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Marc Faber Rationalizes The Irrational And Fears China's "Colossal Credit Bubble"

Tyler Durden's picture




 

Though infamous for his doom and gloom more than boom, Marc Faber explains in this brief CNBC clip how the herd-like behavior in stocks and real estate is actually not totally irrational as it is merely a reaction to the central banks forcing people not to hold cash and instead but "gold watches and Ferraris." His point is that if (and when) interest rates are ever normalized, everything changes (and not in a good way) as valuations become severely stretched on all these inflated assets. While the world tells us that bonds are unattractive and stocks are attractive, Faber rhetorically asks, "who knows, maybe the bonds are telling us something about the future return on equities." He warns of paying too much attention to government headline statistics, "what is published does not necessarily reflect the reality," But, just as we have warned, China is his biggest fear for knocking the world' exuberance: "Whether they [Chinese government] can ensure continuous growth will depend on reforms and how to deflate the colossal credit bubble we have in China. This is going to be a huge problem because we have so much underground credit, questionable loans outstanding and questionable investments."

 

Rational Irrationality; Interest Rate Normalization; and Don't Trust The Data

 

 

China's Credit Bubble... questioning Chinese growth relative to real GDP numbers...

China won’t miss it [GDP growth target 7.5%] They will announce it. But the reality will be much lower. If you look at the statistics that are more reliable like Korean, Japanese or Taiwanese exports … then export figures from China don’t add up entirely.


 

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Thu, 03/14/2013 - 21:17 | 3331393 DJ Happy Ending
DJ Happy Ending's picture

I am long Chinese pork bellies

Thu, 03/14/2013 - 21:21 | 3331404 ozzz169
ozzz169's picture

LOL... as long as they dont start selling the ones in the rivers you should be ok with that play.

Thu, 03/14/2013 - 21:44 | 3331442 Bunga Bunga
Bunga Bunga's picture

As a delicious underwater belly-up frozen microwave meal.

Thu, 03/14/2013 - 23:15 | 3331579 FEDbuster
FEDbuster's picture

McDonalds is bringing back the McRib for a limited time in Beijing.

Fri, 03/15/2013 - 01:01 | 3331705 IridiumRebel
IridiumRebel's picture

Beijing Baconator at BK BEH BEH! I'll have that with Yangtze Mayo!

Thu, 03/14/2013 - 21:20 | 3331397 pods
pods's picture

The Chinese credit bubble is like a bloated pig, floating down the river.

pods

Thu, 03/14/2013 - 21:48 | 3331451 eigenvalue
eigenvalue's picture

Marc Faber is a shill and snakeoil charlatan. His favourite investment-gold is going down the sewer. Gold can't even go back to $1600 while some maniacs are calling for $5000 gold.

Thu, 03/14/2013 - 22:11 | 3331482 alien-IQ
alien-IQ's picture

You don't seem to understand the function of gold and silver. It's not an "investment" in the commonly used (buying stock or real estate) sense of the word. It's about the preservation of your purchasing power.

To put it in very simple terms: The amount of gold it takes to buy a house today will be the same amount of gold it will take to buy a house thirty years from now and it was the same amount of gold it took to buy a house 30 years ago. As opposed to cash: the amount of cash it took to buy a house thirty years ago won't buy you a decent used car today and the amount of cash it takes to buy a house today certainly will not buy you a house in thirty years.

If you want to SAVE money, you save it in gold or silver, not in currency because the purchasing power of the metals remains constant while the purchasing power of currencies constantly depreciates. But judging by your post...you clearly do not understand that.

Thu, 03/14/2013 - 22:49 | 3331541 Cdad
Cdad's picture

Actually, what eigenvalue understands is not apparent in his comment.  This is by design, I expect.

Marc Faber's honesty is demonstrated by WHAT he talks about...not necessarily his prognostications.  While everyone has an ax to grind, not everyone is willing to subvert the truth with some ridiculous Orwellian speak, and Faber is one of those guys who seems to understand the purpose of his appearances...unlike 99% of the folks who show up on The BlowHorn [CNBC] to try their hand at selling utter nonsense and outright fraud.

Fri, 03/15/2013 - 04:11 | 3331797 AldousHuxley
AldousHuxley's picture

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012...

 

continued....

