Will Inflation And The Stock Market Conspire To Kill The 4% Rule?


A recent WSJ headline sent chills down the backs of every retiree—”Cut Your Retirement Spending Now, Says Creator of the 4% Rule.”

In the article, the WSJ quoted the father of the 4% rule, William Bengen, as saying that “there’s no precedent for today’s conditions.” Stock and bond prices are still at record highs. Mix in a reference to 8.5% inflation, and the WSJ starts to sound like an insurance salesperson pitching indexed annuities.

So are things really that bad? And do retirees need to rethink the 4% Rule? I don’t think so, and here’s why.

The 4% Rule is Now the 4.4% Rule

In the article, Mr. Bengen said he believes a safe initial withdrawal rate is 4.4%. Yes, that’s an increase from his initial findings in his 1994 paper.

In his 1994 paper, he assumed retirees invested in the S&P 500 and intermediate Treasury bonds. That’s it. Since then he expanded the asset classes to include mid-cap, small-cap, micro-cap and international stocks. This diversification caused him to increase the safe withdrawal rate from 4% to 4.7%. Because of the unprecedented conditions noted above, however, new retirees might want to start at 4.4%, he said.

As far as I can tell, the 4.4% rate is not based on data. Still, it represents a 10% increase, not decrease, from his initial 4% rule. That doesn’t sound so bad.

“The combination of 8.5% inflation with high stock and bond market valuations make it difficult to forecast whether the standard playbook will work for recent retirees,” said Bengen. He’s even gone so far as put 70% of his personal portfolio in cash. When the father of the 4% rule cashes out, shouldn’t we?

I don’t think so. For starters, it’s important to understand how Bengen developed the 4% Rule. He examined 50-year retirement periods dating back to 1926. For each, he identified the highest withdrawal rate one could take in the first year of retirement, adjusted for inflation in subsequent years, without running out of money for at least 30 years.

As you might imagine, every year had a different initial withdrawal rate. Some years the starting rate was twice what it was in others. Here’s the key point. He didn’t average all of these initial withdrawal rates to come up with the 4% rule. He took the absolute worst year—1968.

Here’s more on how the 4% Rule works.

What does this mean? It means the 4% Rule has survived the stock market crash of 1929, the Great Depression, WWII, the Korean War, the Vietnam War, the inflation of the 1970s and early 1908s, the 1987 market crash, 9/11, the Great Recession and Covid-19.

Stock Prices

No matter how difficult past times have been, current conditions feel awful in ways that history never can. One need look no further than Robert Shiller’s CAPE (cyclically adjusted price-to-earnings ratio) of the S&P 500 to raise concerns. It stands at roughly twice its average and at historic highs. It’s only been higher once, and that was during the tech bubble.

Yet as “unprecedented” as this may seem, it’s not for two reasons. First, most portfolios don’t have the same PE as the S&P 500, even if measured using CAPE. Add in mid-cap, small-cap and international stocks, and the PE comes down significantly.

Second, and more important, the CAPE of the S&P 500 would fall to average with a 50% decline in the S&P 500. This wouldn’t be fun, but it wouldn’t be unprecedented, either.

As noted above, the market lost 90% to kick off the Great Depression. And going back to the tech bubble, the market lost 9%, 12% and 22% from 2000 to 2002. That’s not quite a 50% total loss, but close. And from peak to trough during the Great Recession (2007-2009), the market lost more than 50%. The 4% Rule survived like a cockroach.

Bond Prices and Inflation

Bond yields were at historic lows. I say “were” because that’s no longer the case. The roughly 3% yield on the 10-year Treasury is still below average, but there are plenty of years dating back to the 1800s when they were lower. And when Bengen published his 1994 paper, TIPS were three years away and the first I bond was still four years away. So at least now we can keep up with inflation.

Here’s the key. The 4% Rule has survived Treasury yields as low as 1 to 2%. It also survived inflation of more than 13% and a decade of inflation at 6% or higher. And like the Energizer Bunny, it keeps going and going (or ticking for you Timex fans).

Final Thoughts

Some year might come along that is worse than 1968 for new retirees. Maybe 2022 will turn out to be a worse time to retiree since the late 60s. Perhaps in 30 years we’ll know that for 2022, the initial safe withdrawal rate was 4.2% instead of 4.4%.

