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MACAU SLOWS DRAMATICALLY POST GOLDEN WEEK

Table revs thru the 17th were HK$10.8bn. Normalizing the rest of the month would produce 47% YoY growth (HK $18bn) for October, below expectations of $HK20bn.

 

 

The Golden Week honeymoon is over and business levels in Macau in the past week have slowed substantially.  Table revenue per day in the first 10 days was HK$868m but only HK$320m in the last 7 days.  Assuming only HK$320m per day for the rest of the month (taking into account weekend vs weekdays) and adding in slot revenue produces full month October revenue of only HK$16.2 billion, up 32% YoY.  However, we believe the last week was unusually slow due to the end of the Golden Week honeymoon and business will “normalize” for the rest of the month.  If we normalize the last two weeks of October at the average daily revenue for the year, then full month would come in at HK$18.0b, up 47%.  We think this is more realistic.  Either way, the numbers are a disappointment from consensus expectations of HK$20b following the strong Golden Week.

 

In terms of market share, both Wynn and MPEL lost share since we reported on the numbers through the 10th.  Galaxy’s share has started to normalize and MGM continued to hold an above trend share, which we expect to continue.  Here are the numbers through 10/17:

 

MACAU SLOWS DRAMATICALLY POST GOLDEN WEEK - macau1


R3: VFC, GIII, URBN, and the NFL

R3: REQUIRED RETAIL READING

October 18, 2010

 

With the majority of the NFL licenses locked up again for several years, we believe we’ll see renewed interest and marketing surrounding the next generation of on and off-field merchandise.  In the interim, choose your jerseys wisely as team uniforms, colors, and logos, are likely to see some tweaks in 2012.

 

 

RESEARCH ANECDOTES

 

- With hard earned cash hard to come by, retailers are thinking creatively about bartering and trade-ins.  Toys R Us is currently offering up to $100 for used iPods this week in exchange for a cash/gift card to be used towards a new device.  Recall that Radioshack and Costco also offer electronics trade in programs.

 

- Ralph Lauren’s latest boutique on 109  Prince St. in Soho is leading some to speculate what exactly may be coming to this former Replay Jeans location.  The window stencils read “Ralph Lauren Quality Goods Proprietor”- a new tagline.  We suspect this may be an accessories focused boutique, especially given its proximity to two other locations within a several block radius.

 

- According to the Pew Research Center, 85% of Americans own a cell phone while only 59% own a desk top computer.  Laptops are owned by 52% Americans, 47% own an MP3 player, and 42% own a game console.

 

- Add wedding packages to the list of creative initiatives to drive traffic and ‘other revenue’ streams at McDonald’s. Cakes made of burgers, or apple pies is just one of the custom touches available for interested couples, which average about 10/week at Hong Kong locations – the first to offer this option. While these packages are not yet offered in the U.S., it’s just a matter of time and also begs the question when lavishly decorated retailers might also consider opening their doors for nuptials.

 

 

OUR TAKE ON OVERNIGHT NEWS 

 

Anthropologie Introduces Accessories Only Concept - Anthropologie is opening an accessories-only store Oct. 29 in Chevy Chase, Md., the first of several new retail concepts it will roll out. The 1,400-square-foot accessories-only store at 5402 Wisconsin Ave. will have the largest selection of shoes, handbags, scarves, belts, costume jewelry, fine jewelry and, for the first time, estate and antique jewelry, including one-of-a-kind brooches and engagement rings. There will also be handcrafted one-off pieces and reworked vintage styles. The store’s initial assortment will include shoes by designers Rachel Comey, Chie Mihara and Bourne, among others. Accessories were designed by Marion Vidal, Eugenia Kim, Ikou Tschuss and Leslie Oschmann.  <wwd.com/retail-news>

Hedgeye Retail’s Take:  Given URBN’s methodical approach to testing and incubating, we’re not going to get overly excited (yet) about this concept.  However, if there is any fashion retailer  that can create the look and feel of a specialty boutique (while still backed by a multi-billion dollar corporation) it’s URBN.  More to come here for sure. 

 

VF Licensed Sports Group to Extend NFL Partnership - VF Licensed Sports Group and the National Football League (NFL) have reached an agreement to extend apparel rights. The new contract, which starts in 2012, marks the 25th anniversary of the VF-NFL partnership, which began in 1987.  <sportsonesource.com>

Hedgeye Retail’s Take:  With NKE taking the lead with the on-field license, there may be some positive “rub off” for other licensees given the marketing efforts that are likely to ensue with the transition to the Swoosh. 

