Transcript: Nightly Business Report – September 19, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue
Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Getting close. The Dow nears
a new high as investor sentiment rises and trade concerns take a backseat.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Bringing up sales. It`s
not even autumn yet, but already, forecast for holiday spending are
spreading cheer.

HERERA: Smokin hot. Money is pouring into the marijuana stocks but will
today`s hype be tomorrow`s buzzkill?

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for
Wednesday September 19th.

GRIFFETH: And we do bid you good evening, everybody, and welcome.

After two days a pretty decent gains this week, the Dow suddenly finds
itself close to an all-time high. The financial sector led the way higher
today, getting a lift from the continued rise in interest rates. Tech
stocks did not participate in today`s rally, giants like Microsoft
(NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) traded lower.

Here are the closing numbers for this day, the Dow advanced by 158 points
to close at 158 points to close at 26,405, the Nasdaq fell by six, the S&P
added three.

Mike Santoli takes a look now at the Dow`s move toward new highs.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a sign that
investors are coming to terms with the impact of the tariff wars or simply
believe the U.S. economy and American companies are strong enough to
withstand any trade pressures. After a lively two-day rally, the Dow Jones
Industrial Average has pulled within 1 percent of its all-time high of
26,616, set nearly months ago.

The latest stage of the Dow advanced has been led by shares of big global
industrial stocks such as Boeing (NYSE:BA) and Caterpillar (NYSE:CAT),
exactly the companies once considered most vulnerable to retaliation by
China for us imposed tariffs on Chinese goods. The broader S&P 500 made a
record high just a few weeks ago, helped in recent months by the huge gains
in its big tech stock components. The Dow though was the index hardest hit
by ongoing worries over the effect of trade skirmishes on U.S.
manufacturing exports.

Yet so far, analysts see only a marginal potential drag on orders and
earnings as a result of the new tariffs on $200 billion in Chinese imports
that were made official this week. Stock markets in Asia have also
bounced, perhaps an indication that investors had already anticipated and
priced in some of the tariff risks.

Meantime, a rapid rise in treasury yields, another factor that seemed to
spook the markets early this year and contributed to the sharp 10 percent
correction in February is likewise being taken in stride. The 10-year
yield is now climbed above 3 percent this week as the Federal Reserve
likely prepares to lift interest rates next week and perhaps again in
December.

This relief rally supporting today owes a lot to the consistently strong
U.S. economic data and continued expectations for 20 percent earnings
growth for a third straight quarter. The question for investors now as the
Dow nears a full recovery is whether those economic tailwinds can carry
this market into 2019 as the effect of the U.S. tax cut wanes and interest
rates march higher.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

HERERA: So, let`s turn to our bull and our bear guests tonight for their
opposing views on this market.

Jason Draho is the head of America`s asset allocation at UBS Global Wealth
Management. He says that this bull market does indeed have more room to
run.

Our bear tonight is Lamar Villere, portfolio manager at Villere & Company,
who sees some risks ahead for the market.

Gentlemen, welcome. Nice to have you with us.

Jason, I think Mike Santoli made some very interesting points at the end of
his report, rising rates valuations that that seemed kind of rich by many,
many standards. Why do you think that the market has more room to run?

JASON DRAHO, UBS GLOBAL WEALTH MANAGEMENT: It`s quite simple. It comes
down to the economic fundamentals. As you alluded to it, your growth in
the U.S. is very solid. There`s no reason to expect that to vanish anytime
soon. And without any signs of recession risk certainly in the next 12
months, it`s hard to see the bull market coming to an end. It may not keep
going in hires quickly but the fundamentals still very supportive.

GRIFFETH: Lamar, Bank of America (NYSE:BAC) said today that the great bull
is dead, that we should expect a bear at some point and in part because the
Fed is raising rates. There`s that long-held feeling that the Fed lowering
rates over the last decade responsible for the great rally, now that
they`re reversing course the stock market has to do the same.

Does that have a feeling of the same that you have for this bear market
right now, coming do you feel?

