Here's our summary of key economic events overnight that affect New Zealand, with news there is more evidence we are in a high inflation period even as economic activity sags.
Last week we noted a rise in American mortgage applications, but this week they fell back and hard and to their lowest level of 2023. So no light at the end of the tunnel of the US housing market yet. Benchmark mortgage interest rates rose to 6.39% plus points.
American retail sales grew by more than expected in January in a sign that consumers' willingness to spend may be holding, even rising, helped by their tight labour market and possibly by a slight easing of inflation expectations. They were up +6.4% from a year ago, the same as CPI inflation in the period. This is the first time these gains have matched CPI in four months. This data won't encourage the Fed to change course.
Business activity continued to decline in New York State, according to firms responding to the February Empire State Manufacturing Survey. But the slippage was very much less this month that expected.
US industrial production rose but at a disappointing rate, less than expected. It is now only +0.8% higher than year ago levels, hardly a measure of strength. But it has been held up by surprising strength in business capital goods. Boardrooms are positive places, it seems. Households not so much.
In Canada, January housing starts sagged a little but this is after a strong run over the past two year so perhaps should not have been the surprise it was. Certainly the overall Canadian housing market is in the doldrums so rising new home sales can't be sustained.
In China, it is emerging that Beijing has been worried about sagging demand in their economy for a few months, and President Xi has exhorted his officials to bring in “more forceful measures” to expand domestic spending. Also promised more are favourable policies to support private and foreign businesses. Details of the new emphasis in December were only released overnight.
Meanwhile it has been revealed that China's renewable energy sector is now larger than its coal sector. New additions to solar power generation fueled the jump in 2022 as they look set to meet ambitious carbon emissions goals.
India merchandise exports came in lower in January, but then again so did their imports, so their January trade deficit shrank. All this data was less than expected, perhaps pointing out that the global trade environment isn't a source of rising demand any more. But India's service exports are growing, and strongly.
British CPI inflation is staying very high and was +10.1% in January, even if that was lower than in December and slightly lower than expected.
In Australia, under-fire-from-politicians RBA Governor Lowe has been testifying in Canberra before politicians and said he won't be resigning. Further he rarked them up, reported saying "There is a risk that we have not yet done enough with interest rates.”
Staying in Australia, regulator ASIC is targeting predatory lending, and dodgy insurance pricing as a priority. It has laid 173 criminal charges in just six months.
For those interested in how concrete production exacerbates global warming, and doubtful about carbon capture's relevance, this story may interest you.
The UST 10yr yield starts today at 3.80% and up +5 bps from yesterday. The UST 2-10 rate curve is still inverted at -83 bps. And their 1-5 curve inversion is also little-changed at -94 bps. Their 30 day-10yr curve is less inverted at -75 bps. The Australian ten year bond is little-changed at 3.81%. The China Govt ten year bond is unchanged at 2.91%. The New Zealand Govt ten year is starting today at 4.34% and up a minor +1 bp from yesterday.
Wall Street has started its Wednesday session with the S&P500 is down -0.2% near the close although that is a recovery from double that earlier in the session. Overnight, European markets were all higher, bookended by London up +0.6% and Paris by +1.2%. Yesterday Tokyo finished down -0.4%. Hong Kong ended down -1.4%. And Shanghai ended its Wednesday session also down -0.4%. The ASX200 ended down -1.1% but the NZX50 ended up a minor +0.1%.
The price of gold will open today at US$1838/oz and down -US$11 from this time yesterday.
And oil prices start today down another -US$1.50 at just on US$77.50/bbl in the US. The international Brent price is now just under US$84/bbl.
The Kiwi dollar is down another -½c today, now at 62.8 USc. Against the Australian dollar we are down -¾c at 91.1 AUc. Against the euro we are softer at 58.8 euro cents. That all means our TWI-5 starts today back at 70.5 and down -20 bps.
The bitcoin price is now at US$22,776 and up another +3.3% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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94 Comments
Possibility of a 75bps hike on the 22nd?
Should be, at the least. But the political alignment, that doesn’t exist, will see it at 0.5% with the accompanying strategy of hope for the best.
Translated as, "Hang on as best as possible going in to the election". Possibly need another disaster yet. Any sign of Cindy (remember her?) getting married? Mr Hipkins has separated from his wife to focus on his career. Maybe he has a plan in that direction.