 

http://goldprice.org/charts/history/gold_all_data_o_usd.png

 

 

The jig is up. China won't be buying much dollar. exporting inflation to china won't work anymore. manufacturing is coming back via cheaper dollar.

Fri, 03/15/2013 - 00:32 | 3331662 dark pools of soros
dark pools of soros's picture

in a ZIRP environment yes.. when compounding interest existed it was a different world altogether

 

Fri, 03/15/2013 - 08:11 | 3331930 Davilis
Davilis's picture

Really?  100 ounces in 1999 would not have gotten much of anything in NYC but 100 ounces today certainly would.  This notion that gold only goes up and will have the same relative value 30 years from now is a very dangerous way of thinking and simply isn't supported by any facts that I can find.

Fri, 03/15/2013 - 10:05 | 3332173 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Gold is both suitable for preservation of purchasing power and as an investment but timing is also important.

Fri, 03/15/2013 - 08:55 | 3332010 hankwil74
hankwil74's picture

This simply isn't true.  

Thu, 03/14/2013 - 22:28 | 3331503 pods
pods's picture

Can you point me to which sewer exactly it is going down?  Thanks.

pods

Thu, 03/14/2013 - 22:31 | 3331509 praxis
praxis's picture

Ben is that you?

Thu, 03/14/2013 - 22:34 | 3331514 Lord Of Finance
Lord Of Finance's picture

EIGAN VALUE, I guess you do not expect inflation to pick up. I agree that it will not be anytime soon, but at some point velocity will accelerate and the fed will be forced to raise rates. Now, you probably believe the market will be able to handle rising rates,but many of us gold/silver buyers dont.

 

Right now the banks are speculating, which is typical in low interest environments, but when velocity increases those speculations will cease and the banks will yake their Bernanke bucks and start loading their vaults with gold. We saw a preview of this just last year, with banks making huge purchases, but the fear was not quite founded at the moment. In few years I believe the fear will be real when velocity increases with more foreign money buying up assests here and bonds being sold bzecause that will be the only thing to do when real inflation fears materialize. The bond market/treasuries will be a no go for putting your hard earned money in and once the bank speculation ceases, the stock market will be just as toxic. 

    The only place to go for safety will be PM. This occured during the depression and it occured in the late 70

Fri, 03/15/2013 - 04:41 | 3331810 ebworthen
ebworthen's picture

Thanks for the entertainment eigenvalue.

If Gold were at $400/ounce and Silver at $10/ounce you might have a point.

So, are you buying equities?  When are you going to get out?  Or, is it 1983 all over again?

Thu, 03/14/2013 - 21:22 | 3331405 Yen Cross
Yen Cross's picture

 How is "Viet Nam" working out Mr. Faber?  I'm not being sarchastic.

Thu, 03/14/2013 - 21:24 | 3331410 zorba THE GREEK
zorba THE GREEK's picture

Mark Faber is still bitter about losing out to Werner Klemperer for the

the role as Cnl. Klink in Hogan's Heroes. 

Thu, 03/14/2013 - 21:32 | 3331426 Rbh110
Rbh110's picture

He resembles Klink but talks more like General Burkhalter. I especially like how he says "Preident Obama and his Clowns"

Thu, 03/14/2013 - 21:33 | 3331427 pods
pods's picture

Betcha Faber could rock a monocle.

pods

Thu, 03/14/2013 - 23:18 | 3331583 FEDbuster
FEDbuster's picture

Only with a riding crop in his right hand.

Fri, 03/15/2013 - 04:43 | 3331812 ebworthen
ebworthen's picture

Bet he does that with some of his asian prostitutes, and could you blame him?

Fri, 03/15/2013 - 10:29 | 3332310 AGuy
AGuy's picture

FWIW: No body does a better Klink than Hank Paulson!

Thu, 03/14/2013 - 21:27 | 3331412 fuu
fuu's picture

"Well let's let them party a little more, let's not prick their little air castle up there."

Thu, 03/14/2013 - 21:26 | 3331414 gwar5
gwar5's picture

I feel like I'm in the movie "Independence Day." Central Bankers have circled the globe and are just synchronizing and counting down for one big coordinated collapse. 