 

G-III Apparel Group, Ltd. Signs Expanded License With NFL - G-III Apparel Group, Ltd. has entered into a new, extended and expanded license agreement with National Football League Properties, Inc. to manufacture and market men's and women's outerwear, sportswear, and swimwear products in the United States under a variety of NFL trademarks, according to a release by the company. <sportsonesource.com>

Hedgeye Retail’s Take:   See above.  In addition, we’d keep an eye on the women’s opportunity which should be the largest growth opportunity under the NFL license umbrella. 

 

Luxury Goods Update - Sales of luxury goods may climb this year to the highest level since 2007, led by demand in China and a rebound in the U.S., according to Bain & Co. Sales of high-end apparel, accessories, watches and jewelry and other products may rise to as much as $236 bn, helped by currency moves including the appreciation of the dollar. Sales of leather goods will lead the increase, gaining 20%. Sales in stores directly operated by makers of luxury goods may grow 20% in 2010, while wholesale revenue may rise 6% as U.S. department stores restock inventories. <bloomberg.com>

Hedgeye Retail’s Take: Sustainability of this demand remains the key question as stock shortages have begun to impact retailers heading into the holiday season. The offset with potential staying power continues to be the devaluation of the dollar relative to far east economies – as such, domestic luxury brands will be at a considerable competitive disadvantage to counterparts with global scale.

 

Apparel and Textile Imports Continue to Rise - Apparel and textile imports in August rose to their highest one-month volume in two decades, despite flagging consumer confidence and a dim outlook for the holiday season. Combined shipments of textiles and apparel to the U.S. increased 28.6%. Apparel shipments increased 23.1% and textile imports rose 33.9%. <wwd.com/business-news>

Hedgeye Retail’s Take: Driven primarily by concerns over rising shipping rates, retailers have been building inventory in an effort to stem one of the many components of cost inflation in the 2H. Inevitably, some retailers will get overaggressive setting up the likelihood of increased promotional activity at selective concepts and an opportunity for better managed and quality retailers to notably outperform.

 

Apparel Weakening, Prices Falling - Two government reports released Friday point to a weakening in demand for apparel, as retail sales fell and prices declined. In yearly comparisons, specialty store sales were up 3.2%, department store sales were off 0.8%, and general merchandise stores saw a 2.6%increase. Meanwhile, economic pressures drove retail apparel prices down a seasonally adjusted 0.6% in September, and decreased 1.2% compared with a year earlier. Women’s apparel prices fell 0.8% while men's dropped 0.2%. <wwd.com/business-news>

Hedgeye Retail’s Take: With department store performance lagging broader retail, expect the channel to lead promotional cadence heading into the holiday season.

 

USA Bid Committee To Focus on 2022 FIFA World Cup - The USA Bid Committee has withdrawn from the 2018 FIFA World Cup bid and will exclusively focus on the 2022 campaign. <sportsonesource.com>

Hedgeye Retail’s Take: The 2010 World Cup in South Africa proved yet again that geographic location matters little when it comes to the financial impact of these games for athletic brands. That said, the biggest beneficiaries of a domestic Cup would undoubtedly be the smaller players given the natural halo effect.

 

 


WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS

*** We are including our Earnings Scorecard at the end of this note ***

 

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 5 of 10 improved / 3 of 10 unchanged / 2 of 10 worsened
  • Intermediate-term (MoM): Positive / 6 of 10 improved / 1 of 10 worsened / 3 of 10 unchanged
  • Long-term (150 DMA): Negative / 7 of 10 worsened / 2 of 10 improved / 0 of 10 unchanged / 1 of 10 n/a

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - summary

 

1. US Financials CDS Monitor – Swaps were mixed last week but leaned negative.  Swaps tightened for 11 of the 29 reference entities and widened for 18.

 

Tightened the most vs last week: RDN, MBI, AGO

Widened the most vs last week: JPM, BAC, WFC

Tightened the most vs last month: PMI, MBI, AGO

Widened the most vs last month: BAC, WFC, PGR

 

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - us fins cds

 

2. European Financials CDS Monitor – In Europe, swaps indicated lessening risk. Swaps tightened for 29 of the 39 reference entities tightened and widened for 9.  

