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Yahoo Finance published a piece by Allan Sloan entitled, "Here's the upside of Fed rate increases for investors," which tells us, "We've been hearing a lot lately about the damage that the Federal Reserve’s rate increases have done to the prices of stocks, bonds, and homes. But there's a major upside to those rate increases that few people, if any, are talking about.... It's that income for holders of money market mutual funds is running tens of billions of dollars a year above where it was at the start of the year, with more big increases on tap as the Fed keeps raising rates." The article explains, "Here's the deal, based on numbers from money market maven Pete Crane, whose Crane Data publishes the monthly Money Fund Intelligence newsletter. When Crane and I talked a few days ago, he said that money funds were yielding about 0.6% [they're now up to 1.14%], up from a minuscule 0.02% at year-end 2021, before the Fed rate increases started. Sure, that doesn't sound like a big enough difference to matter. But if you apply those numbers to the $5 trillion of money market funds, you see that yields are currently running about $30 billion a year, up from about $1 billion at year end." Sloan writes, "Given that the Fed has just raised rates three-quarters of a percent and is talking about raising them another three-quarters at its July meeting, we're looking at another 1.5% growth in yields. Which works out to another $75 billion a year for money fund holders. The reason that money fund yields are rising so rapidly is that the funds' asset portfolios have an average maturity of only about 30 days. This means that the Fed's increases in short-term rates -- the only rates that the Fed controls directly -- flow into money fund owners' wallets almost immediately." He adds, "These income increases are the total opposite of what happened when the Fed started cutting rates to almost zero in 2009 to forestall a worldwide financial meltdown. Yields eroded rapidly, leaving money funds yielding essentially nothing for much of the past dozen-plus years. But now that pattern is reversing. 'A two percent money fund yield by year-end isn't a layup,' quips Pete Crane, 'but it's a short jump shot.' There are certainly plenty of financial downsides to the Fed’s rate raises.... However, those increases in money fund yields -- and the fact that those rising yields are likely to spur banks to raise rates on trillions of dollars of savings accounts to try to avoid deposit runoffs -- are giving us tens of billions of dollars of optimistic news. And these days, we need all the optimism that we can get."

ICI's latest weekly "Money Market Fund Assets" report shows assets flat after falling the previous week, which included the June 15 quarterly tax date. Year-to-date, MMFs are down by $162 billion, or -3.4%, with Institutional MMFs down $138 billion, or -4.3% and Retail MMFs down $24 billion, or -1.6%. Over the past 52 weeks, money fund assets are down by $4 billion, or -0.1%, with Retail MMFs rising by $12 billion (0.9%) and Inst MMFs falling by $16 billion (-0.5%). (For the month of June, through 6/22, MMF assets have increased by $16.8 billion to $4.976 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.) ICI's weekly release says, "Total money market fund assets increased by $1.89 billion to $4.54 trillion for the week ended Wednesday, June 22, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $3.74 billion and prime funds increased by $5.64 billion. Tax-exempt money market funds decreased by $9 million." ICI's stats show Institutional MMFs falling $8.7 billion and Retail MMFs increasing $10.6 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.014 trillion (88.4% of all money funds), while Total Prime MMFs were $426.1 billion (9.4%). Tax Exempt MMFs totaled $102.6 billion (2.3%). ICI explains, "Assets of retail money market funds increased by $10.62 billion to $1.44 trillion. Among retail funds, government money market fund assets increased by $6.22 billion to $1.14 trillion, prime money market fund assets increased by $4.19 billion to $213.27 billion, and tax-exempt fund assets increased by $208 million to $92.81 billion." Retail assets account for just under a third of total assets, or 31.8%, and Government Retail assets make up 78.8% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $8.73 billion to $3.10 trillion. Among institutional funds, government money market fund assets decreased by $9.96 billion to $2.88 trillion, prime money market fund assets increased by $1.45 billion to $212.82 billion, and tax-exempt fund assets decreased by $217 million to $9.83 billion." Institutional assets accounted for 68.2% of all MMF assets, with Government Institutional assets making up 92.8% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)