 

 

Thu, 03/14/2013 - 22:06 | 3331475 disabledvet
disabledvet's picture

not a gold bug but this is a VERY interesting missive. "there's no competition for dollars" courtesy of the Fed's QE (unless you are a foreign country and have no interest in serving the US market.) I would argue this is both an abomination of capitalism...but also a capitalist's dream come true...a "man made Almighty Dollar" as it were. you could argue it is "fascism"...but this is not coming from the State but from "money theorists." very GOOD money theorists actually. "theorists who's theories are in fact anti-thetical to the State" ironically enough. indeed if we look at the "recovery" one could argue...and i have made this argument consistently actually...that in fact "it's bad for banks as well." it's wonderful for energy companies of course. as well as "techies" and "futurists." but a world where one's return on money is "mandated" by a capitalist entity (the Fed) is an odd juxta-position indeed. "is it good...or pure evil?" comes to mind. "where so rich we live in complete terror of our money ever being returned" is an odd form of "confidence." at some point it might even work...when that happens clearly it will be "a good." until then...http://www.youtube.com/watch?v=FK_hftXn4dk

Thu, 03/14/2013 - 22:17 | 3331489 Arthur
Arthur's picture

The video you are trying to access is unfortunately unavailable at the moment.

Fri, 03/15/2013 - 07:16 | 3331881 e-recep
e-recep's picture

here's a link for those who have problems with the videos above.

Video : China's Colossal Credit Bubble Next Big Risk: Faber

Thu, 03/14/2013 - 22:51 | 3331543 zen0
zen0's picture

Faber was right for a time, and good for him.

If he thinks interest rates will ever be normalized in his lifetime, he has becoma a delusional old man.

The only way the powers  imagine for the system now is Stasis.

 

First among the Entropic Spheres is that of Stasis, which seeks to entrap all things, snuffing out energy and ending motion, change and growth. While Stasis can prevent death and so is sometimes seen as beneficial, it also blocks healing, new discovery and activity, and can suffocate new life before it arrives. Stasis is most closely aligned with the alignment of Law, though in a definitely dark fashion; it prevents the spread of Negation (deflation), is torn asunder by Ravening (inflation), and seeks to freeze the conflicts created by Discord (lawless plunder).

Thu, 03/14/2013 - 22:55 | 3331549 tip e. canoe
tip e. canoe's picture

where is that paragraph from may i ask?

Thu, 03/14/2013 - 23:02 | 3331557 zen0
zen0's picture

its from "the four spheres of entropy"  If you search that it should come up.

 

http://www.pandius.com/spherent.html

 

 

Thu, 03/14/2013 - 23:06 | 3331566 tip e. canoe
tip e. canoe's picture

thanks.   nice.   i like this one:

The final Sphere, that of Life, seeks to encourage growth, health, the continuation of old things and the creation of new ones. Many right-thinking Immortals consider its ways dangerously radical, opposing the proper elimination of things unfit to face the natural order and potentially filling the entire multiverse with stifling, hungry life. Fragments of history and prophecy suggest that Life has four separate aspects which mirror the four Entropic Spheres, and that at some time in the distant future may be in the ascendant and exist as separate focuses of Immortal power. No Immortal currently in existence can say whether these rumours have any truth. 

Fri, 03/15/2013 - 04:46 | 3331815 ebworthen
ebworthen's picture

Science has never quite reconciled itself with the human beast.

Higher rates will come, but only slightly preceding the current bubble (Grand Bubble Part II) then enacted as a "healthy mechanism" once all the seniors and pensions have that much less money to earn interest on from the banks, and the banks can charge that much interest for apartments and overpriced healthcare.

Fri, 03/15/2013 - 10:35 | 3332339 AGuy
AGuy's picture

"If he thinks interest rates will ever be normalized in his lifetime, he has becoma a delusional old man."

No, it that was a hypothetical comparison, to explain why assets prices are rising. If interest rates normalizes asset prices would collapse.

Faber believes we are heading for WW3 as industrialized nations run out of gimmicks to prop up their economies.

Thu, 03/14/2013 - 23:05 | 3331558 Lord Of Finance
Lord Of Finance's picture

zenO, I know nothing about stasis, but I know economic history, and history shows that whenever you have massive increases in spending/stimulus/bailouts, it leads to terrible inflation. It roughly takes 5-10 years for the previous massive money printing to work its way into the economy, thus causing a massive increase in velocity.