 

Tightened the most vs last week: Alpha Bank, National Bank of Greece, Sberbank

Widened the most vs last week: Deutsche Bank, Assicurazioni Generali, Investor AB

Tightened the most vs last month: Sberbank, Royal Bank of Scotland, Svenska Handelsbanken

Widened the most vs last month: Bank of Ireland, HSBC, EFG Eurobank

 

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - euro fins cds

 

3. Sovereign CDS  – Sovereign CDS fell 29 bps on average last week, led by Ireland, Portugal, and Greece once again. 

 

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, closing at 7.94 on Friday.  

 

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - high yield

 

5. Leveraged Loan Index Monitor – The leveraged loan index rose 7.3 points last week, closing at a new YTD high. 

 

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - lev loan

 

6. TED Spread Monitor – Last week the TED spread fell, closing at 15.4 bps.

 

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index rose 3.96 points, closing at the highest level since early June.

 

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - joc

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields continued to plummet, falling another 88 bps.

 

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - greek bond yield

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads rose slightly last week, closing at 201 versus 199 the prior week.   

 

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - mcdx

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index rose, closing at 276 versus 270 the prior week.  

 

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - baltic

 

Earnings Scorecard

This morning we are introducing our rolling earnings scorecard which includes all financials that have reported thus far in the earnings season along with subsector averages and our proprietary Hedgeye Earnings Score. The score evaluates company performance across ten measures, looking for either sequential improvement or decline and performance relative to expectations. A "perfect" score would be 10 while the worst possible score is negative 10. Over the course of an earnings cycle, it can get confusing trying to gauge how both individual companies and whole subsectors are faring relative to the group. It is our intention to simplify that process with this product, which we will be publishing each morning over the course of the earnings season as an embedded table in our regular morning posts.

 

WEEKLY FINANCIALS RISK MONITOR - STILL POSITIVE ON A SHORT AND INTEREMEDIATE TERM BASIS - EARNINGS SCORECARD

 

 

Joshua Steiner, CFA

 

Allison Kaptur


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THE M3: SANDS CHINA FOREIGN WORKERS; BELLE; EMPLOYMENT; IMPORTED WORKERS; PAGCOR; CHINA PROPERTY

The Macau Metro Monitor, October 18th 2010

 

SANDS TO GET APPROVAL TO HIRE FOR MACAU PROJECT WSJ

According to a source, the Macau government has told company officials that construction companies employed by Sands China should receive approval to hire the 5,000 foreign workers they need to immediately restart work this month.  This may imply a mid-2012 opening date as construction companies, once they are given the green light, need one month to recruit workers and Sands said that it would take approximately 16 months to complete the first phase of the project once it had "sufficient labor to ramp up construction activity to requisite levels."  The company in August said it hopes to open the Cotai project in Q4 2011.

 

Many Macau residents believe that labor restrictions have had unintended consequences such as delaying construction projects unrelated to casinos and placing foreign labor quotas on businesses.  It remains unclear if allowing Sands China to hire foreign construction workers would prompt a territory-wide relaxation of labor regulations.

 

BELLE IN TALKS WITH 3 OVER CASINO BUSINESS  Manila Standard Today, Manila Times

Belle Corp hopes to reach an agreement with a casino operator for its $350 million hotel/casino project with 250 tables and 1,500 slot machines in the Philippines by November.  Belle's operating partner, Leisure and Resorts World Corp (LRWC), said it was in talks with three interested operators, two of whom have already established a presence in the Asian gaming market, particularly in Macau and Singapore.  The front-runner had been Harrah's, but negotiations faltered.  Belle's CFO Manuel Gana said “Our original schedule of start of commercial operation is by the first quarter of 2012. But if we can open by the third quarter of next year, we will do so."  Gana added that Belle had started constructing the infrastructure required by the project pending the selection of a foreign casino operator.


Q3: TOTAL NUMBER REGISTERED FOR SEEKING EMPLOYMENT FELL BY 27% Macau Daily News

According to DSAL, total number of people registered for seeking employment in Q3 fell 27% QoQ to 3,681. 

 

IMPORTED WORKER NUMBERS CONTINUES GROWTH TREND Macau Daily Times

For August, non-resident workers increased by 2% MoM to 73,719.  Mainland China continued to be the main source of imported labor, registering 41,126 people, followed by the Philippines (11,096), Vietnam (7,439), Indonesia (4,137) and Hong Kong (4,102).  The entertainment and gaming sector hired the most foreign workers in the reporting period (plus 967 in August).  The construction sector added 67 foreign workers, with a total of 3,800.


