Daily Digest

Daily Digest - January 30

Saturday, January 30, 2010, 10:25 AM
  • Three E’s and the New Decade of Awareness
  • Secret Banking Cabal Emerges From AIG Shadows
  • Foreclosure plague: Where it's spreading
  • Obama: Here's $5,000. Go hire someone.
  • 'Underemployment' Tops 20% In 3 States
  • Jobs of the Future
  • China Beats U.S. in Government Smart Grid Funding with $7.3B
  • Would You Choose Economic Growth Over National Autonomy?
  • Regulators Shut Down Banks in 5 States

Economy

Three E’s and the New Decade of Awareness (mp3, Chris Martenson)

Dr. Chris Martenson, author of Crash Course, fellow with Post Carbon Institute, and strategic advisor on realities of key world systems, joins ZOOM’D for continuing dialogue about economy, energy, and environment (3 E’s) in this new decade of awareness.

Secret Banking Cabal Emerges From AIG Shadows (Ben Johnson)

Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials. We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system -- apart from the matter of AIG’s bailout -- deserves further congressional scrutiny.

Foreclosure Plague: Where It's Spreading (Ben Johnson)

The new wave of foreclosure filings is tied more to the economy than bad mortgages. That means its spreading beyond the bubble markets such as Las Vegas and Southern California. Here are 10 cities where defaults grew the fastest in 2009.

Obama: Here's $5,000. Go hire someone. (Ben Johnson)

The $5,000 per-worker tax credit he's calling for would be available to businesses of any size, and would be retroactive to the start of the year. Startups launched in 2010 would be eligible for half of the tax credit. Obama is also proposing a reimbursement of the Social Security taxes businesses pay on increases in their payrolls this year. Firms could earn the credit by raising wages or increasing the hours of their current workers, as well as by hiring new employees.

'Underemployment' Tops 20% In 3 States (Nickbert)

The figures are a stark illustration of how tough it is to find a full-time job, even as the economy has grown for two straight quarters. The official unemployment rate of 10 percent doesn't include people who are working part-time but would prefer full-time work, or the unemployed who have given up looking for work. When those groups are included, the devastation in many parts of the country is clear: Michigan's so-called "underemployment" rate was 21.5 percent in 2009, the highest in the nation. California's was 21.1 percent, while Oregon's was 20.7 percent.

Jobs of the Future (Nickbert)

The truth is that the BLS has no clue where growth will come from. Many of the industries and jobs of the future haven’t yet been imagined. One likely candidate is nanotechnology. Something as game-changing as the internet has been is likely to come from this area in the next decade.

Would You Choose Economic Growth Over National Autonomy? (Doug S.)

We’ve been so distracted by the war on Islamic terror that we’ve failed to understand the war of money terrorism. Money repackaged by central banks and elite banking institutions serves as the global equivalent of ICBMs and battlefield nuclear devices. America is being conquered not by tanks, planes and subs but by strategic assault vehicles of financial warfare.

Regulators Shut Down Banks in 5 States (Nickbert)

Regulators shut down a big bank in California on Friday, along with two banks in Georgia and one each in Florida, Minnesota and Washington. That brought to 15 the number of bank failures so far in 2010 atop the 140 shuttered last year in the punishing economic climate.

Energy

China beats U.S. in gov. Smart Grid funding with $7.3B (Samuel A.)

The Chinese government will be sinking $7.3 billion into the creation of a cleaner, more energy efficient Smart Grid in 2010, actually beating out the U.S.’s investment in the same area by more than $200 million, and rising to the top of the global list of Smart Grid leaders.

Please send article submissions to: [email protected]

9 Comments

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saxplayer00o1
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Re: Daily Digest - January 30

"Still, the week may mark a watershed, with the realization that governments no longer could borrow without limit. Sovereign debt, long seen a riskless asset in modern financial markets, no longer is presumed as such. And with governments' credit lines running out, harsh choices are being forced upon them and their citizens.