But can we really predict that based on current conditions, when the 4% rule has survived much worse? I don’t think so.

Rob is a Contributing Editor for Forbes Advisor, host of the Financial Freedom Show, and the author of Retire Before Mom and Dad–The Simple Numbers Behind a Lifetime of

Source: Will Inflation And The Stock Market Conspire To Kill The 4% Rule?


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Netflix Stock Crashes As Nasdaq Has Worst Week Since October 2020

The stock market fell on Friday as the sell-off in tech stocks intensified after Netflix posted lackluster earnings—with the Nasdaq Composite falling deeper into correction territory and posting its worst week since 2020.

The Dow Jones Industrial Average fell 1.3%, around 450 points, while the S&P 500 lost 1.9% and the tech-heavy Nasdaq Composite 2.7%.

The Nasdaq fell further into correction territory—over 10% from its record highs last November—and has plunged over 7% this week alone, its worst since October 2020.

Shares of streaming giant Netflix dragged down the index, plunging 22% on Friday after the company’s fourth-quarter earnings report showed a slowdown in subscriber growth.

Streaming rival Disney fell nearly 7%, while other big tech names like Tesla and Amazon lost over 5% and 6%, respectively.

Tech stocks have been getting hammered recently, largely thanks to a continuing surge in government bond yields this week, with the U.S. 10-year Treasury hitting a high of 1.9% on Wednesday.

Investors have remained laser focused on the Federal Reserve and how it will deal with surging inflation, with the central bank tightening its monetary policy and preparing to raise interest rates as soon as March.

Shares of Peloton rebounded 10% on Friday, a day after the stock plunged 24% on reports that the company would temporarily halt production of its at-home fitness products amid waning demand—but CEO John Foley later said the reports are false.

“Wall Street has gone from debating how aggressive one should rotate out of tech into cyclicals, to sell it all,” says Edward Moya, senior market analyst for Oanda. “U.S. stocks have been on a rollercoaster ride after abysmal results from Netflix.” With inflationary pressures “not going away anytime soon,” the Fed could potentially become “overly aggressive in tightening monetary policy,” he warns.

Stocks are off to a dismal start to 2022 so far. The Dow is down over 6% in January, the S&P 500 has dropped over 8% and the tech-heavy Nasdaq more than 12%. Markets have struggled to gain footing amid rising investor concerns around high inflation and tighter monetary policy from the Federal Reserve.

“Absent some kind of systemic shock, as long as earnings stay solid and interest rates remain in the range we have seen in the five years before the pandemic, stock prices are likely to have a solid foundation over time,” says Brad McMillan, chief investment officer for Commonwealth Financial Network. “That solid foundation also suggests that when those worries subside, valuations and stock prices can bounce back reasonably quickly, as we saw in 2020, 2018, and indeed after the financial crisis itself.”

Next week’s tech earnings, with companies like Apple, Microsoft and Tesla all reporting results.

Follow me on Twitter or LinkedIn. Send me a secure tip.

I am a senior reporter at Forbes covering markets and business news. Previously, I worked on the wealth team at Forbes covering billionaire and their

Source: Netflix Stock Crashes As Nasdaq Has Worst Week Since October 2020


Despite clear signs that growth was slowing, Netflix executives spent most of last year arguing that the deceleration in subscriber growth was temporary. Management finally acknowledged the obvious in conjunction with the company’s Q4 earnings release.

Netflix reported 8.3 million paid net subscriber additions for the fourth quarter — slightly below its Q4 2020 performance and its forecast — and it expects to add just 2.5 million subscribers in the first quarter (down from 4 million a year ago). CFO Spence Neumann said that subscriber retention has been healthy but the pace of new member acquisitions hasn’t recovered to pre-pandemic levels.

Netflix stock plummets

Investors punished Netflix stock viciously for the subscriber miss. Barely more than two months ago, the shares hit an all-time high of $700.99. The stock had already retreated to just above $500 before Netflix’s earnings report, largely because of a broader sell-off in high-flying tech stocks. Netflix stock dropped another 22% after the earnings report, pushing the shares below $400 for the first time in almost two years.

