, 2021, $22.2 trillion of the $28.4 trillion in outstanding debt subject to limit was held by the public (including the Federal Reserve); $6.2 trillion was held by government accounts." "Since August 1, 2021, the Treasury’s extraordinary measures have consisted of suspending the issuance of new state and local government securities and savings bonds, suspending investments of the Thrift Savings Plan’s G Fund, limiting investments of the Civil Service Retirement and Disability Fund (CSRDF) and the Postal Service Retiree Health Benefits Fund (PSRHBF), and suspending interest payments to those two funds." There were several more actions including not paying bills owed to the federal government. One trick not mentioned was deferring military pay. Back in the 80s, they moved our pay from the last day of the month (September 30th) to the first day of the following month (October 1st) so it would be recorded in a different fiscal year. But that was a one-time option. I hear commentators say we will be taxing future generations to pay the debt. We can't even get the deficit under control. I was a big supporter of the balanced budget amendment in the 1980s. (I even voted for Ross Perot.) but it failed to get support of 2/3 of congress. State legislatures were calling for a constitution convention and almost made the 2/3 required but a couple of states rescinded their call because they were afraid the convention would cover more than the budget. en.wikipedia.org/wiki/Balanced_budget_amendmentDuring the Clinton administration Congress attacked the deficit and declared a budget surplus but according to Wikipedia it was a surplus only over public debt. It didn't include internal deficit spending to other government agencies. Just a bookkeeping trick to keep the public happy. My opinion is the debt will never be paid off or even reduced. It will continue to increase. Politicians cannot buy votes without spending. It will continue to grow until we become a third world country no longer able pay our bills and devaluing our currency through inflation by printing more and more money. [Yes, I am extremely skeptical about achieving any actual budget discipline. No one really wants it.]
The debt ceiling will be raised this year. Congress wouldn't dare not do it. But opposing priorities may make it a mess.
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Post by FD1000 on Jan 9, 2023 20:54:04 GMT
My main point is that we can have turmoil and crisis but if it will not last for months-years, the global financial system will collapse. If you can't trust MM in Vanguard, Fidelity and Schwab we have a bigger problem. A real crisis would lead to big stock+bond decline, and shutting down trade. We had already www.investopedia.com/articles/economics/09/money-market-reserve-fund-meltdown.aspThe most important, what should you do now? I don't see any good solution and the ones you think are good, may hurt you even more. But, if you insist on being afraid, maybe you should buy gold and fill your basement, or maybe you can build an underground stand alone bunker and get all the power from the sun + fill the bunker with food and guns. It's all up there. It makes me smile when investors worry about something with low chance of happening, AKA, shut down the global financial system... But, have no problem holding to stocks and losing 20+% at the bottom, or when bonds lose over 10%...all happened in 2022. In my old country, we used to say in sarcasm "I worry how to grow cabbage on the moon"
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Post by fred495 on Jan 17, 2023 19:36:15 GMT
After reading all the responses to Capital's OP, I see only two options that I, as a retired and conservative investor, would consider under these hopefully unlikely circumstances: a combination of a US Treasury only money market fund and FDIC insured CDs from large national US banks. Good luck, Fred
FYI, here are some excerpts from an article in today's NYT: How Close Is the U.S. to Hitting the Debt Ceiling? How Bad Would That Be? "Strategists across Wall Street have sent out a raft of research assessing when the United States will exhaust its ability to stay under the debt limit — what’s known as the X-date — and how a default might ripple through asset classes.
T.D. Securities analysts think that the credit rating on U.S. debt is likely to be lowered if negotiations go badly, which could spook some investors. S&P Global Ratings downgraded U.S. debt in 2011, but other major rating agencies still award the sovereign their top assessment. They also expect that people will sell out of risky assets like stocks if a default occurs, while actually piling into some Treasury bonds.
In the month before the debt ceiling was raised in summer 2011, short-dated government bonds called bills swiftly fell in value, pushing their yield — indicative of the government’s cost of borrowing for three months — sharply higher. Stock prices fell, and the 10-year Treasury yield moved in the opposite direction, in part because it was still seen by investors as a safe place to park their cash.
Some investors have begun to look into protection in case the United States does renege on its debts. One trader at BNP Paribas recently sent some investors prices for U.S. credit default swaps, which provide some insurance in return for a small premium, paying out any money they lose if the government does not pay them on time. Such a price list is rare, with interest in protection on American debt usually low given the unlikeliness of default. The price of these contracts has steadily risen over the past six months, implying a higher, though still small, likelihood of a debt ceiling breach."
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Post by johnsmith on Jan 17, 2023 21:13:54 GMT
After reading all the responses to Capital's OP, I see only two options that I, as a retired and conservative investor, would consider under these hopefully unlikely circumstances: a combination of a US Treasury only money market fund and FDIC insured CDs from large national US banks. Good luck, Fred
FYI, here are some excerpts from an article in today's NYT: How Close Is the U.S. to Hitting the Debt Ceiling? How Bad Would That Be? "Strategists across Wall Street have sent out a raft of research assessing when the United States will exhaust its ability to stay under the debt limit — what’s known as the X-date — and how a default might ripple through asset classes.
T.D. Securities analysts think that the credit rating on U.S. debt is likely to be lowered if negotiations go badly, which could spook some investors. S&P Global Ratings downgraded U.S. debt in 2011, but other major rating agencies still award the sovereign their top assessment. They also expect that people will sell out of risky assets like stocks if a default occurs, while actually piling into some Treasury bonds.
In the month before the debt ceiling was raised in summer 2011, short-dated government bonds called bills swiftly fell in value, pushing their yield — indicative of the government’s cost of borrowing for three months — sharply higher. Stock prices fell, and the 10-year Treasury yield moved in the opposite direction, in part because it was still seen by investors as a safe place to park their cash.
Some investors have begun to look into protection in case the United States does renege on its debts. One trader at BNP Paribas recently sent some investors prices for U.S. credit default swaps, which provide some insurance in return for a small premium, paying out any money they lose if the government does not pay them on time. Such a price list is rare, with interest in protection on American debt usually low given the unlikeliness of default. The price of these contracts has steadily risen over the past six months, implying a higher, though still small, likelihood of a debt ceiling breach."
I for one hope there is a default. I'd really like to see the actual effects. I also want to see the default maintained for at a minimum 12 months. Nothing like the smell of Napalm in the morning!
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