By week's end, the markets for bonds of the rudely named PIIGS -- Portugal, Italy, Ireland, Greece and Spain -- settled down after volatile swings that have posed the greatest threat to the viability of the euro since the common currency was introduced just over a decade ago."

"A leading story in Germany's Spiegel Online, datelined from Davos, Switzerland, site of the ongoing economic summit, carries the alarming headline, "Economists Warn of Domino Crash." It's report begins: "Greece is on the verge of a crash, and Europe fears for the Euro."

The debt crisis in Greece, with Spain not far behind, is breaking out as a threat in Europe at the same time as the drastic crisis precipitated by Obama's downfall in the United States.

Despite the safety net organized by private banks to buy Greek bonds Jan. 25, the Greek (and Euro) financial crisis is worsening, with Greek spreads yesterday climbing to 405 points, to settle back at 390, still higher than the day before. Secondly, Spain is now in the line of fire, with Spanish spreads for the first time higher than Italian spreads. Italian three-years bonds yesterday suffered, with the government deciding to sell a little bit less than scheduled in order not to pay penalties. And Moody's has put Portugal under watch.

It is evident that a wave of speculation is taking place, with hedge funds and others shorting state bonds. This is typic—recall the scandal when Goldman Sachs was caught shorting those same assets they were selling to customers."

"Fannie Mae and Freddie Mac's home loan delinquencies rose 4.2 per cent in October and the companies modified more mortgages under President Barack Obama's anti-foreclosure program, the Federal Housing Finance Agency said.

The number of borrowers at least 60 days behind on home loans owned or guaranteed by Fannie Mae and Freddie Mac rose to 1.65 million in October from 1.59 million in September, and has more than doubled since a year earlier, FHFA said in a report today. Delinquencies of 60 days or more as a share of mortgages serviced by the companies rose to 5.4 percent, from 5.2 per cent."

"McLean, Virginia-based Freddie Mac and Washington-based Fannie Mae own or guarantee about $US5.7 trillion of the $US12 trillion in US residential mortgage debt."

"Stuck with about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have unleashed armies of auditors and other employees to sift through mortgage files for proof of underwriting flaws. The two mortgage-finance companies are flexing their muscles to force banks to repurchase loans found to contain improper documentation about a borrower's income or outright lies.

The result: Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125% jump from $1.2 billion a year earlier. Fannie Mae won't disclose its figure, but trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009.

"Because taxpayers are involved, we're being very vigilant," said Maria Brewster, who oversees Fannie's repurchase team. "No taxpayer should have to pay for a business decision that caused a bad loan to be sold to Fannie Mae."

The get-tough stance comes amid pressure on Fannie and Freddie to make the most out of more than $100 billion in taxpayer funds they got to stay afloat. The U.S. government took them over in September 2008"

"Greece’s economic woes will “spook” the derivatives market because of concern the nation’s banks may struggle to honor their credit-default swap trades, according to BNP Paribas SA.

Asset quality at the country’s lenders will deteriorate as the economy slows, forcing them to mark down about 40 billion euros ($56 billion) of government bond holdings, analyst Olivia Frieser wrote in a note to clients today. Funding costs are also rising as the European Central Bank tightens its lending criteria, Frieser wrote.

“What will spook the markets is CDS counterparty risk, our understanding is that Greek banks were active CDS players, and there is no way of finding out about these particular exposures,” the London-based analyst wrote. “As long as Greek sovereign and bank spreads remain under pressure, this will weigh on the wider European banking sector.” "

"The Obama administration will propose giving cash-strapped states about $25 billion worth of help with their Medicaid budgets when presenting its 2011 budget on Monday, a White House official with knowledge of the plan said Friday.

The proposal would extend for six months - until July of next year - the help that states got in last year's economic stimulus bill with their Medicaid programs."