PART PRIVATIZATION FOR PAGCOR? Asian Gaming Intelligence

AGI said there is a new proposal to partially privatize the Philippine Amusement and Gaming Corporation (PAGCOR) by floating up to 49% of PAGCOR stock on the Manila stock exchange.  The proposal from a vice-chairman of San Miguel Corp to sell PAGCOR to the private sector is no longer considered.


CHINESE PROPERTY PRICES REBOUND WSJ

China's property price index, which covers 70 large and medium-sized cities, rose 0.5% in September from August, and 9.1% YoY, said the National Bureau of Statistics.  This registers as the first MoM increase since May.


THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - October 18, 2010

As we look at today’s set up for the S&P 500, the range is 14 points or -0.78% downside to 1167 and 0.41% upside to 1181. Equity futures are trading below fair value as investors continue to digest Friday's speech by Fed Chairman Bernanke which appeared to have disappointed investors who were looking for specifics on any further QE. Overnight moves in Asia and Europe have been muted with the dollar bouncing off lows and sending commodity prices lower. Looking ahead to today, earnings from Citi before the open and Apple after the close will be in focus, while the September Industrial Production numbers are the main MACRO data points.

  • Allergan (AGN) said the U.S. FDA approved Botox for the preventive treatment of chronic migraines in adults
  • Daimler (DDAIF) shares may touch $75 or higher as more Chinese buy Mercedes cars and demand gains for its medium- and heavy-duty trucks, Barron’s reported, citing analysts and investors.
  • Lulu Athletica (LULU US) may fall as much as 30% as sales growth slows, Barron’s reported, citing analysts
  • Pioneer Natural Resources (PXD) expects to record $127.6m in 3Q derivative gains
  • Supertex (SUPX) said 2Q sales will be no more than $22.5m, lower than the average analyst estimate of $25.1m
  • WD-40 (WDFC) posted 4Q EPS 41c vs est. 38c
  • Wilmington Trust (WL) may be a takeover target, Barron’s reported, citing analysts

 PERFORMANCE

  • One day: Dow (0.29%), S&P +0.20%, Nasdaq +1.37%, Russell (0.22%)
  • Month/Quarter-to-date: Dow +2.55%, S&P +3.07%, Nasdaq +4.23%, Russell +4%
  • Year-to-date: Dow +6.09%, S&P +5.48%, Nasdaq +8.8%, Russell +12.44%
  • Sector Performance: Technology +1.69%, Consumer Discretionary +0.73%, Healthcare +0.42%, Utilities +0.30%, Materials +0.29%, Energy +0.27%, Consumer Staples +0.25%, Industrials (0.62%), and Financials (1.71%).

 EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -629 (-9.97%)
  • VOLUME: NYSE - 1416.33 (-27.52%)
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Google +11.19%, Western Digital +8.14% and Amazon +5.86%/Gannett -8.80%, First Horizon -7.90% and Capital One -7.62%.
  • VIX:  19.03 -4.28% - YTD PERFORMANCE: (-12.22%)
  • SPX PUT/CALL RATIO: 2.85 from 1.49 +91.58%

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 15.32 -0.101 (-0.658%)
  • 3-MONTH T-BILL YIELD: 0.14%  
  • YIELD CURVE: 2.22 from 2.14

COMMODITY/GROWTH EXPECTATION:

  • CRB: 296.06 +1.29%%
  • Oil: 81.25 -1.74% - BULLISH
  • COPPER: 383.35 +0.62% - OVERBOUGHT
  • GOLD: 1,370.97 -0.28% - BULLISH

CURRENCIES:

  • EURO: 1.3977 -0.55% - BULLISH
  • DOLLAR: 77.041 +0.51%  - BEARISH

OVERSEAS MARKETS:

 

European markets:

  • FTSE 100: (0.11%); DAX (0.03%); CAC 40 (0.13%)
  • Major indices are weaker in tandem with the softer tone set by Asian markets with mining, auto, retail and construction sectors underperforming.
  • Strikes across France shuts oil terminals
  • Philips reported Q3 EBIT of €517M vs €453M expected, with a €154M gain on the sale of the remaining stake in NXP boosting net income to €524M. Shares fell 5% on a cautious revenue outlook statement
  • Rio Tinto (RIO.LN) BHP Biliton (BLT.LN) abandon production jv

Asian markets:

  • Nikkei (0.02%); Hang Seng (1.21%); Shanghai Composite (0.54%)
  • Markets fell across the region in muted reaction to Fed Chairman Bernanke's comments on Friday which fuelled speculation of the likelihood of further QE measures being implemented.
  • Japan ended flat, supported by short covering and defensive plays. 
Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends

 

THE DAILY OUTLOOK - S P

 

THE DAILY OUTLOOK - VIX

 

THE DAILY OUTLOOK - DOLLAR

 

THE DAILY OUTLOOK - OIL

 

THE DAILY OUTLOOK - GOLD

 

THE DAILY OUTLOOK - COPPER



Blind Belief

"Blind belief in authority is the greatest enemy of truth."
— Albert Einstein

 

If you need a solid dose of anti-academic dogma, read “Einstein: His Life and Universe” by Walter Isaacson. Never again will you accept the Blind Beliefs of modern day academics who purport to know exactly what is going on in your life and the global economy.

 

In addition to an ominously timed story titled “The Return of the LBO”, Barron’s ran an interview with Vincent Reinhart this weekend titled “The Case for Quantitative Easing.” If you haven’t read it yet, you should. It will cost you 5 debauched bucks to get a consensus opinion that’s worth about that much.

 

Vincent Reinhart shouldn’t be confused with his wife, Carmen Reinhart, who co-authored one of the most important empirical works in modern economic times (“This Time Is Different” with Ken Rogoff). Carmen is a self-taught Cuban-American who came to America with her family and 3 suitcases in 1966, whereas Vincent spent almost his entire career as a yes-man at the Federal Reserve.

 

If you don’t want to waste 5 Burning Bucks (the US Dollar closed down again on a week-over-week basis last week for the 17th out of the last 20 weeks), here’s a recap of some fairly shocking one-liners in the Reinhart interview (*reminder – Reinhart was a Greenspan “consigliore”):

 

1.  Barron’s: “You must feel some vindication that the very policy you have been pushing for several years is now being embraced”

Reinhart: “It’s too early to take credit until they actually do something meaningful.”

 

2.  Barron’s: “Quantitative easing has very little history in economics.”

Reinhart: “There was one other important case study, the 1930s, when short term rates were about zero from 1932 onward.”

 

3.  Barron’s: “Is that a good or a bad thing?”

Reinhart: “That depends on your outlook. Certainly you can’t expect the Chairman of the Fed to go around making speeches saying ‘hooray, we are depreciating the currency. Yet dollar weakness is a good thing as long as it is limited, controlled and gradual.”

 

Maybe a better acronym for QE is government sponsored BS.

 

While we do applaud the Barron’s interviewer for giving Hedgeye some knucks calling QE “financial kryptonite” (in our Q4 Macro Themes presentation from 3 weeks ago we coined QE “Krugman’s Kryptonite”), we’re hardly going to support another professional politician with no market practitioner background for pandering to the academic dogma of a Fed Chairman who is still lost in his historical studies of the Great Depression.

 

I think the groupthink embedded in these quotes is pretty obvious, so I won’t dissect it in detail, but I will summarize the risk in what both Reinhart and Ben Bernanke aren’t telling you.

 

1.  With 43 MILLION Americans in line for the Food Stamp program and a 9.6% unemployment rate there should be no credit given to the charlatans of the broken promises associated with ZERO percent rates and Big US Government Market Intervention.

 

2.  Quantitative Easing has plenty of history – it’s just not the history that fits the storytelling of those who perpetuated Jobless Stagflation in both the mid-1930s (Germany and USA) and Japan since 1997.

 

3.  Debauching a country’s currency and attempting to fear-monger its citizenry into believing that the rate-of-return on their hard earned savings accounts should be ZERO as the government implodes itself with debt is something the Fed Chairman should be protecting Americans from rather than perpetuating via its politicized policy making.

 

As Washington fat cats take pictures petting their pooches in front of some inflated art like Vincent Reinhart did for his interview, remember this … and remember it well… Americans aren’t paid off to have Blind Belief in short-term dollar depreciation oriented stock market rallies. They know who is getting paid by the Piggy Banker Spread in 2010 – and it’s not them.

 

Americans want someone in government to tell them the truth. The enemy of truth is the posturing of truth itself.

 

My immediate term support and resistance lines for the SP500 are now 1167 and 1181, respectively. As the bulls were Snorting QE on Wednesday, I finally re-shorted the SP500 (SPY) near its intra-week high. I titled an EL note last Monday “Defend Yourself” and I am currently living that strategy out loud.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Blind Belief - blind


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%
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