LAMAR VILLERE, VILLERE & COMPANY PORTFOLIO MANAGER: Sure, I do think
that`s one of the catalysts that we`re concerned about. If you look at the
fact that over the last several years, we`ve — what we`ve seen is
investors fleeing bonds because there`s just no yield there, and buying
these high dividend paying stocks, in fact making some of these very sleepy
slow growth stocks wildly outperformed their much faster growing peers.
And for a while, you know, that — from our perspective that didn`t make
any sense. But you know if you`re sitting there trying to make some money
for your retirement and you think the treasuries are paying 2 percent, you
got to find a yield somewhere.

So, I think we`re a little concerned that there`s going to be a real
reversal of that trade and people move back into bonds.

HERERA: Jason, what are the things you watch as the bull market monitor,
which is correlated to economic expansion? There are those who would push
back on that and say if you look at history, just because the economy is
good doesn`t always mean that the stock market is going to be good. What`s
your response to that?

DRAHO: It`s true that the correlation between economic growth and the
stock market is actually quite low on a year-to-year basis, but if you`re
looking about the bull market ending or bear market starting, it`s really
hard to have that happen unless there`s a recession. And the economic
fundamentals just suggest that`s not the case. Growth is very good. It`s
likely continue.

And I do agree that I think rising traits are concerned, but buying
historical measures and relative to the strength of the economy interest
rates are still low and the Feds going to raise rates and that will become
a concern. I think that becomes a concern not until late next year and
really 2020. There`s still definitely room for this to kind of continue on
before I think those become material risks for the bull market.

GRIFFETH: What would you buy here, Jason? What`s going to take us higher?

DRAHO: So, the performance today is interesting. Financials did well,
tech didn`t. We`ve been of the view that value stocks should perform well
in this environment of good growth, rising rates, rising inflation. If
this continues, and if the fears have sort of kind of a growth slowdown
because of trade concerns have actually abated, that should be an
environment that would support value stocks like financials, like energy.
So that`s one area that we`ve been looking to buy.

HERERA: And I guess the same question on the other side of the coin for
you, Lamar. How would you be hedging your bets if indeed, we are going
into a more negative cycle for the stock market?

VILLERE: So, there`s definitely securities you can buy individual names
like we buy individual stocks that that might actually perform better in a
rising interest rate environment. One of the ones we`ve been buying is
Progressive (NYSE:PGR). That`s a situation where rising interest rates
actually help them to do better with their invested assets. So there are
securities where you can or you can really negate that risk.

HERERA: Jason, Lamar, thank you so much for joining us for our bull/bear
debate tonight.

Bill?

GRIFFETH: Elsewhere in other news today, the head of the Chamber of
Commerce said today that the White House can still avoid an all-out global
trade war at this point. The business group called it the biggest threat
facing the economy right now and it`s urging the administration to seal a
trilateral lateral NAFTA deal and make progress with Europe on its trade
issues. It also wants the U.S. to talk with China rather than resorting to
trade retaliation.

HERERA: But the relationship between the U.S. and China may already be
starting to sour. In an interview with the Chinese publication, Alibaba`s
Jack Ma backed down from a promise to bring million jobs to the U.S.,
citing those ongoing trade conflicts between the U.S. and China.

Ma said, quote, the promise was made on the premise of friendly U.S.-China
partnership and rational trade relations that premise no longer exists
today, and so, our promise cannot be fulfilled, end quote.

And in fact today, China`s second-in-command had some harsh words about the
rise of protectionism in some parts of the world. Eunice Yoon is in
Beijing for us tonight.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China`s Premier Li
Keqiang spoke at the World Economic Forum in the port city of Tianjin
today. He didn`t directly address the escalating trade war with the United
States or even mentioned President Trump`s name.

Instead, he referenced concerns of rising protectionism and repeated
China`s promises to open up the economy and give foreign investors fair
treatment. On the currency, Li said China would not actively weaken the
Yuan to help exporters or engage in competitive currency devaluations, but
would keep the Yuan stable.