Yahoo Finance posted the article, "Money Funds May Be Next Target in Fight Against Greenwashing," which tells us, "An often overlooked part of the burgeoning ESG industry may soon encounter greater global scrutiny from regulators. Analysts at Fitch Ratings expect rulemakers to push for better transparency from managers of money market funds. This comes as other ESG-related offerings that fall short on the standards front increasingly struggle to keep and attract investors. The integration of environmental, social and governance factors into money funds has accelerated in recent years, especially in Europe where in 2021 assets surged by about 200% as more funds took on the ESG label." The Bloomberg piece adds, "Roughly 350 billion euros ($369 billion) is invested in ESG-focused money funds, accounting for 23% of the total market for European money funds. By comparison, there's just $9 billion in US prime money funds that have ESG in their names.... Large ESG reporting disparities also exist between the two regions, creating inconsistencies in reporting standards across the market. In Europe, there's 'a more prescriptive, standardized framework,' while in the US, it's more of 'a disclosure regime,' said Greg Fayvilevich, senior director and global head of Fitch's fund and asset manager ratings group. Money funds are considered among the least risky investments available because they traditionally hold only the safest government and corporate-bond securities. The average yield for money funds has risen above 0.3% in Europe from about negative 0.6% at the start of the year. Yields are now at the highest level since 2014."

Bloomberg writes "Inflation Is Fueling ‘Most Uncertain Time’ in Investors’ Careers," which tells us, "The current denizens of Wall Street have never seen a market quite like this. Volatility surged across assets last week as a worsening outlook for inflation and growth smashed US stocks and bonds. Inflation that's surging at a rate unseen in decades -- and proving unexpectedly sticky -- has sent central banks scrambling to reshape policy on the fly. And that has even hardened market veterans reeling in shock, with unprecedented amounts of money flooding into cash-like instruments and facilities. Investors gathered for the Crane's Money Fund Symposium in Minneapolis have been busy comparing notes in the wake of a historic week that saw the Federal Reserve jack up its overnight interest rate by the most in decades, prompting a huge whipsawing of the bond market and finally dragging the S&P 500 Index into a bear market." They quote Northern Trust's Peter Yi, "This might be the most uncertain time in our careers in terms of pace and what happens with inflation. There's just a lot of volatility out there, a lot of quick changes and last week was a great example of that." The piece adds, "Uncertainty about front-end rate policy and the outsized impact that is having on longer-term assets means more and more people are looking to park bigger chunks of their portfolios in cash." Click here to see Bloomberg's recap of the first day of the Crane’s conference."

Bloomberg writes, "Money Markets Rake In Cash as Funds Gird for Regulatory Changes." The article by Alexandra Harris explains, "The specter of regulatory change is hanging over the $4.5 trillion US money-market industry, even as the Federal Reserve's aggressive interest-rate hikes and market volatility have investors piling in. That's the backdrop that will be front of mind for the roughly 400 attendees at the Crane's Money Fund Symposium beginning Monday, a marquee event for a business that struggled the past two years while rates were near zero." It continues, "Money funds have grown by about $100 billion since April, and they hold almost $1 trillion more than at the start of the pandemic, when companies raised cash and parked it in the market for safety. Now the funds are looking to another source of growth: corporations and individuals that want to take advantage of higher rates as the Fed boosts borrowing costs to contain inflation. The key question is how proposed changes from the Securities and Exchange Commission might complicate investors' decisions. The agency unveiled recommendations last year ... with the aim of averting the kind of turmoil seen in March 2020." They quote Northern Trust Asset Management's Peter Yi, "There's a lot of assets in flight coming soon and I think it's going to be good for the industry. There's a lot of things we can look forward to despite money-market reform." The piece tells us, "There will be no shortage of other topics to discuss as industry executives gather in Minneapolis next week. The lack of Treasury bill supply may be chief among them.... The overwhelming demand for relatively few securities has pushed rates on everything from repurchase agreements to most T-bills well below the offering yield on the Fed's overnight reverse repo facility, now at 1.55%. That's why money funds account for roughly 88% of the record $2.22 trillion sitting at the so-called RRP, JPMorgan Chase & Co. strategists say. 'Every marginal dollar we’re getting right now is getting parked at the Fed,' Yi said. The pace at which the Fed hikes will determine how quickly funds can pass along higher yields to investors, and hopefully attract more cash -- particularly deposits earning next to nothing in banks, which tend to be slower to lift rates as the Fed tightens.... The central bank's move to start shrinking its mammoth balance sheet this month through what's known as quantitative tightening is also a potential boon for money funds. Barclays Plc estimates that money-fund balances could increase by $600 billion as a result by year-end."