"The Schwarzenegger administration says CalPERS benefits are unsustainable, especially with the fund shouldering a $56 billion loss in the last fiscal year. Crane said the problem began long before the stock market crashed – and is at least partly CalPERS' fault.

He said the fund lulled legislators into thinking they could raise benefits – as they did in 1999 – without having to worry about costs to the taxpayers.

Since then, as Schwarzenegger said earlier this week, the state's annual contribution to CalPERS has risen from $150 million to about $3.5 billion. "

"Fully funding CalSTRS in 30 years would require investment earnings averaging more than 20 percent during the next five years or a contribution increase of 14 percent of payroll, a big jump in the current contributions totaling more than 18 percent.

What happens if nothing is done? The report said an actuary, Milliman, projects that CalSTRS investment assets will be “depleted” by 2045."

"Russia urged China to dump its Fannie Mae and Freddie Mac bonds in 2008 in a bid to force a bailout of the largest U.S. mortgage-finance companies, former Treasury Secretary Henry Paulson said.

Paulson learned of the "disruptive scheme" while attending the Beijing Summer Olympics, according to his memoir, "On The Brink."

The Russians made a "top-level approach" to the Chinese "that together they might sell big chunks of their GSE holdings to force the U.S. to use its emergency authorities to prop up these companies," Paulson said, referring to the acronym for government sponsored entities. The Chinese declined, he said.

Russia's five-day war with U.S. ally Georgia started on Aug. 8, the same day as the opening ceremonies of the Beijing Games."

"BRUSSELS: Unemployment hit 10 per cent in Europe on Friday, amid rising inflation and a weakened euro currency according to new data that shows recession-mired Spain bearing the brunt of a jobless recovery.

The human cost of post-recession, structural economic rebirth could be seen in updated European Union data when the seasonally-adjusted unemployment rate for the 16 euro countries hit a miserable one in 10 in December."

"A recent decline of U.S. home sales is swelling the supply of houses and may push prices down, adding to losses from an earlier three-year slide, said rating agency Standard & Poor's in a statement on Friday."

"The recent fall in home sales is boosting the number of existing homes on the market, which grew to a 7.2 months supply in December from 6.5 months in November, S&P said.

In coming months, "an expanding default and foreclosure pipeline of 2005-2007 vintage mortgage loans may push the 'shadow' inventory of distressed U.S. housing even higher," which could impede the market's stability, S&P added. "

"Massive layoffs of state employees could induce many long-term workers to retire and potentially affect the assets of the Public Employees Retirement System, its top official said today."

"PERS has $22 billion invested to pay for retirement for its 40,000 retirees and 104,000 active members, which include local government employees, teachers and general state government employees.

The money now covers 72.5 percent of what PERS estimates ultimately will be needed to pay their retirement costs, down from a peak of 83.4 percent."

"The closure of a San Francisco Municipal Railways downtown sales booth this Wednesday is another casualty of the agency's budget difficulties that include a $16.9 million deficit this year, and estimated deficits of about $100 million for each of the next two fiscal years.

Faced with a $129 million deficit last spring, Muni introduced higher fares and service cuts. The agency eliminated about 250 positions, including 100 employee layoffs, in November."

"In three years, the 62-year-old Alma resident, who works in the state Department of Information Technology, would retire and pay off the remainder of her house about the same time.

But she worries those plans could be dashed under a deficit-reduction proposal unveiled Friday by Gov. Jennifer Granholm. Her plan is to prod up to 7,000 state employees and 39,000 public school employees into early retirement to shave costs and help balance the state budget."

"New York State Comptroller Thomas DiNapoli is warning the state could end this fiscal year $1 Billion dollars in the red. That is twice as big as the deficit being projected by Governor David Paterson.

DiNapoli says that's largely due to pressure on Wall Street to change the way it hands out bonuses. The changes will likely impact the state's tax revenue during this quarter, when the state typically receives a boost from Wall Street."