What was also missing in the speech was any recognition of China`s
contribution to the rising protectionism among its trading partners. The
state media had its typical strident response saying China will outlast the
tariff war, emerge stronger and it`s not afraid of President Trump`s what
they called extreme measures.

One commentary in the communist party run “People`s Daily” argue that
President Trump`s trade action doesn`t necessarily impede China`s own
economic agenda. “The People`s Daily” said: China will instead use the
trade dispute as an opportunity to replace imports promote localization or
develop export-oriented advanced manufacturing.

What often gets lost in who wins or loses a trade war is that a big part of
China`s made in China 2025 strategy is to develop homegrown technology so
China can rely less on foreign technology and other industries. So, that`s
what the piece is highlighting that China could be better off in the long
run because it wants to develop its own technologies of the future.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: Meantime, trade talks with Canada resumed today in Washington,
talks that U.S. officials want to see completed by the end of the month.

Ylan Mui has more.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Top trade officials from
the U.S. and Canada are back in Washington hoping to nail down a deal on
NAFTA. Canada`s foreign minister Chrystia Freeland told reporters that the
talks have been constructive but more work needs to be done.

CHRYSTIA FREELAND, CANADIAN FOREIGN MINISTER: We are a country that is
good at finding compromises, and that`s the talent our negotiators
certainly demonstrate. At the same time, our core objective today and this
has been the case from the very beginning, is to defend the national
interest and that is what we are going to continue to do.

MUI: October 1st is the deadline for negotiators to produce the written
text of a formal deal, and it`s unclear if they`ll be able to pull that off
if they don`t reach an agreement in principle by the end of this week. The
deadline is designed to give Congress plenty of time to review the deal.
Lawmakers must vote to accept any trade agreement and some of them are
getting a little bit antsy.

Congressman Steve Scalise, a member of GOP leadership, warned that
lawmakers will not short-circuit the open, transparent and accountable
process. If negotiators can`t reach a deal, he said, Congress will have no
choice but to consider other options.

But when it comes to China, Congress is taking a back seat as President
Trump turns up the heat with new tariffs on the country`s exports. Nearly
a dozen bills have been introduced over the past few months to rein in
President Trump`s trade powers by requiring more consultation with
Congress. None of those bills have gotten very far however, leaving one
Republican senators saying he feels like a helpless bystander.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

(END VIDEOTAPE)

GRIFFETH: Time to take a look now at some of today`s upgrades and
downgrades.

We start with Intel (NASDAQ:INTC). The price target there was cut to $50
from $56 at Morgan Stanley (NYSE:MS). The analysts cited ongoing delays of
one of the company`s processors. But the firm did maintain its equal
weight on the stock, equal rating. Shares of the Dow component were up
five cents today to $46.15.

Guggenheim raised its price target on Netflix (NASDAQ:NFLX) to $420 from
$360. The analysts cited the company`s growth opportunity in India in
particular. The firm maintained its buy rating. Stock however fell a
fraction to $336.96 today.

And E-Trade was upgraded to buy from hold at Jefferies. The analyst there
says that E-Trade is a takeover candidate. He says the valuation is
attractive. Price target $65. That stock rose more than 3 percent today
to $55.78.

HERERA: And still ahead, why retailers have one trillion reasons to
rejoice this holiday season.

(MUSIC)

HERERA: European regulators want to know more about how Amazon
(NASDAQ:AMZN) uses its data. The competition commissioner has launched a
preliminary look at whether Amazon (NASDAQ:AMZN) uses information from
small retailers to help increase its own sales.

(BEGIN VIDEO CLIP)

MARGRETHE VESTAGER, EUROPEAN COMMISSIONER FOR COMPETITION: It is very
early days in this antitrust investigation into Amazon`s business
practices. We are gathering information on the issue and we have sent
quite a number of questionnaires to market participants in order to
understand this issue in full.