 

Is there any literature that you could refer to me for reading on what you believe has been created by this current establishment. I know these bastards know history as well, and just like the professional thief/criminal figures out new ways to continue a criminal enterprize, it would not be surprising for these banker criminal enterprizers to figure a way to get a one up on history.

 

Authors or web info would be appreciated.

Thu, 03/14/2013 - 23:11 | 3331574 zen0
zen0's picture

I'm sorry. I go on instinct after absorbing mucho info.

I am Ronin.

 

I know they know history. They also know that we have never been here before and history is very situational, and its extrapolation to the future is extremely interpretational, so they just have to do what they think they can get away with while suffering the least damage, always with an eye to bugging out when necessary.

Fri, 03/15/2013 - 00:33 | 3331666 dark pools of soros
dark pools of soros's picture

Dying of Money explains it well

Thu, 03/14/2013 - 23:03 | 3331562 zen0
zen0's picture

Ps

 

I added the comments in parentheses.

Thu, 03/14/2013 - 23:18 | 3331582 Lord Of Finance
Lord Of Finance's picture

Intuition and the gut. In times such as these, the technicals and market signals are misleading. I have been making more and more gut calls as well.

 

 I know history, but my gut tells me something is of a miss here in the new millenium.

Thu, 03/14/2013 - 23:25 | 3331589 zen0
zen0's picture

Yes. There is something no one has yet responded to. The chart of the destruction of the dollar starting 100 years ago shows a line diving toward zero and then flattening out, as the dollar lost 98% of its value.

The chart suggests it will take another 100 years to lose 98% of the last 2% of its value.

Or longer.

Fri, 03/15/2013 - 00:35 | 3331668 Mike in GA
Mike in GA's picture

Don't think it'll take that long, zen0 - I'd give the $ 98 WEEKS till the beginning of the Mises inflationary 'crack-up boom' which should erase a double digit percentage of $ value. I dunno how long this phase lasts but historically they've lasted just a short period of time, say, a couple or three years.  Once that inflationary spiral begins that genie's outta the bottle and off to the races.  Next stop - Fiat Currency Purgatory, a Marc Faber wallpaper, where the currency formerly known as the dollar will be but a hollowed out memory of its former self. 

This may take an additional handful of years but, given the compression of time brought to us by bits and bytes travelling at the speed of light, this is not likely to take 98 more years.  Once the snowball gets rolling, even Bennie and the Inkjets will not be able to print fast enough, they'll be handing out free zeroes, three decimal places at the time.

Just like Zimbabwe.  Whocouldanode.

Thu, 03/14/2013 - 23:39 | 3331600 Mr. Magoo
Mr. Magoo's picture

Who cares!! i just bought some canadian maple leafs .9999 fine

Thu, 03/14/2013 - 23:49 | 3331617 zen0
zen0's picture

I have some of those. I admire them, but I do not love them, or think that they will save me.

Thu, 03/14/2013 - 23:58 | 3331622 Mr. Magoo
Mr. Magoo's picture

Only God can save you, everything else means nothing especially when your dead

Fri, 03/15/2013 - 02:16 | 3331750 Moon Pie
Moon Pie's picture

Well said, Magoo.  Having some gold around isn't bad while you're still here and if you want a superior bargaining position, is not a bad plan, either.  Easier to hide from the estate tax vultures, too.

I like ZH'ers (mostly) a lot and the angst and smarts and questions.  Earlier I was reading some firey blog comments on the Sandberg book Lean In (COO FacePlant/Book)...thing that strikes me there as well as here often is the lack of perspective.

Surveys consistently say that 10 out of 10 people...will die.  That fact accepted, why isn't life itself correlatively valued or maybe better, why is it so mis-valued? 

Gold investing is wise and responsible.  You don't buy gold to rehypothecate it and collect fees in doing so and screw your counterparts.  You buy it as a surety for your value, your wealth, your expended economic energy.  And I agree it is a wise and good thing to do.  It will rise again, too.  More dramatically next time, I believe.

Point is, that morality/law/ethics have gone wobbly and kooky-wacky.  Stick to wisdom and the things that matter while you're here...and maybe...just maybe...the kids (our kids) might see the wisdom in that and make things better later.  I hope.