"Illinois is broke

By July, Illinois will be $130,000,000,000 (that’s BILLION!) in debt. This crushing load hampers the state’s ability to fund public schools and universities, health care, and other essential public services. Most of that money is owed to the state’s pension funds and retiree health care plans. And YOUR SHARE of that debt is $25,000 per household. "

 
     

"The board overseeing Oregon's employee pension fund voted Friday to give schools, state agencies and other public employers a break on their upcoming pension contributions.

The 4-1 vote eases those employers' pain in the state's upcoming budget cycle, but does nothing to ease the long-term agony inflicted by the stock market's 2008 crash.

The Oregon Public Employees Retirement Fund lost $17 billion during the market's slide. It recovered three-quarters of that during last year's rally, but remains about $14 billion underfunded. "

"Even if the state's investments average a hearty 10.5 percent return over the next decade, Mercer forecast that employers' PERS costs will top out at 20 percent of their total payroll in 2014 -- up from 12 percent this year.

If investments perform less well, and average the 4.5 percent return they did over the past decade, pension costs will rise steadily and eat up more than a third of public employers' total payroll by 2022. "

"In 2008, PERA’s funding ratio tumbled to below 52 cents for every dollar of promised benefits — a $30 billion deficit. After almost a year of cautioning lawmakers against acting hastily, even PERA’s directors finally asked for help — a third rescue plan in just seven years.

PERA had little choice. Its $30 billion unfunded liability is enormous. For comparison, state government is expected to collect about $27 billion in taxes and “fees” over the next three years. Shutting down state government for three years in order to bail out PERA isn’t exactly a viable option."

"The employee's retirement system was overfunded for many years, but with investment losses the funded ratio dipped in 2008 to under 90%. Gains in 2009 and a large pension contribution in 2010 should increase funding ratios to near 100% of the accrued liability. Nevertheless, the city has a sizable OPEB unfunded obligation, at $881 million. "

"Delphi's 21,000 salaried retirees and plan participants filed a class-action lawsuit seeking to block the company's decision to abandon its pension plans and hand them to the government's insurer, the Pension Benefit Guaranty Corp. They also sued the Treasury Department and members of President Barack Obama's auto task force.

But a judge this week declined to stop the move.

That decision, which also applied to hourly pension plans, will cost some younger retirees up to 70 percent of their pensions and saddles the pension agency with a $6.7 billion in debt. "

"China halted planned military exchanges with the U.S. military and warned it will punish companies involved in a Pentagon plan to sell weapons worth $6.4 billion to Taiwan. "

"Nearly one third of all suspicious first-time homebuyer credit claims submitted by noncitizens around the country come from Texas where 1,000 applications for the tax credit have been filed by people employing a special taxpayer identification number that is used primarily by illegal immigrants, according to a Treasury Department investigation."

"George said he could not disclose for privacy reasons where in Texas the suspicious homebuyer claims by noncitizens originated. But he said his office has not completed its investigation. He said another interim report is expected to be released by late February and will contain more revelations.

“The numbers get a lot worse,” he said."

"Fannie Mae says it will cover the closing costs on purchases of its REO homes – an incentive the GSE hopes will help it pare down a bloated supply of repossessed foreclosed properties."

"The offer is available to any owner-occupant who closes on the purchase of a property listed on HomePath.com before May 1, 2010, the company said. In addition, many Fannie Mae-owned properties are eligible for special HomePath Mortgage and HomePath Renovation Mortgage financing, with as little as 3 percent down."

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Re: Daily Digest - January 30

Interesting to hear that Russia attempted to force a bailout of FNM and FRE...If this doesn't raise some awareness to understanding the national security implications of our debt and financial madness, then I don't know what does. It is easy to see terrorist events and bullets flying on the ground in Afghanistan to understand the situation we are in there. But OTC derivatives and financial corruption are somewhat less tangible. No one is dying or getting injured and most of the money exists as electrons on a hard drive...Nonetheless, we are rapidly destroying our options for a controlled way out of our financial situation.