(END VIDEO CLIP)

HERERA: The European Union recently fined Alphabet`s Google (NASDAQ:GOOG)
for allegedly abusing the dominance of its search engine and Android
operating systems to favor its own services, a decision that Google
(NASDAQ:GOOG) is appealing.

GRIFFETH: Meanwhile, Amazon (NASDAQ:AMZN) is taking a larger chunk of the
digital ad market. According to a new study, the company is on track now
to be number three in that category they share behind Google (NASDAQ:GOOG)
and Facebook (NASDAQ:FB). Amazon (NASDAQ:AMZN) is projected to take in
more than four and a half billion dollars in digital ad revenue, thanks to
strong organic growth and to accounting changes.

HERERA: And Amazon (NASDAQ:AMZN) may be one of the many winners this
holiday shopping season as consumers get ready to open up their wallets.

Courtney Reagan breaks down the spending forecast.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Less than a
hundred days to go until Christmas and it`s already looking like a jolly
season for retail. Various forecasts from retail consultancy groups
predict total holiday sales will grow between three and more than five and
a half percent. Deloitte estimates sales will top $1.1 trillion. Online
sales are expected to grow between 16 and 22 percent, with e-commerce
making up as much as 20 percent of all holiday spending.

The forecasts are robust, compared to both the historical average and
because it represents solid growth on top of last year`s strong season.
The economist calculating the forecasts say strong consumer sentiment low
unemployment and stable savings rates are overpowering risks for now but a
significant decline in the stock market or higher prices from new tariffs
could change the outlooks from being as rosy as Santa`s cheeks.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GRIFFETH: So let`s turn to Deloitte`s Rod Sides for more on this holiday
spending forecast. He is the U.S. retailer retail leader with his firm`s
retail and distribution practice.

Rod, thanks for joining us tonight.

ROD SIDES, DELOITTE U.S. RETAIL LEADER: Thanks for having me.

GRIFFETH: You`re a pretty popular guy today with this kind of a forecast
here.

You know, we talked in the past about retailers scrambling to find a way to
go after Amazon (NASDAQ:AMZN) with their online practice, but I guess
they`ve found a balance and they`re going to get good demand this year.
That`s the message you put out today, right?

SIDES: Absolutely and we hope so. You know, if you look at the
fundamentals with the savings rate being up and being pretty stable, we
believe it`s going to really translate into a great holiday season.

HERERA: Are there risks to that? I mean, there`s a lot going on in
Washington. We have a possible trade war with China does the consumer
basically put that aside and they`re feeling pretty good about the economy
and they continue to spend?

SIDES: You know, I think the consumer has gotten used to a lot of the
noise that`s coming out of Washington. So, as a result, I think the
consumer looks at their own pocketbook, really understands where they are
and use that as a gauge to determine how much you`re going to spend. So we
think that consumers going to continue to be really excited about this
holiday.

GRIFFETH: Are there categories that you especially like, whether it`s
apparel or technology or whatever it is?

SIDES: You know, there`s a couple I think that usually do pretty well in
an up economy. Luxury does pretty well as a overall grouping, so some of
those items will be jewelry, et cetera, typically has ticked up over the
last couple years. Technology, certainly if we have new innovations, do
pretty well in this season. And everybody always wants to buy a pair of
for whatever reason over the holiday.

So, I think all those categories to do quite well.

HERERA: You know one of the things that I`ve noticed because I end up
doing this every year is I wait too long and then I have to express the
gifts for Christmas, but a lot of the retailers it seems to me have gotten
very good at anticipating people like me, the last-minute shopper, and that
helps their bottom line.

SIDES: Oh it certainly does and being able to shorten the windows for
delivery certainly helps their ability to meet that demand I like you find
myself scrambling at the last minute. So being able to meet those promise
ship dates are really important to make sure you get it by the holiday.

GRIFFETH: There will be winners, but what about losers? Anybody that you
feel will lag this year or struggle?