Fri, 03/15/2013 - 00:32 | 3331664 Joe moneybags
Joe moneybags's picture

Faber and Santelli, Faber and Santelli.  We get a steady dose of these perma bears, and lap it up the way the Bulls lap up Cramer and Krugman.

Fri, 03/15/2013 - 00:40 | 3331681 Vidar
Vidar's picture

I don't know why they post these CNBC videos, they are made unavailable by CNBC long before I've ever seen one.

Fri, 03/15/2013 - 04:11 | 3331796 robertocarlos
robertocarlos's picture

I'm watching it now. He's right. I don't want to hold too much money ( edit: cash). I'm buying Ferraris.

Fri, 03/15/2013 - 01:18 | 3331715 q99x2
q99x2's picture

Maybe things are already crashing. Marc Faber split the scene and took his videos with him. I don't see anything.

Fri, 03/15/2013 - 02:30 | 3331755 luckylongshot
luckylongshot's picture

This smells more like propaganda than reality.  China owns its central bank and has control over its money supply and so there is not much risk of a crash occurring. Crashes such as Marc Faber warns of are caused by banksters rather than market forces and Milton Friedman acknowledged this when he laid 100% of the blame for the 1930s depression at the feet of private bankers. So what is Faber up to here?....perhaps its a diversionary tactic..but for what?

Fri, 03/15/2013 - 04:59 | 3331820 ebworthen
ebworthen's picture

"China owns its central bank and has control over its money supply and so there is not much risk of a crash occurring."

Back to the homework room with you!

Are you an economist?

Fri, 03/15/2013 - 05:57 | 3331841 robertocarlos
robertocarlos's picture

The Jews own China too ?

Sat, 03/16/2013 - 00:31 | 3334528 r3phl0x
r3phl0x's picture

Q: What's the diff between a Jewish Banker and a Chinese Banker?

A: When the Chinese Banker tips his hooker, he leaves a smaller tip due to his "smaller tip".

Fri, 03/15/2013 - 05:45 | 3331833 e-recep
e-recep's picture

what makes you think that local bubble pop-ups don't matter? they matter a lot. we have been talking about disrupting supply lines and china is the factory of the world. chain bankruptcies in china will devoid the world of many items. their prices will go up or they won't be produced at all. 

Fri, 03/15/2013 - 08:33 | 3331972 Lebensphilosoph
Lebensphilosoph's picture

China owns its central banks? That's quite remarkable for a non-sentient abstraction. And the difference between a bankster and a top dog in the Communist Party is what, exactly?

Fri, 03/15/2013 - 08:49 | 3331988 Ghordius
Ghordius's picture

that they are often relatives? I don't know why this part of his sentence gets flak - and your sentence makes little difference between bankers and central bankers, which I find strange, but anyway consider this:

 

in "Communist" China, bankers have to do what politicians tell them to do

In the eurozone there is a bit of a Mexican standoff, and politicians are curbing banker's bonuses through the EU, with threats of going further

In the UK/US... let's say it's the opposite of China

Fri, 03/15/2013 - 09:21 | 3332061 falak pema
falak pema's picture

the key remark in that piece of contemptuous philosophising is "non sentient abstraction"...

To consider the Communist party as an "abstraction" is awesome in the real world, as it beats the USA in economic ping pong today; just look at its trade balance, growth and currency reserves.

To consider is as "non sentient" begs the question whether their "cognitive intelligence" is flawed; unlike superiour western logic (implied dominant yardstick of sentient intelligence).

Your answer puts that question to rest without any possible equivocation.

 Not saying the Chinese are not in a bubble but lets eat humble pie first.

Fri, 03/15/2013 - 10:19 | 3332257 Lebensphilosoph
Lebensphilosoph's picture

Jesus Christ. The state 'China' (which a ten-year-old could understand I referring to in the context of replying to the claim of China owning its central banks) is not a sentient being but a 'system' and an abstraction of human reasoning, existing only as a concept within the mind that conceives of it. But then so is your 'Communist Party' as a concrete 'thing' where in reality there are only human individuals believing themselves to 'belong' to 'it' and abiding by a set of rules. To have psychopathic bankers recognising themselves as individuals running banks, or instead corrupt Communist fat cats pretending that 'the state' or 'the party' rather than they themselves run or 'own' the banks, are objectively all the same thing. Now go back to your Confucius and your alternative Eastern 'logic'.