Do you know whose fundemental job it is to look after economic stability; unemployment and inflationary pressures?
The Government that we elect, not some poor bunny whose been lumped with all of that because doing it is too politically hard.
So if I were in Adrian boots, I'd chuck in a 1.5%; get it out of the way, and remind them who isn't doing their job. I am. And let's be honest, if the figures are anything to go by, even that is on the light side.
The RBNZ's job isn't to be a weather forecaster and catastrophe rebuilder as well. Or maybe it is!
He uses the wrong words, but what he is talking about is the collapse of the major banking powers, which in the end i can't really see happening anytime soon, unless the world leadership suddenly wakes up and grows some balls.
"We're too big to fail, they whine, and the naive public bought that fraud in 2008-09" Nope it was bought by the naive world leadership. those who had control, and believed themselves smarter than all the rest. The real truth is that the 'naive public' actually have very little power and even shorter memories, and are too willing to suck up the BS dished out by the political elites.
The major banks will fight back. they will corrupt and co-opt willing players to help them preserve their power and influence, and in the end little will change.
Even Jimmy Carter says it;"It violates the essence of what made America a great country in its political system. Now it’s just an oligarchy with unlimited political bribery being the essence of getting the nominations for president or being elected president. And the same thing applies to governors, and U.S. Senators and congress members. So, now we’ve just seen a subversion of our political system as a payoff to major contributors, who want and expect, and sometimes get, favors for themselves after the election is over. … At the present time the incumbents, Democrats and Republicans, look upon this unlimited money as a great benefit to themselves. Somebody that is already in Congress has a great deal more to sell."
The political elites have co-opted and corrupted the system. The only way we can fight back is by making sure extensions to electoral terms are denied, by holding politicians to account at every election and by making sure mavericks are re-elected. MMP is a good start.
Secular stagnation is not over
Is secular stagnation over?
I do not think so. Today’s inflation will not last, but I believe that low rates will.
Secular stagnation, a concept put forward by the economist Alvin Hansen in 1938, refers to economies suffering from structurally low private demand, requiring very low interest rates to sustain demand and achieve potential output—indeed requiring interest rates so low that they are lower than the growth rate. This state is summarized by a formulation that has become famous (at least in macroeconomic discussions…): r < g, a safe interest rate lower than the growth rate of the economy. In 2013 Lawrence H. Summers stirred widespread interest by declaring that the advanced economies were in a state of secular stagnation.
I hope you mean, "getting rid of MMP is a good start."
No. How would you protect democracy?
Democracy is just an illusion. You are only voting on pre-vetted people.
Think of it like a reality tv show. Before the shows even starts the producers (parties, corporates, NGOs, Old Boys clubs, etc...) have vetted tens of thousands of contestants. They then pick 12 that you see on tv (the ballot paper), and you pay 20c to vote on which one should win each week.
It's rigged. The US even more so.
Democracy in NZ is not yet an illusion, but is becoming one. Vote for independents, or the smaller parties. But the major ones are looking more and more corrupt.
Nope be 50 at the most maybe even 25.
With a 7.2% CPI they can't go for 25. It will probably be 50 but possibly 75.
If it is a 25/50 point rise then expect it to take longer to get inflation under control which means more rises in the future i.e. higher for longer.
Unless they've already overcooked the response and it's just a matter of time for the rates rises to flow through the system.
Much easier to drop fast when you realise you have overshot than to catch-up from undershooting.
We will be wasting our time then. Yet again
In Australia, under-fire-from-politicians RBA Governor Lowe has been testifying in Canberra before politicians and said he won't be resigning. Further he rarked them up, reported saying "There is a risk that we have not yet done enough with interest rates.”
Michael Hudson: The Federal Reserve winner recently for America’s Federal Reserve Bank and the former President of Harvard have all said, “Interest rates have to be held high enough so that nobody will – so few people will invest and so few people can buy homes, that there will be a depression. The depression will lower employment and wages will fall. The solution to any problem is lower wages.” That’s the IMF’s principle. That’s the basic principle of a bank-run economy, no matter what the question you ask, I have the solution: lower wages, lower living standards.