SIDES: You know, I think if you don`t have a very specific value
proposition for the consumer, you`re always going to struggle. So what we
find is that when you have unique product and distinctive product or if
you`re trading on price, both ends of those spectrums have done quite well.
It`s the businesses that are stuck in the middle that really don`t have an
identity that I think will struggle over this holiday.

GRIFFETH: Ron, good to see you. I would say to both you and Sue, it`s
never too early to start shopping.

SIDES: Thank you.

GRIFFETH: Rod Sides with Deloitte joining us tonight from Minneapolis.

HERERA: I do it every year.

Profit stall at the used car seller Copart (NASDAQ:CPRT) and that`s where
we begin tonight`s “Market Focus”.

The online auction company topped revenue estimates but said the
disappointing earnings were largely due to costs associated with Hurricane
Harvey. Copart (NASDAQ:CPRT) said it spent nearly eighty million dollars
on temporary storage facilities, overtime wages and employee lodging.
Copart (NASDAQ:CPRT) shares skidded 13 percent to $55.58.

Goldman Sachs (NYSE:GS) is reportedly nearing a deal to sell its Simon app
which sells complex investment products. “The Wall Street Journal” says a
number of rival banks including J.P. Morgan and Wells Fargo (NYSE:WFC) are
in advanced talks with Goldman about making investments in that business.
Shares of Goldman Sachs (NYSE:GS) rose nearly 3 percent to $235.58.

GRIFFETH: Drugmaker Crispr Therapeutic said that its planning to offer
$200 million worth of its common stock in a new public offering. And as
often happens the news of a secondary offering initially sent shares of
that company lower in the extended session tonight it also finished the
regular session down about 2 percent at 51.89.

And then after the bell, software company Red Hat (NYSE:RHT) said a rise in
subscription revenue helped overall earnings top expectations. Total sales
did miss estimates but the company gave weaker than expected guidance for
the current quarter and so shares initially fell in the after-hours. They
finished the regular day up a fraction to $143.16.

And the stock of the day had to be Canadian marijuana company Tilray.
Shares of most of the cannabis-related stocks have been on a tear lately
anyway, but today was just crazy. Trading in Tilray had to be halted five
different times during the regular session all due to tremendous
volatility. When all was said and done the stock finished up another 38
percent to $214.06. And since its initial public offering just back on
July 19th, shares of Tilray are up more than 1,000 percent.

HERERA: Which got us thinking because it`s estimated that the marijuana
industry on a global scale could be worth nearly $60 billion in less than a
decade. Corona maker Constellation Brands (NYSE:STZ) invested billions
into a cannabis producer, and Coca-Cola (NYSE:KO) said it is closely
watching the market for drink infused with CBD, that is the nonpsychoactive
component in marijuana.

So, should investors consider getting in on the action?

Troy Dayton joins us now to discuss that. He is the co-founder of the
Arcview Group.

Troy, welcome. Nice to have you here. What a day to have you here.

TROY DAYTON, ARCVIEW GROUP CO-FOUNDER: Thanks for having me. Yes, what a
day.

HERERA: So, tell me where you think we are with the cannabis industry,
specifically the stocks, because Bill and I both saw the dot-com bubble and
it reminds me of that frankly.

DAYTON: Yes, I mean, people are clearly very excited about the cannabis
industry and the performance of these stocks over the last few days and
past few months really shows that. But the prices of these companies — I
mean, they`re bananas. I mean, there`s no way that that`s going to stand
over time.

That being said there are real fundamentals to this market. It`s growing
at a 26 percent compound annual growth rate over the next five years, and
people love cannabis and they`re very excited. The public opinion is
moving very far in favor of legalization, and there`s a lot of hope for
additional policy reform. And so, over time, I think people will grow into
these — companies will grow into these valuations, but there`s going to be
a lot of volatility along the way.

GRIFFETH: That policy reform you`re referring to obviously, cannabis is
still illegal at the federal level and in some states still here in the
United States. That`s a major headwind for this industry, right?