Fri, 03/15/2013 - 10:43 | 3332373 falak pema
falak pema's picture

If Confucius read your confusing explanation of snake eating its tail he would laugh, as he invented the mandarin breed in the east; awesome expression of vertical society and intellectual mind set based on roughly equivalent value systems to the ancient greeks.

Nothing "alternative" about his logic; it was right down the same path as some of the values that Plato incensed.

Great minds like great wines...

MANDARINS (SCHOLARS), CONFUCIANISM AND EXAMININATIONS IN IMPERIAL CHINA - China | Facts and Details

 

Fri, 03/15/2013 - 04:55 | 3331818 ebworthen
ebworthen's picture

Remember, the four years since March 2009 have been due to FED liquidity, nothing else.

Near 0% money to the crooked banks who engineered the collapse in the first place because they had so many casino chips of the baby-boomers to play with.

Then those banks and bankers got bailed out and got sweetheart deals and salaries and bonuses.

Then none of those crooked banks or bankers had their license to bank revoked or went to jail (Jon Corzine).

So it was necessary, in this cannibalistic society we find ourselves in, for the CONgress to pass meaningless legislation (unless it came to raping the Constitution) and for the FED to buy all the shit the banks were selling along with Treasuries while supplying endless back door cash to nearly any bank in the world that asked for it.

Losers = regular citizens

Winners = bankers, elites, and their politician lackeys.

Can you not see where and how this ends?  What a bunch of monkeys!  Wait, that puts a bad light on our more principled and moral ape cousins - sorry.

What a bunch of fucking leeches, ticks, lampreys, fleas, bedbugs, and tapeworms!

Fri, 03/15/2013 - 05:08 | 3331823 Pete15
Pete15's picture

Faber is looking good on Thailand 

Fri, 03/15/2013 - 06:44 | 3331863 dcau1
dcau1's picture

Insert line chart and wanky swooshing noise here.

Fri, 03/15/2013 - 06:50 | 3331869 observer007
observer007's picture

another Faber Interview:

 

Endgame 2013

 

http://homment.com/hx8LLE6MNh

Fri, 03/15/2013 - 08:35 | 3331975 YHC-FTSE
YHC-FTSE's picture

I'm going to have to disagree with Mr.Faber here. I wouldn't go as far as describing china's credit bubble as "colossal". Massive,  yes but not colossal.  :)

He might mention that China's banks have different and variable reserve ratios than their western counterparts, ostensibly for inflationary pressures, but by changing the fractional reserve ratio  it's possible to curb lending instantly. That doesn't solve the problems with NPLs, as he alluded, so a credit bubble proportional to the bad loans is inevitable.  Not as big as he thinks in relation to their foreign reserves and cash flow, but big enough to make some noise and certainty big enough for him to take credit for his foresight.

Fri, 03/15/2013 - 14:31 | 3333130 WallowaMountainMan
WallowaMountainMan's picture

"Whether they [Chinese government] can ensure continuous growth will depend on reforms and how to deflate the colossal credit bubble we have in China. This is going to be a huge problem because we have so much underground credit, questionable loans outstanding and questionable investments."

while being able to outspend russia and force it out of its communist structure worked, specifically because no u.s. businesses were financial connected to the russian internal finacial structure, the relationship first extablished by tricky dick has tied the people of the united states to fate of communism. when chinese communism sputters and fails, so too will the u.s. (and of course, the world).

ask yourself this: what are the chances that the transitions to democracy will be peaceful? will big business/governments support freedom or buy time for themselves by supporting the communists over freedom? tbtf? china.

all these things are right before everyone's eyes, and yet, 'business' as usual. i.e. the huge immediate problem ( i am sure he is telling his truth) is a colossal credit bubble, not the fundamental impact from being a partner with communists.

as so it should be. live as best as you can, for as long as you can, even if in doing so the species suffers in totallity. after all, its just business, not personal.

as for me, i don't think communism will fall anytime soon and today i am going for a hike into the wilderness. literally.

the system is working.

just.

fine.

 

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