The theory is that that will increase our profit. So, the interest rates will be kept high enough until they’ve wiped out the pension funds, made it impossible for people to – new home buyers to take out a mortgage to buy a home and outbid the absentee owners that are turning America from an owner-occupied society into an absentee-owned society.
That’s part of the aim of higher interest rates, is to create an absentee-owned society where you have private capital coming in and saying, and buying out masses of housing at pennies, just as they did under Obama.
This is the Obama strategy of essentially, ending home ownership, especially for the ethnic and racial minorities. It’s basically the anti-black policy that it was under Obama, to prevent the low income ethnic and racial minorities from becoming homeowners and forcing them into rent dependency on private capitalist absentee landlords. Link
Market knows irrational FOMC will look at January CPI, payrolls, and unemployment rate and think more rate hikes. So, ST rates rising. Market also knows CPI shows disinflation, payrolls was seasonal anomaly, and UE rate is complete garbage, so LT rates not rising nearly as much. Link
The RBA Governor is like a mechanic. His job is to fix the car. How his jobsheet is paid for, and what the car is used for is not his/her problem. The politicians have absolutely thrashed the car. The paying for his job, and the using it a bit more carefully in future is totally their problem.
NZD back under US 60c how soon?
The price of gold will open today at US$1838/oz and down -US$11 from this time yesterday.
Reflects a fleeting will to raise real interest rates to stop governments inflating away our collective debt.
Stagflation, a portmanteau of stagnation ie low or no growth with inflation.
Just wondering, where is the evidence of stagnant growth, that everyone keeps referring to. We have high employment that does not appear to be reducing.. yet
And I think, after the amount of monetary stimulus poured on the world economy over the last 3 plus years, we should probably be at 100 or 1000 percent inflation by now. Not 6.4 (US) or 7.2 percent (NZ). Fairly tame right?
Assumptions.
Employment is not directly related to consumption, when much of the 'income' is passed from tenant to landlord to bank, to 'repay' debt from the housing ponzi. Why, then, insist on using it as a metric?
Of course we were going to have stagnant - then negative growth - in an exponentially-growing collective enterprise being carried on within a Bounded System. No surprise for the properly-educated (economics is excluded, by default).
You mentioned "assumptions"
Then made some
🤣🤣
Very large % employment is directly tied into the ppty market. The housing slump = rising unemployment. It's inevitable - and they know it.
Slump just evaporated in one foul flood. Roads, pipes, poles, bridges and buildings ... enough to keep us busy for another.... 5 - 10 years?
Can you get low economic growth and low unemployment at the same time? Seems unlikely to me. And considering a lot of the inflation is wage based, if the unemployment rate rises the inflation should mainly go away.
Inflation wage based? More profit based I'd suggest. Profit increases being even higher than wage increases.
Greed-flation is alive
ASB makes record profits year after year and nobody stands up to them. Are they doing the heavy lifting (lifting sacks of cash) the RB requires
"Can you get low economic growth and low unemployment at the same time?"
I would suggest that it is a certainty when increasingly you have reducing energy and an ageing population....we are demanding more while our wherewithal to supply it decreases.
High labour demand and reduced output
Thinking now may be a good time to put Three waters on back burner and channel those funds into the recovery of the NI...potentially billions need to be spent now, and government is fast running out of moving room with some of the wasteful spending of last 5 years. Some of the resource they have can be used in the response.
I addition to an imminent $16.195 bn 5.50% 15/04/2023 government bond redemption which will be rolled over rather than retired.
They're already spending the covid money on petrol discounts. Given every soccer Mum in NZ seems to drive an SUV it is helping everyone.
It doesn't help us much. I guess we need to randomly drive places to get our fair share of the subsidy.
Not discounts or subsidies, just a reduction in a tax. I think it's an important distinction to make.
The subsidy is the money that is shifted from elsewhere in the accounts to replace that income.
Not really. If they gave people rent free state houses is that a subsidy or a reduction in their tax? Free roads is a subsidy to the people that use them the most.
They really should make Waka Kotahi a SOE and make it charge appropriately to use the roads rather than making it a political football "tax". While they are at it, that charge should apply to all roads with no extra government support or rates contributions, which would give the councils a lot more money to spend on other much needed infrastructure.