DAYTON: Absolutely, it`s part of what it`s so interesting to see all these
stocks raising so much because a lot of that money can`t get into the U.S.
right now. And so, I think there`s a lot of excitement and thinking that
policy change is going to happen. And I sure hope all the people who are
making so much money on these stocks are going to use some of it to donate
to the legalization effort because right now, there are still millions of
people that wake up every day and fear of their government for these laws
while we`re all trying to make as much money.

But I think the real opportunity right now is in private companies since
the public stocks are so overvalued at the moment, the opportunity is
really getting into these companies before they go public. I mean, that`s
what we really focus on.

HERERA: Very quickly, is that the way that corporate America should play
it? Because if you`re a publicly traded company buying into an industry
that is Bill mentioned federally is illegal, I mean, that`s kind of a dicey
proposition. Should they go to the private companies?

DAYTON: Absolutely. Private or public, you still have the same legal
issues to deal with, and that`s why so many companies are looking at Canada
and other countries that are passing laws as a place to begin or investing
in ancillary companies. You know, you see companies like Scott`s Miracle
Grow that are doing agricultural technology and these sorts of things, kind
of businesses that grow with the industry.

GRIFFETH: No pun intended. OK, Troy, thank you very much.

Troy Dayton with Arcview Group.

DAYTON: Thanks for having me.

HERERA: Coming up, the cost of the cleanup.

(MUSIC)

HERERA: The global poverty rate has fallen to a record low. The World
Bank says the proportion of people living below the poverty line has fallen
to 10 percent. But the World Bank also warned that the pace of poverty
reduction has slowed. The World Bank has a goal of reducing the poverty
rate to 3 percent by the year 2030.

GRIFFETH: President Trump flew to North Carolina today where he toured the
damage from Hurricane Florence. He assessed the response and promised to
help those displaced.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Hurricane Florence was one
of the most powerful storms ever to hit the Carolinas, one of the most
powerful and devastating storms ever to hit our country. To the families
who have lost loved ones, America grieves with you and our hearts break for
you. God bless you.

(END VIDEO CLIP)

GRIFFETH: The president also predicted a costly cleanup, which is underway
with a focus on getting people back into their homes and businesses back up
and running.

Seema Mody is in hard-hit New Bern, North Carolina, for us tonight.

(BEGIN VIDEOTAPE)

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The hurricane has
passed but the flooding and water damage is wreaking havoc across the
Carolinas. Here in New Bern, population of 30,000, over 4,000 homes have
been damaged or destroyed.

UNIDENTIFIED MALE: We don`t have flood homeowners insurance. We`re kind
of (INAUDIBLE).

UNIDENTIFIED FEMALE: Some people lost their homes completely and I just
got moderate damage to mine.

MODY: New Bern`s conference center, a key revenue generator, has suffered
water damage, prompting local officials to bring in external help to
expedite the repairs.

PAUL KERBY, SERVPRO DISASTER RECOVERY TEAM: The biggest problem you have
with moisture is when it`s on the ground, it also rises up and it damages
other parts of the building. So, right now, we`re stabilizing the
environment, getting all the wet material out that we can, and getting it
ready to be rebuilt after we leave.

MODY: Complicating the recovery efforts, access to power. Over 200,000
residents are dealing with power outages. And Duke Energy (NYSE:DUK) says
most of the power will be restored by next Wednesday.

UNIDENTIFIED MALE: We`re almost ready for you, OK?

MODY: For those still without power and a place to stay, aid groups like
Operation Blessing are providing food and supplies, in partnership with
Home Depot (NYSE:HD), as well as generous donations coming in from nearby
states.

Based on early estimates, Florence could inflict as much as $22 billion in
damages, and the longer the recovery takes, the greater the economic hit on
this region.

CNBC Business News, Seema Mody, New Bern, North Carolina.

(END VIDEOTAPE)

HERERA: And that`s it for us.

GRIFFETH: Good night. See you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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Media, LLC. Updates may be posted at a later date. The views of our guests
and commentators are their own and do not necessarily represent the views
of Nightly Business Report, or CNBC, Inc. Information presented on Nightly
Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

 

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