The abrupt pullback is hardly surprising in light of Netflix’s recent results and forecast. For many years, Netflix has been valued as a growth stock. Now, investors have to reckon with the fact that Netflix may be close to saturating many of its markets. If the company’s Q1 guidance is any indication, subscriber growth could moderate again to roughly 6%-8% this year.

To be fair, price increases should keep Netflix’s revenue growing at a double-digit rate in 2022. (Netflix is raising the prices of most plans by 10% to 11% in the U.S. and Canada this quarter.) But that was a small consolation to investors, as Netflix risks further handicapping its subscriber growth if it raises prices too much.

Could Netflix be a good value stock?

While Netflix is falling out of favor with growth-focused investors, it is starting to gain merit as a value stock. Despite its somewhat disappointing subscriber gain, Netflix posted earnings per share (EPS) of $1.33 last quarter, easily beating its guidance and the analyst consensus of $0.82. This brought its full-year EPS to $11.24.

Netflix expects its operating margin to retreat somewhat in 2022 — largely due to exchange rate pressures — following several years of extremely strong margin expansion. Still, margin expansion will likely resume in 2023. Even with slower subscriber growth, the operating leverage inherent in Netflix’s business model should enable the company to grow revenue faster than expenses for the foreseeable future.

Netflix stock’s recent plunge has left it trading for just 35 times the company’s 2021 earnings. While that still represents a premium to the market, it’s a far cry from a year ago, when the stock traded for over 80 times earnings.

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Global Merger & Aquisition Volumes Hit Record High In 2021, Breach $5 Trillion For First Time

Global dealmaking is set to maintain its scorching pace next year, after a historic year for merger and acquisition (M&A) activity that was fueled largely by easy availability of cheap financing and booming stock markets.

Global M&A volumes topped $5 trillion for the first time ever, comfortably eclipsing the previous record of $4.55 trillion set in 2007, Dealogic data showed. The overall value of M&A stood at $5.8 trillion in 2021, up 64% from a year earlier, according to Refinitiv.

Flush with cash and encouraged by soaring stock market valuations, large buyout funds, corporates and financiers struck 62,193 deals in 2021, up 24% from the year-earlier period, as all-time records tumbled during each month of the year.

Investment bankers said they are expecting the dealmaking frenzy to continue well into next year, despite looming interest rate hikes.Higher interest rates increase borrowing costs, which may slow down M&A activity. However, deal advisers still expect a flurry of large mergers in 2022.

Accommodative monetary policies from the U.S. Federal Reserve fueled a stock market rally and gave company executives access to cheap financing, which in turn emboldened them to go after large targets.

The United States led the way for M&A, accounting for nearly half of global volumes – the value of M&A nearly doubled to $2.5 trillion in 2021, despite a tougher antitrust environment under the Biden administration.

The largest deals of the year included AT&T Inc’s (T.N) $43 billion deal to merge its media businesses with Discovery Inc (DISCA.O); the $34 billion leveraged buyout of Medline Industries Inc; Canadian Pacific Railway’s (CP.TO) $31 billion takeover of Kansas City Southern (KSU.N) ; and the breakups of American corporate behemoths General Electric Co and Johnson & Johnson (JNJ.N) .

According to a survey of dealmakers and advisers by Grant Thornton LLP, over two-thirds of participants believe deal volumes will grow despite challenges posed by regulations and the pandemic.

Deals in sector such as technology, financials, industrials, and energy and power accounted for the bulk of M&A volumes. Buyouts backed by private-equity firms more than doubled this year to cross the $1 trillion mark for the first time ever, according to Refinitiv data.

Despite a slowdown in activity in the second half, dealmaking involving special purpose acquisition companies further boosted M&A volumes in 2021. SPAC deals accounted for about 10% of the global M&A volumes and added several billions of dollars to the overall tally.

Analysts say the U.S. economy has proven resilient in the face of pandemic-related challenges, and many expect the global economy will still expand at a well-above-trend pace.

After initially tumbling in December, world stocks recovered over the holiday period as investors became reassured economies could handle the surge in Omicron coronavirus cases, and are heading back toward record highs.

“As far as COVID is concerned, for now, market participants may stay willing to add to their risk exposures, and perhaps push equity indices to new highs, as several nations around the globe held off from imposing fresh lockdowns, despite record infections around the globe the last few days,” said Charalambos Pissouros, head of research at Cyprus-based brokerage JFD Group.