"Free roads is a subsidy to the people that use them the most. " ??? That's taking free market bullshit to an extreme Jimbo. Roads are a community asset and paid for through taxes. They should always be free to use.
Why is that? Should state houses always be free to use? Electricity? There is no reason road users shouldn't pay to build and maintain the roads. And they used to do that (to some extent) via fuel tax. (In a true free market road users should also be paying to use the land under the road and for the investment in roads to make a decent return, but that might be taking it too far).
Free market is not bullshit. If everything essential was paid for by the government (free food / houses / roads / electricity / etc) then there would be all sorts of issues, people would consume way more than the government could possibly provide. In Venezuela they were using government subsidised electricity to mine Bitcoin. Here we use government subsidised roads for every conceivable journey and then wonder why we are so fat and why the roads are so busy and the councils are going broke.
We do pay to use roads. They're called registration fees and RUCs, except RUCs for large trucks are too cheap!
You're being an extremist too much in your arguments (Should state houses always be free to use? Electricity?).
The 'free market' is BS. Calling for a market to be regulated is not demanding products to be subsidised, or paid for by governments. There has never been a free market, they have always been manipulated when governments fail to regulate them. A regulated market is required to ensure they are free from manipulation.
Hmmm human behaviour is somewhat predictable and replicable therefore we will always repeat history. Regulating a market only causes many to find and exploit loopholes to have more than their fair share. Nothing is perfect
Unless you’re riding a bike or driving an EV roads are not free. That’s some greaterauckland level crap going on there.
Most rural roads would become too expensive to use under that scenario. The end of rural NZ...and with it the economy.
Subsidised roads, subsidised broadband, subsidised water, subsidised pollution. Where does it end? And we still can't afford to buy the food they produce.
The bigger problem is the land transport agencies, today it is Waka Kotahi, and governments for decades have lied to the public and not put the resources required into our roading infrastructure. For example State Highway 1 should be not less than a six lane highway the length of the country. Roading is essential to our economic performance, and poor roads undermines our economy. What we see now as a result of Gabriel is the result of doing roading on the cheap. But yes I would tend to agree that there are likely some areas of the country that probably should not have roads.
For example State Highway 1 should be not less than a six lane highway the length of the country.
A few hundred billion dollars later and Murray is not going to enjoy the amount of fuel tax or RUC he'd have to pay. Even in the north island, there is not the traffic volume to justify upgrading it to anything like that for most of SH1.
i agree it is no small thing, but it should have been started 60 - 70 years ago. And there is not the volume because the roads have always been crap. If we go to other than ICE vehicles then the need for our roads to be very much higher quality than they are now becomes even more pressing. For an efficient and sound economy we must have good quality transport networks.
Seems to me NZ could be more reliant on coastal shipping. If well organised and coordinated transit times would be not too far away from road and/or rail. Not much wear and tear on the sea is there. Actually had thought Maersk Sea Lines were running a business plan to assess this?
I agree Murray, that there are roads that are increasingly hard to justify. Including where we farm. But all those side roads are arteries to the heart of our economy.
!00% Rastus, roading is a social commodity. How else could any economy function if we couldn't move produce etc from point A to B.
.
Yup the old "lets pay less tax" demands but better infrastructure please. We should all be paying more tax, using less energy, and planning miles ahead.
In the 1960/70s when the NZ meat industry was facing high costs to upgrade to EEC standards the government introduced specific lending, but through the then trading banks, to facilitate the processes. The government doesn’t need to go anywhere near regions where the councils have their water services in good order. For those that haven’t, provide finance to address the problems but oversee the process too. Yes the ratepayers will have to pay some interest but it might teach them to elect councillors who will prioritise the basic, essential services instead of all the fancy sexy stuff.
Good comment Foxy.
If you take somewhere like Central Hawkes Bay, its a big area to provide the 3 waters too and not many ratepayers to pay for it. Their rates are already pretty high (without much sexy stuff), if rates were any higher (or the towns any less sexy) then people would probably move out. I imagine the west coast of the South Island is similar. I doubt a loan would help them much.
Its a bit like roads, the small rural areas would really struggle to pay for their roads if they weren't nationalised.
Thinking now may be a good time to put Three waters on back burner and channel those funds into the recovery of the NI...