ICI's latest weekly "Money Market Fund Assets" report shows assets falling in the latest week, which includes the June 15 quarterly tax date, after being up strongly the previous week <b:>`_. Year-to-date, MMFs are down by $164 billion, or -3.5%, with Institutional MMFs down $129 billion, or -4.0% and Retail MMFs down $35 billion, or -2.4%. Over the past 52 weeks, money fund assets are down by $37 billion, or -0.8%, with Retail MMFs falling by $1 billion (-0.0%) and Inst MMFs falling by $37 billion (-1.2%). (For the month of June, through 6/15, MMF assets have increased by $24.5 billion to $4.984 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.) ICI's weekly release says, "Total money market fund assets decreased by $11.65 billion to $4.54 trillion for the week ended Wednesday, June 15, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $4.86 billion and prime funds decreased by $6.84 billion. Tax-exempt money market funds increased by $51 million." ICI's stats show Institutional MMFs falling $20.9 billion and Retail MMFs increasing $9.3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.018 trillion (88.5% of all money funds), while Total Prime MMFs were $420.5 billion (9.3%). Tax Exempt MMFs totaled $102.7 billion (2.3%). ICI explains, "Assets of retail money market funds increased by $9.27 billion to $1.43 trillion. Among retail funds, government money market fund assets increased by $6.10 billion to $1.13 trillion, prime money market fund assets increased by $3.15 billion to $209.09 billion, and tax-exempt fund assets increased by $14 million to $92.60 billion." Retail assets account for just under a third of total assets, or 31.6%, and Government Retail assets make up 79.0% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $20.91 billion to $3.11 trillion. Among institutional funds, government money market fund assets decreased by $10.96 billion to $2.89 trillion, prime money market fund assets decreased by $9.99 billion to $211.37 billion, and tax-exempt fund assets increased by $37 million to $10.05 billion." Institutional assets accounted for 68.4% of all MMF assets, with Government Institutional assets making up 92.9% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of June 10) includes Holdings information from 62 money funds (down 2 from 3 weeks ago), which represent $2.101 trillion (up from $1.912 trillion) of the $4.987 trillion (42.1%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our June 10 News, "June MF Portfolio Holdings: NY Fed Repo Now Bigger Than US Treasuries," for more.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.052 trillion (up from 973.4 billion 2 weeks ago), or 50.1%; Treasuries totaling $759.4 billion (up from $725.7 billion 2 weeks ago), or 36.1%, and Government Agency securities totaling $136.9 billion (up from $111.1 billion), or 6.5%. Commercial Paper (CP) totaled $44.9 billion (up from 2 weeks ago at $36.3 billion), or 2.1%. Certificates of Deposit (CDs) totaled $41.1 billion (up from $18.4 billion 2 weeks ago), or 2.0%. The Other category accounted for $39.6 billion or 1.9%, while VRDNs accounted for $27.5 billion, or 1.3%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $770.8B (36.7%), the US Treasury with $759.4 billion (36.1% of total holdings), Federal Home Loan Bank with $83.6B (4.0%), BNP Paribas with $45.7B (2.2%), Federal Farm Credit Bank with $43.0B (2.0%), RBC with $30.5B (1.5%), Fixed Income Clearing Corp with $25.4B (1.2%), Sumitomo Mitsui Banking Corp with $17.4B (0.8%), Mitsubishi UFJ Financial Group Inc with $16.4B (0.8%) and JP Morgan with $14.4B (0.7%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($290.5B), Goldman Sachs FS Govt ($203.6B), Morgan Stanley Inst Liq Govt ($165.2), Allspring Govt MM ($120.9B), Fidelity Inv MM: Govt Port ($120.6B), Dreyfus Govt Cash Mgmt ($116.0B), Goldman Sachs FS Treas Instruments ($106.7B), State Street Inst US Govt ($96.5B), JPMorgan 100% US Treas MMkt ($87.3B) and First American Govt Oblg ($82.5B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