The dollar index fell 0.418% on Friday. On Wall Street, New Year’s Eve trading ended near record highs on Friday. read more

All three major U.S. stock indexes scored monthly, quarterly and annual gains, notching their biggest three-year advance since 1999.

Reuters GraphicsInvestors have held onto expectations for resilience in the global recovery into 2022 and the prospect of further gains if money remains cheap and corporate profitability high.

This year’s “everything rally” has seen a wall of cheap central bank cash, government stimulus and strong economic rebounds out of the pandemic make it hard not to profit from soaring asset prices.

U.S. stocks have powered the global rally as record-breaking earnings figures from Big Tech companies excited investors. This week the S&P 500 hit another record high.


Source: Global M&A volumes hit record high in 2021, breach $5 trillion for first time | Reuters


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Get to know everything about what Post-Merger Integration (PMI) means, 4 Steps to PMI Success and possible challenges of PMI.

Post-merger integration is the process of unifying two entities and their assets, people, tasks, and resources in a manner that creates the most value for the future of the enterprise by realizing efficiencies and synergies.

From an IT perspective, PMI is a complex process requiring the leadership of enterprise architects to ensure a smooth process. According to the 2021 LeanIX M&A Report, nearly 90% of EAs are involved in post-merger integration, with the following use cases named as most prevalent.


Crypto Staking Firm Figment Becomes Unicorn With Fresh $110 Million Fundraise

Canadian blockchain infrastructure and services provider Figment raised $110 million in Series C funding at a $1.4 billion valuation. The announcement closely follows the firm’s $50 million Series B, closed in August, which valued the company at $500 million. 

Revealed exclusively to Forbes, the current round was led by software investment firm Thoma Bravo, with participation from Counterpoint Global (Morgan Stanley), Binance Labs, ParaFi Capital, Avon Ventures, a venture capital fund affiliated with FMR LLC (the parent company of Fidelity Investments), CMS Holdings, Franklin Templeton, 2TM (the parent company of Brazilian cryptocurrency exchange Mercado Bitcoin), and StarkWare, among others. The investment brings Figment’s total capital raised to date to approximately $165 million.

Launched in 2018, the Toronto-based firm supports the Web 3.0 ecosystem by making it easy for investors to stake their tokens, earn yield and participate in blockchain governance across more than 50 networks, including Ethereum (still on track to full PoS transition), Cardano, Solana and Polkadot. 

Competing with other staking-focused platforms like Blockdaemon, Everstake, Chorus One and staking services offered by crypto exchanges including Binance, Coinbase and Kraken, Figment says that it has staked over $7.5 billion in assets while expanding its institutional client base from 31 to more than 130 this year. Among Figment’s largest customers are Coinbase, Crypto.com, Anchorage, The Graph and Ether Capital.

“Figment’s rapid growth over the past few years combined with its institutional focus from both a technological and service perspective sets Figment apart as a highly strategic player poised for significant scale,” said Tre Sayle, partner at Thoma Bravo (lead investor in the round), in e-mailed comments. 

While “increasing hiring and headcount is the number one priority” for the fast growing firm, said Figment’s cofounder and CEO, Lorien Gabel, the new capital should also help it to become much more involved in the overall development of Web 3.0, which will in turn increase demand for staking.

Figment plans to develop its DataHub 2.0 platform, designed to remove the complexities of building on Web 3 blockchains. The funds “will also go toward supporting and expanding our 50+ protocols network, as well as Figment’s investment arm, which is focused on fostering the development of new decentralized protocols and applications,” Gabel added.

The startup’s own $17.5 million investment fund, Figment Capital, launched in April and has since invested in teams and networks with a focus on proof-of-stake consensus models, interoperability, and privacy. Investments include Osmosis, decentralized exchange based on the Cosmos network, crypto staking protocol Obol and Ethereum scaling and privacy engine zkSync, among others. Follow me on Twitter or LinkedIn

Nina Bambysheva

Nina Bambysheva

I report on cryptocurrencies and other applications of blockchain technology. I also write the weekly Forbes Crypto Confidential newsletter and contribute to our premium research service…


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The Review of Financial Studies. 34 (3): 1156–1190. doi:10.1093/rfs/hhaa075. ISSN0893-9454. Tasca, Paolo; Tessone, Claudio J. (2019-02-15).