It's the 3 waters that have taken a lot of the damage and/or failed. Ergo the recovery of the NI depends on fixing the 3 waters so it doesn't happen again. Taking on the debt to pay for it all is what 3 waters is all about
House prices fell further last month as more homes were listed for sale on Trade Me than in any other January on record, Trade Me Property says.
https://i.stuff.co.nz/life-style/homed/real-estate/131238904/increase-i…
Interesting times...
There are a lot of news of fall but where ever i look the house prices look really inflated to the rents.
Sellers are asking 1million + for houses which will go for 700 pw rent. It makes no financial sense to buy the property at 6.5% interest rates and when they are on a upward trajectory.
The whole RE cartel seems to be living in the la la land and making this industry riskier than it already is.
Yes everyday the ponzi is becoming more obvious to more people.
Almost every day now a new person posts his/her workings on this site in comments saying the numbers don’t add up… this is after a 20% correction already…
A 50% correction is needed just to make rents break even with interest payments, assuming interest rates stay this high. I am fairly sure the house price to rent ratio will get back to some sort of normality, the question is whether it will happen through lower interest rates, lower house prices, or higher rents. And if it is through lower house prices, will it be a slow decline in prices (possibly even via inflation), or a big bang.
Do you think the wealthiest 20% of the population in countries with overvalued property markets will suffer quietly a 50% reduction in their asset values in order for interest rates to be
kept high and the 2% inflation target eventually reached. Or will inflation be retargeted to 4% to allow interest rates to be kept lower.
Depends if they can convince enough people to vote National...
no one can put Humpty together again......
Sellers are asking 1million + for houses which will go for 700 pw rent. It makes no financial sense to buy the property at 6.5% interest rates and when they are on a upward trajectory.
Not every property is set out to be an investment...
Does any rental in NZ stack up against term deposit rates after subtracting expenses such as rates and maintenance?
and factor in no interest deductability
Nope - without CG speculation it's a dog. The low cost of borrowing has just increased the amount of leverage which is now going to bite. woof! woof!
As TA says
Investors are sitting on there hands at the moment.....
I would add they are
Crying into their milk
Shitting Bricks
Yes they are crying IT, until the Nats and ACT get in later in the year and reverse Labour policies. Then the renters will cry even more than they already are.
Saw some rent prices in Whanganui today and was shocked. $450- 650. Might not seem much to some big centers but Whangas is not a high wage area. How families survive is beyond me.
As I have said in the past, buying family homes and turning them in to rentals is modern slavery. The wealthy get the poor to pay the mortgage.
An update on my investment portfolio after a turbulent year (certainly the most in my life in terms of % loss of net worth)
Rental property - fine I guess. Mortgage is off. Yield is okay. Safe from floods. But will sell the first sign of a bull market. I don't see rentals as a viable investment as least for a few years to a decade
Shares - doing ok. A few huge wins (facebook, netflix). In NZ I'm down 0.3%. In USD I'm up a good 3-5%
Term deposits - doing great at 5.3% or so. Locked in a year
Funds - still searching for a place. There is a lot of debate vs managed funds (say Milford growth) vs say a smartshares global index fund.
Crypto. Incredibly, up 140% - almost all the gains in 2 months (this is my new portfolio I'm been building up since mid-last year). So more than doubled. Note - very little bitcoin, heavy in ethereum and lots of narrative plays (AI, liquid derivative staking, ETH layer 2 defi stuff, new gaming tokens).
By way of example, the leading AI token (AGIX) started the year at 4c. Now it is 45c! So that is a nice 1000% return in 6 weeks.
My finger will be moving to the sell button once I recover the profit I would have had if I sold in Nov 21.
Gold - bought some ETFs in gold miners. Not doing too well but its a long term play. I have exposure to other commodities like oil / gas (doing well), uranium (not so much) and lithium (ok).
I've re-entered crypto, sold down to help lubricate a house move but put a small amount back into a utility chain token that has a few tokenomics headaches to work through so their price is currently suffering. Hoping they will be addressed in the next few months which should position it well for the future.
I'll probably stick to utility coins from this point on. The meme stuff was a fun ride but you're at the mercy of ETH or BNB for the casino plays and I'm conscious of the problems Binance seems to be encountering in a few jurisdictions.
Just don't fade defi!
And yes I am the mercy of ETH right now which has potentially regulatory risks.