A press release entitled, "Survey: Fifty-five Percent of Organizations' Short-term Investments Maintained in Bank Deposits, Highest Figure Since 2016," tells us, "Results of the 2022 AFP Liquidity Survey from the Association for Financial Professionals (AFP), underwritten by Invesco, report that the typical organization currently maintains 55% of its short-term investments in bank deposits. This is the highest figure since 2016, when it was also reported that 55% of organizations were holding their short-term investments in banks. This is only a slight increase from 2021 and 2020 figures, which were 52% and 51% respectively. The largest increase occurred from 2019 to 2020 when it jumped 9%. Similar trends are also being observed for short-term investments outside the U.S. (69%)." The AFP explains, "The survey also found that 57% of organizations are preparing their portfolios ahead of anticipated federal funds target rate increases, with 34% doing so by managing the duration of their portfolios. Others are considering investing in floating rate notes, creating bond maturity ladders or using a barbell approach with select securities. Findings suggest companies are being cautiously optimistic while shoring up liquidity to ease uncertainty as the share of organizations that plan on increasing their cash holdings in the U.S. has decreased by 10 percentage points to 37% as compared to 47% who reported the same last year." Additional findings of the survey include: "Safety continues to be the most valued short-term investment objective for 63% of organizations. This can be expected, given the economic uncertainty due to high inflation rates, anticipated actions by the Federal Reserve and the tense geopolitical environment. Twenty-five percent of organizations are considering Environmental, Social and Governance (ESG) investment parameters, which is materially higher than the 17% reported in last year's survey report.... AFP's Liquidity Survey was conducted in March 2022 and received responses from 284 corporate practitioners." Jim Kaitz, AFP president and CEO, comments, "In the past year, the economic environment has been fraught with uncertainty. Therefore, it is not at all surprising that the majority of organizations are prioritizing safety as their primary investment objective. That said, we are hopeful as a smaller percentage of respondents report an increase in cash and short-term balances at their organizations over the past year compared to a year earlier, suggesting that companies are less constrained than they were in 2021." Invesco Global Liquidity CIO Laurie Brignac adds, "It's been a remarkable period in liquidity markets, from the early pandemic days in 2020 to the sharp inflation acceleration and aggressive shift by the Federal Reserve to tightening monetary policy in 2022.... As companies prepare to put cash to work, investors need to be strategic in their approach to uncover opportunities in the higher interest rate environment while managing through a very aggressive hiking cycle." See the highlights and full 2022 AFP Liquidity Survey here, and watch for more coverage in coming days. (Note: AFP's Tom Hunt and Invesco's Laurie Brignac will also present on "Corporate Investors, Portals, D&I Discussion" on Monday, June 20, at our Money Fund Symposium conference in Minneapolis.)