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Re: Daily Digest - January 30

Text below is quoted at the following url:

http://www.investorsinsight.com/blogs/thoughts_from_the_frontline/archive/2010/01/29/this-time-is-different.aspx

Quote:

And this is key. Read it twice (at least!):

"Perhaps more than anything else, failure to recognize the precariousness and fickleness of confidence-especially in cases in which large short-term debts need to be rolled over continuously-is the key factor that gives rise to the this-time-is-different syndrome. Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang!-confidence collapses, lenders disappear, and a crisis hits.

"Economic theory tells us that it is precisely the fickle nature of confidence, including its dependence on the public's expectation of future events, that makes it so difficult to predict the timing of debt crises. High debt levels lead, in many mathematical economics models, to "multiple equilibria" in which the debt level might be sustained - or might not be. Economists do not have a terribly good idea of what kinds of events shift confidence and of how to concretely assess confidence vulnerability. What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite."

How confident was the world in October of 2006? I was writing that there would be a recession, a subprime crisis, and a credit crisis in our future. I was on Larry Kudlow's show with Nouriel Roubini, and Larry and John Rutledge were giving us a hard time about our so-called "doom and gloom." If there is going to be a recession you should get out of the stock market, was my call. I was a tad early, as the market proceeded to go up another 20% over the next 8 months.

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pjc
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Re: Daily Digest - January 30

Relative to environment.

An informational site: www.ted.com.  For Sustainable Living type in ”Biomimicry.” New phrase to me and fascinating.

 In India on Sustainable Living: http://www.cloverorganic.com/  Although the parent company Biosa, Denmark, I believe is also in America. I have the product Nature Vel for septic system.

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Damnthematrix
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Re: Daily Digest - January 30

http://www.kitco.com/ind/Laird/jan282010.html

Second Leg Crash, What's Next in 2010?

By Chris Laird
Jan 28 2010 10:57AM

www.prudentsquirrel.com

A lot of people realize that the world financial and commodity markets have rocketed around 60 pct since March 2009. Around the summer/fall people realized that the markets got ahead of the world economy, which is still terrible.
Unemployment is still rising and one day this month there were US job losses of 50,000 announced. Hey if jobs are again going to tank (they are) then this gig of so called recovery is over.

I had told subscribers that we expected December retail sales to be dismal, and that US economic stats in early 2010 would highly disappoint.

Other measures of stock liquidity are also tanking, basically, the market is flat and is up but it's peaking. Insider selling is high.

Significantly, China has started a money tightening regime, first with higher bank reserves and then soon higher interest rates which they are discussing to cool their property and other bubbles. The last several times China did this
over the last several years all world markets tanked within several months. This info is commented on in our latest newsletters.

Then, the US Quantitative easing (buying everything in sight from stocks to mortgage securities for which there is almost no market now but is a huge part of the home loan business) is ending in March.

March-May

Again the correlation – and there are others – but the correlation is for a huge market decline starting around March of 09 or so. Much of the QE worldwide, not only from the US Fed and Treasury, but also a staple financial tool in Japan,
and of course the UK now, and others are all adopting this tactic., China too.

But, the only question is how long QE will last. My expectation is that after the US let's go of QE, the rest soon follow, the logic being why be the only man in a parade? A parade needs more than a few. So, no parade. The parade is
cancelled.

And so, we are counseling people to prepare for what is coming around March – at least what we think is coming for commodity and the financial markets. .. But March or a month or two around that period is going to be fateful. There are
other pressures of a great magnitude as well.

US Debt bomb roll over

Half of US Ts are now around 2 yrs or less. The US needs to roll over or issue an astounding $ 5 trillion of US Treasuries in the next year and a half. How will that happen??? Again, the fateful 2010 period of massive debt
issuance/rollover for the US looms menacingly. 2010 is a fateful year for the US debt market. Not to mention that places like Greece and others are already just about to go belly up. Even though the USD rallies (we predicted this months ago) the USD is in serious trouble soon.