“A Taxonomy of Blockchain Technologies: Principles of Identification and Classification”. Ledger. 4. doi:10.5195/ledger.2019.140. ISSN2379-5980. Zhang, Rong; Chan, Wai Kin (Victor) (2020).

Evaluation of Energy Consumption in Block-Chains with Proof of Work and Proof of Stake”.

Journal of Physics: Conference Series. 1584 (1): 012023. Bibcode:2020JPhCS1584a2023Z. doi:10.1088/1742-6596/1584/1/012023. ISSN1742-6596. Xiao, Y.; Zhang, N.; Lou, W.; Hou, Y. T. (2020). “A Survey of Distributed Consensus Protocols for Blockchain Networks”.

IEEE Communications Surveys and Tutorials. 22 (2): 1432–1465. arXiv:1904.04098. doi:10.1109/COMST.2020.2969706. ISSN1553-877X. S2CID102352657. Li, Wenting; Andreina, Sébastien; Bohli, Jens-Matthias; Karame, Ghassan (2017). “Securing Proof-of-Stake Blockchain Protocols”. In Garcia-Alfaro, Joaquin; Navarro-Arribas, Guillermo; Hartenstein, Hannes; Herrera-Joancomartí, Jordi (eds.). Data Privacy Management, Cryptocurrencies and Blockchain Technology.

Lecture Notes in Computer Science. Cham: Springer International Publishing. pp. 297–315. doi:10.1007/978-3-319-67816-0_17. ISBN978-3-319-67816-0. Gecgil, Tezcan.

7 Cryptos to Buy for Their Potentially Profitable Partnerships”. http://www.nasdaq.com. Retrieved 2021-07-23. Ashworth, Will (July 13, 2021).

Solana vs. Cardano: Which Is the Better Ethereum Killer?”. Investor Place. Hissong, Samantha (July 9, 2021).

The Crypto World Is Getting Greener. Is It Too Little Too Late?”. Rolling Stone. Nguyen, Cong T.; Hoang, Dinh Thai; Nguyen, Diep N.; Niyato, Dusit; Nguyen, Huynh Tuong; Dutkiewicz, Eryk (2019).

Proof-of-Stake Consensus Mechanisms for Future Blockchain Networks: Fundamentals, Applications and Opportunities”. IEEE Access. 7: 85727–85745. doi:10.1109/ACCESS.2019.2925010. Sparkes, Matthew (2021-03-30).

NFT developers say cryptocurrencies must tackle their carbon emissions”. New Scientist. doi:10.1016/S0262-4079(21)00548-0. Retrieved 2021-04-07. Lau, Yvonne (2021-05-27).

Ethereum founder Vitalik Buterin says long-awaited shift to ‘proof-of-stake’ could solve environmental woes”. Forbes. Retrieved 2021-05-29. Wickens, Katie (25 October 2021). “‘

The Merge’ to end cryptocurrency mining on gaming GPUs won’t come until 2022″. PC Gamer. Retrieved 13 December 2021.

The Market Is Right To Be Spooked By Rising Bond Yields

Nobody likes dropping cash, however Tuesday’s stock-price fall worries me greater than the headline of a 2% fall within the S&P 500 ought to. In itself, 2% is not any biggie: three days this yr had larger falls, and on common we now have had seven worse days a yr since 1964.

What bothers me is that the rise in bond yields that triggered the autumn was actually fairly small, and there may simply be much more to return. The ten-year Treasury yield rose solely 0.05 share level, taking it above 1.5%, and the 30-year rose barely extra to only above 2%. If that is the type of response we should always anticipate, then get out your tin hat. Yields must rise 4 occasions as a lot simply to get again to the place they had been in March.

Why, you would possibly fairly ask, are shares abruptly spooked by bond yields? Within the increase as much as March, shares and yields marched increased collectively, and for the previous 20 years increased yields have typically been higher for shares. The distinction is that investors see the central banks turning hawkish, whilst financial development slows, as a result of they will’t ignore excessive inflation.