The SEC posted a press release entitled, "Schwab Subsidiaries Misled Robo-Advisor Clients About Absence of Hidden Fees." It explains, "The Securities and Exchange Commission today charged three Charles Schwab investment adviser subsidiaries for not disclosing that they were allocating client funds in a manner that their own internal analyses showed would be less profitable for their clients under most market conditions. The subsidiaries agreed to pay $187 million to harmed clients to settle the charges. According to the SEC's order, from March 2015 through November 2018, Schwab's mandated disclosures for its robo-adviser product, Schwab Intelligent Portfolios, stated that the amount of cash in the robo-adviser portfolios was determined through a 'disciplined portfolio construction methodology,' and that the robo-adviser would seek 'optimal return[s].' In reality, Schwab's own data showed that under most market conditions, the cash in the portfolios would cause clients to make less money even while taking on the same amount of risk. Schwab advertised the robo-adviser as having neither advisory nor hidden fees, but didn't tell clients about this cash drag on their investment. Schwab made money from the cash allocations in the robo-adviser portfolios by sweeping the cash to its affiliate bank, loaning it out, and then keeping the difference between the interest it earned on the loans and what it paid in interest to the robo-adviser clients." The release continues, "Schwab claimed that the amount of cash in its robo-adviser portfolios was decided by sophisticated economic algorithms meant to optimize its clients' returns when in reality it was decided by how much money the company wanted to make," said Gurbir S. Grewal, Director of the SEC's Division of Enforcement. "Schwab's conduct was egregious and today's action sends a clear message to advisers that they need to be transparent with clients about hidden fees and how such fees affect clients' returns." The SEC adds, "Without admitting or denying the SEC's findings, Schwab's investment adviser subsidiaries, Charles Schwab & Co., Inc., Charles Schwab Investment Advisory, Inc., and Schwab Wealth Investment Advisory, Inc., agreed to a cease-and-desist order prohibiting them from violating the antifraud provisions of the Investment Advisers Act of 1940, censuring them, and requiring them to pay approximately $52 million in disgorgement and prejudgment interest, and a $135 million civil penalty. The subsidiaries also agreed to retain an independent consultant to review their policies and procedures relating to their robo-adviser's disclosures, advertising, and marketing, and to ensure that they are effectively following those policies and procedures." For more, see our articles: "SEC Action on 12b-​1, Sweeps" (6/1/22); "Barron's: SEC Hits Sweeps Again" (10/4/21); "SEC Slaps SCF Financial Over Sweeps" (8/18/20); and, "SEC Warns on Cash Sweeps" (11/12/19).

The New York Times writes a big piece on money market funds in "How Inflation May Change Where You Put Your Cash." Columnist Jeff Sommer says, "The stock market hasn't provided much joy, bonds have been a source of considerable pain and inflation is troubling. But at last there is a glimmer of good news for people who need a place to park their cash: Money market mutual funds are finally beginning to pay a little interest. These funds are a convenient place for both individual investors and big institutions to keep money temporarily. Their yields have been very low for years, and since the crisis of March 2020 they had hovered near zero, paying investors virtually nothing." He continues, "But now that the Federal Reserve has begun to increase the short-term interest rates it controls directly, money market fund yields that are available to consumers have also started to rise -- and they will continue their climb as long as the Fed continues to increase short-term rates." The Times quotes T. Rowe Price's Doug Spratley, "You can expect money market rates to keep rising for a while. And they will be rising fairly rapidly." But the piece explains, "Don't get too excited just yet. `This isn't a return to the early 1980s, when money market rates soared above 15 percent, along with the rate of inflation. The yield on the average big money market fund is still only about 0.6 percent, said Peter G. Crane, the president of Crane Data of Westborough, Mass., which monitors money market funds. 'Yields are moving in the right direction,' Mr. Crane said. 'But that's still not much, especially when you factor in inflation.'" The article adds, "Money market yields won't stay where they are for very long. On Wednesday, the Federal Reserve is expected to raise rates again, and money market rates should follow, with a lag of about one month. As a practical matter, in the current unsettled markets, many people need good places to keep their short-term cash. In the past, I noted that several options -- like bank accounts and Treasury bills -- seemed reasonable. Now I would add money market funds to that list, with some qualifications. Be aware that, yields aside, money market funds ran into some safety problems in the last two financial crises. Since then, they have been subjected to tighter regulatory scrutiny and to a series of reforms. Many funds now hold only U.S. government securities, and all are required to hold only high-quality debt instruments. All are intended to avoid fluctuations in value, though they have come under strain before and could well do so again. In any case, money market funds are safer than bond or stock mutual funds or exchange-traded funds."