But there are other ecosystems out there like COSMOS, AVAX etc
There are two sorts of house rental investments. One is no longer viable.
1. Borrow to the max (was once tax deductible). Sometimes even negative cash flow. Profit hugely from house price rises. That's dead.
2. Own a house with no mortgage. Great regular cash income. That continues nicely.
Plenty of the second about. That's where the smart money is. Always was.
Yeah but:
put a million dollars in a TD and it generates $50k a year… or put a million dollars into a property and it generates about $35k per year plus expenses. That’s not smart money!!
It would be very short-sighted to put your faith in cash when you consider its value today compared to decades ago. Historically cash has been a very poor investment compared to practically everything else. Inflation, like moths, will just eat it all up over time.
Gold is a reasonable store of value vs fiat cash
For number 2: If you own a $1m house with no mortgage and rent it at $700/week then you make $36,400/year net. After 33% tax this is $24,388 or a yield of 2.4%. This is a bad investment when you can get 5.7% on a 12 month TD (3.8% after tax)
2) OK. Boomer.
The smart money no longer exists because the stupid money made house prices too expensive. The smart money will come back again one day, but in the mean time housing is a terrible investment.
If someone told you a share you owned was really overvalued and going to drop by 50% but then start to be a good share again, would you hold that share, or sell it and buy again when it makes sense again?
DP
I've seen some speculation on CPI impacts due to flooding impacting crops. The bank is supposed to look through those kinds of things.
The Carbon Capture story is very short on detail. Most likely they will have to ground up their materials really small to expose maximum surface area to absorb CO2. That's after extracting their materials. Both of those processes likely release a LOT of CO2. They would need to be able to absorb more CO2 than is released during those processes, plus a percentage of the CO2 production cost of all the equipment required to do all their work (as it will break eventually and need replacement), in order to actually capture carbon. That's the steel towers, plastic covers, steel trays, heating, chemical vats, chemicals, computers etc etc. Would the whole process be carbon negative? Doubtful IMO, but would love to be proved wrong.
Was thinking same. Have a mate who would critique it in a flash, but he's wandering around the Sth Island tramping and touring in his new hyundai ev6.
Desperation like this can't be far away for New Zealand, can it? Along with 50-year mortgages to allow higher interests rates to be paid. But paid off by the lucky beneficiaries of the Will, of course.
China is offering mortgages to borrowers as old as 80 as lenders scramble to prop up the country’s beleaguered housing mark
The ultimate extend and pretend. In this case, extend beyond death and pretend people don't die or stop working.
As a laugh Blobbles, I used to say it is always best to stay in debt. That way the authorities will never let you die.
"American retail sales shine"
A growing number of Americans face potentially crippling credit-card debt
https://thehill.com/finance/3821799-a-growing-number-of-americans-face-…
Ol' ratty up 10% with no clear signal as to why. Something going on behind the scenes. Quite possibly Binance has cut a deal with the U.S. Dept of Justice. Just speculating here but don't be surprised. The insiders will be making out like bandits, including govt people. Corrupt I know but you can't help these things.
Likely related to the Wells Notice https://amycastor.com/2023/02/15/crypto-collapse-binance-usd-shut-down-…
Edit:
"Bitfinexed thinks the USD being stuck at Binance is why the price of bitcoin has gone from $16,000 a few weeks ago to over $20,000. Bitcoin trading is that thin, and the bitcoin price is pretty much set at Binance. When you can’t get cash off an exchange, you trade whatever you’ve got for bitcoin, so you can move it to Coinbase and cash out. The demand pushes up the price. We saw the same thing happen at Bitfinex in 2017 after they lost their banking. People used their trapped dollars to buy bitcoins, sending the price up. This helped kick-start the 2017 bitcoin bubble. Prolific tether printing kicked off soon after."
https://davidgerard.co.uk/blockchain/2023/02/12/crypto-collapse-unbanki…
Amy Castor is dreadful. Just my opinion. Has little understanding of fiat money and how it relates to ol' Ratty. She decided to be an 'anti-crypto' journo as a meal ticket and you'll never see her engaged in debates with the other camp. Just criticizes from the sidelines.
Anyway, what I mentioned above is directly related to Binance. Anyway, it could be flight from stablecoins to BTC.
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