As  Pascal Blanqué,chief funding officer at French fund supervisor Amundi, places it, the worry is of an increase in charges pushed by inflation alone pushing central banks to behave, somewhat than an increase in charges pushed by financial development pushing central banks round. That is the mind-set that dominated funding till the late Nineteen Nineties. If it sticks, it marks a profound change.

In the long term, it could imply bonds would not present a cushion when inventory costs drop, making portfolios extra unstable. Within the quick time period, if the sharp rise in yields since the Federal Reserve meeting last week is the beginning of a development, then shares are in bother. On the flip aspect, if yields come again down, it is perhaps good for shares—because it was on Friday—somewhat than unhealthy, as has often been the case for a few many years.

To see the risk, suppose again to the spring, when yields had been marching increased. The outlook for inflation is about the identical (buyers are pricing it as excessive however short-term). The outlook for financial development is worse, which gives much less help for shares typically. However central banks have shifted stance from super-easy for just about perpetually to start out speaking about tightening.

That is the improper type of rise in bond yields. When yields had been rising as much as their March excessive of 1.75% for the 10-year Treasury, shares had been on a tear as a result of yields had been being pushed up by the prospect of upper financial development, and so stronger income. Overwhelmed-up worth shares and economically-sensitive sectors soared, whereas Huge Tech and different development shares, plus the dependable earners generally known as high quality shares, went sideways. After March, falling yields boosted development and high quality shares once more, whereas worth and cyclical went sideways.

This time, shares are reacting as they do when yields rise as a consequence of a central financial institution hawkish shift. Huge Tech, other growth stocks and quality suffered the most, as their excessive valuations make them reliant on projected earnings far sooner or later; increased yields make these future earnings much less enticing in contrast with proudly owning tremendous secure bonds. However with out the prospect of upper financial development to spice up earnings, low cost worth and cyclical shares additionally fell when yields rose, albeit by lower than development and high quality.

There’s enormous uncertainty in regards to the potential financial outcomes, so we shouldn’t simply assume that this week’s buying and selling sample will proceed. On the plus aspect, increased capital spending and the pandemic-driven adoption of know-how would possibly enhance productiveness greater than employee shortages push up labor prices. This could damp inflation and speed up development.

A retreat of Covid-19 might ease pressure on manufacturing and change spending again to companies. On the down aspect, hovering power prices and better costs from widespread provide bottlenecks would possibly hit households and weaken the financial system additional, whilst inflation stays excessive—the dreaded stagflation state of affairs.

We ought to be even much less assured about how central banks will react. I see twin triggers for the market’s reassessment. First, Fed coverage makers upped their “dot plot” predictions for rates of interest subsequent yr and the yr after, together with inflation. Second, the Financial institution of England, faced with an energy price crunch and higher-than-forecast inflation, warned of a potential price rise earlier than the tip of this yr. A slew of emerging-market central banks additionally raised charges, as did oil-producer Norway.

If the financial system reacts badly to increased yields, although, the Fed and Financial institution of England would possibly properly shift again to uber-dovishness. The withdrawal of emergency authorities spending measures in a lot of the world may also give the doves a brand new cause to maintain charges low.

Lastly, there’s uncertainty in regards to the market response itself. Possibly Tuesday’s bond strikes had been exacerbated by a mixture of momentum promoting and yields (which transfer in the other way to costs) rising above the brink of 1.5% on the 10-year and a pair of% on the 30-year. It may not be a coincidence that shares did properly on Friday as soon as the 10-year dropped again under 1.5%.


How involved are you in regards to the late September stock-price fall? Weigh in under. Spherical numbers shouldn’t matter, however typically do, whereas momentum is short-term. Tuesday’s transfer wasn’t pushed by an occasion on the day, so maybe the brand new narrative of hawkishness received stick. In spite of everything, it shouldn’t be that massive a deal to withdraw some financial help when inflation is greater than double the goal and coverage has by no means been simpler.

Given Huge Tech’s outsize share of the general market, buyers within the S&P 500 should be satisfied that if bond yields are going to maintain rising, it is going to be for the great cause of an accelerating financial system, not the unhealthy cause of sticky inflation pushing central banks to behave.

By: james.mackintosh@wsj.com

Source: The Market Is Right to Be Spooked by Rising Bond Yields – WSJ


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