It will be a dark time worldwide....... (then lots of spruiking)

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Damnthematrix
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Re: Daily Digest - January 30

http://www.cmavision.com/market-data
Highest Default Probabilities
Entity Name Mid Spread CPD (%)
Venezuela 1017.13 50.58
Argentina 1032.24 49.83
Pakistan 872.14 45.36
Ukraine 912.84 43.00
Iceland 661.48 35.61
Iraq 465.00 33.94
Dubai/Emirate of 493.13 29.07
Greece 399.23 28.55
Latvia, Republic of 478.66 27.78
California/State of 306.99 23.86

Despite all the angst over Greece defaulting,
it is still only 8th on the list of most expensive to insure against default.
California would probably be the most frightening risk.

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Woodman
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Re: Daily Digest - January 30

In somewhat contrast to the article above by Chris Laird posted by Mike, Jim Pupavla on the FSN podcast this week seemed to think the Market is overreacting a bit to China tightening and the Fed ending quantitative easing, and another flood of money and stimulus will be pushed through in this election year if necessary.

Who knows, anything can happen from here.

Tom

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Re: Daily Digest - January 30

Australia heading to a US style housing crash?

Aussie's struggle to foot mortgage bill

http://www.news.com.au/money/property/aussies-struggle-to-foot-mortgage-bill/story-e6frfmd0-1225825092977

  • 45% of first home owners in mortgage stress
  • Homebuyers using credit cards for repayments
  • Numbers to worsen as rates continue to rise

ALMOST half the first-home buyers lured into the market by the Rudd government's $14,000 grant are struggling to meet their mortgage repayments and many are already in arrears on their loans.

Thousands of young homebuyers are using credit cards or other loans to meet obligations, while those in "severe stress" are missing payments, the Sunday Telegraph reports.

Just weeks after the grant was officially withdrawn, a survey of more than 26,000 borrowers conducted by Fujitsu Consulting revealed that 45 per cent of first-home owners who entered the market during the past 18 months are now experiencing "mortgage stress" or "severe mortgage stress".

Those numbers are likely to worsen in the next 12 months as interest rates rise by an expected one per cent. On Tuesday, the Reserve Bank is almost certain to raise the cash rate by 0.25 per cent to four per cent, taking the typical standard variable mortgage rate to around 6.90.

If lenders pass on the hike in full it will add $47 a month to the typical $300,000 mortgage.

"The dream of home ownership has turned sour for many thousands of first-home buyers now that the reality of rising interest rates is kicking in" said Martin North, managing director of Fujitsu Consulting.

"Rising utility costs and school fees are also cited as reasons for hardship, and many first-home owners are living without proper furniture or carpets as they divert all their cash to their monthly repayments."

During the past 18 months, more than 135,000 first-home buyers have entered the market, encouraged by grants of up to $24,000 in NSW, plus as much as $18,000 in stamp-duty relief. More than 50 per cent of first-home owners are forecast to fall into the mortgage stress category by the end of 2010.

The crisis will be seen as vindication for critics of the stimulus program, who argued that the Government was enticing buyers who were not financially ready for home ownership.

Steve Keen, professor of economics at the University of NSW said last year that the homeowner grants were a "disaster waiting to happen".

"The grant panicked first-home buyers to rush into the market, which pushed prices up by far more than the grant itself," he said yesterday.

AMP Capital chief economist Shane Oliver said: "This is a scary survey. It provides a clear warning to the RBA not to push rates up too far or too fast."

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SteveS
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Re: Daily Digest - January 30-small business incentive

As glad as I am to hear that small businesses are getting some help (the $5000 new employee credit), it seems too much like trying to push a string. I heard an interview with one small businessman, and he wondered why he he would hire someone? He was having trouble keeping the employees he has. Who thinks up these various incentives? Like Cash for Clunkers and the new home incentives- these programs have all the benefits of a sugar high.

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