ICI's latest weekly "Money Market Fund Assets" report shows assets up strongly in the latest week after being flat the previous week (and up sharply the week before that). Year-to-date, MMFs are down by $152 billion, or -3.2%, with Institutional MMFs down $108 billion, or -3.4% and Retail MMFs down $44 billion, or -1.4%. Over the past 52 weeks, money fund assets are down by $53 billion, or -1.1%, with Retail MMFs falling by $9 billion (-0.6%) and Inst MMFs falling by $44 billion (-1.4%). (For the month of June, through 6/8, MMF assets have increased by $34.0 billion to $4.994 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.) ICI's weekly release says, "Total money market fund assets increased by $26.40 billion to $4.55 trillion for the week ended Wednesday, June 8, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $19.89 billion and prime funds increased by $4.96 billion. Tax-exempt money market funds increased by $1.54 billion." ICI's stats show Institutional MMFs rising $22.5 billion and Retail MMFs increasing $3.9 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.023 trillion (88.4% of all money funds), while Total Prime MMFs were $427.3 billion (9.4%). Tax Exempt MMFs totaled $102.6 billion (2.3%). ICI explains, "Assets of retail money market funds increased by $3.86 billion to $1.42 trillion. Among retail funds, government money market fund assets decreased by $440 million to $1.13 trillion, prime money market fund assets increased by $2.44 billion to $205.94 billion, and tax-exempt fund assets increased by $1.86 billion to $92.59 billion." Retail assets account for just under a third of total assets, or 31.3%, and Government Retail assets make up 79.0% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $22.53 billion to $3.13 trillion. Among institutional funds, government money market fund assets increased by $20.33 billion to $2.90 trillion, prime money market fund assets increased by $2.52 billion to $221.36 billion, and tax-exempt fund assets decreased by $324 million to $10.01 billion." Institutional assets accounted for 68.7% of all MMF assets, with Government Institutional assets making up 92.6% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)

The latest "Overview, Strategy, and Outlook" from Allspring Money Market Funds discusses the Fed, QT and RRP. They write, "In the money markets, QT will eventually have significant effects. First, it will tend to boost Treasury market supply, because any security not rolled over by the Fed will instead need to be issued by the Treasury to private (non-Fed) buyers. This effect should be gradual, and exactly how it impacts the money markets will depend on the degree to which the Treasury skews its additional supply to Treasury bills, compared with longer-term notes and bonds. The second way money markets will feel QT will be through a normalizing of the overnight repurchase agreement (repo) market. With nearly $2 trillion routinely parked in the Fed's reverse repo program (RRP), there's currently an absurd abundance of excess cash, making it a borrowers' market. After QT has been long underway, the excess cash pile will diminish, and more securities in private hands will need to be funded in the repo market. This may be a several-years-long process, but eventually supply and demand should find a new equilibrium, where repo rates are set by market interests rather than being pinned at or below the Fed's RRP rate as they are now." The piece adds, "For the Allspring Funds, we continue to focus on what the FOMC is saying and positioning for future policy rate increases <b:>~_. Since we tend to take a conservative approach when constructing our portfolios and favor keeping excess liquidity over the stated regulatory requirements, running shorter weighted average maturities and looking to extend if the opportunity offers a favorable risk/reward proposition allowed our portfolios to capture this rate increase quickly. `In addition to capturing higher yields, the enhanced liquidity buffer allows our portfolios to meet the liquidity needs of our investors and helps stabilize net asset value (NAV) volatility."

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