Announcing Our Partnership With 7Park For Alternative Data!

We’re pleased to announce that we are one of 7Park Data’s launch partners for their new API product. Starting today, 7Park customers who also use Sentieo can access their data in Plotter and Mosaic. 7Park’s data offerings available via API include web and mobile app traffic data, retail purchase data, and more.

The combination of 7Park data in Sentieo’s alternative data suite makes discovering alpha opportunities possible without hiring a quant. 7Park Data can be easily added to a chart or statistical analysis including other sources of alternative data, financial metrics like revenue or stock price, and your own data. Examples displaying how this data can be used are presented below.

In the words of one of our customers:

“Sentieo gave me a way to make sense of the data without having to spend budget on a full-time quant. Several points of my returns have been inspired.”

Contact your Sentieo Customer Success rep or e-mail us at hello@sentieo.com to get a demo of how this product can generate investment ideas for you. If you are not a current Sentieo customer, you can request a trial here.

 

 

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Amazon Competes With Everyone — And Wins

This article was originally posted on Forbes.

No other company has done a better job of attracting constant media attention than Amazon ($AMZN). With shares hovering around $1,000 per share, the retail-tech giant now stands as one of the four largest companies in the S&P 500 with a nearly $500 billion market cap. That represents a more than 50,000% return from the $1.73 IPO price two decades earlier. Investors fortunate enough to snatch up shares when it first hit the public market can comfortably call themselves millionaires.

While shares no longer look cheap by any traditional metric, money managers believe ongoing investments will result in even greater future returns. This is because Amazon has shown a remarkable ability to succeed in new spaces that it expands into. This is in many ways, the opposite of conventional wisdom. Large corporations often struggle when they stray outside of their core competencies. Amazon has been able to flip this script.

Amazon’s ability to accomplish this comes in large part from the leadership of its CEO, Jeff Bezos, who has consistently pushed the philosophy of, “Day One.” This excerpt from Amazon’s last letter to shareholders illustrates his commitment:

“Jeff, what does Day 2 look like?”That’s a question I just got at our most recent all-hands meeting. I’ve been reminding people that it’s Day 1 for a couple of decades. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.

Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1. To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.I’m interested in the question, how do you fend off Day 2? What are the techniques and tactics? How do you keep the vitality of Day 1, even inside a large organization?

Such a question can’t have a simple answer. There will be many elements, multiple paths, and many traps. I don’t know the whole answer, but I may know bits of it. Here’s a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.”

Of course, the true measure of success for any public company and its philosophy is how its share price performs. As Amazon’s reach has broadened into new industries, the number of companies who need to mention Amazon as a competitor has broadened as well.

We used Sentieo’s advanced document search to construct a query that uncovers every mention of Amazon as a competitor in public company filings (10Ks, 10Qs, 8Ks, earnings calls, investor presentations, etc.) in the last 10 years. In the chart below, you can see that mentions of Amazon have grown considerably over the past 10 years while the stock price has also grown in lockstep.  

Mentions of “amazon competitors” in public filings and AMZN stock price (Source: Sentieo Document Search)

Drilling down into specific sectors, the same pattern shows itself. Take Air Freight and Logistics, a nascent segment of Amazon’s business, for example. It was only in 2016 that Amazon first made an announcement to lease 20-40 Boeing jets to augment their distribution capabilities. If we look at the mentions of Amazon in only Air Freight and Logistics company filings, we again see the number of mentions skyrocket. Read More

Analyzing $NFLX Recent Earnings Beat With Alternative Data

Netflix’s stocked soared over 10% in after-hours trading last Tuesday after the Q2 earnings call in spite of an EPS miss at $0.15/share (vs. $0.16 projected). Since Netflix is still growing rapidly, the stock trades mostly on subscriber growth, rather than earnings. As you can see from the chart below, subscriber growth, especially in International Markets, blew out analyst estimates:

Netflix Subscriber Growth Vs. Estimates

Since subscriber growth is not as easily analyzed by the core public financial data companies are required to release, we used Sentieo to look at alternative datasets like keywords in earnings transcripts, search volume, Twitter mentions, and website traffic to analyze Netflix’s incredible performance

First, we looked at words tied to international markets that were referenced in transcripts using our earnings call Keyword Tracker:

Mentions of keywords in Netflix Earnings Call Transcripts

Notice that Europe, Asia, Korean, and Germany saw their largest number of conference call mentions ever when comparing to previous earnings calls. Reed Hastings continued to speak to success with content creation in Europe and Latin America, but also has his sights set on Asia:

Snippets from the most recent $NFLX Earnings Call

NFLX’s chief of content creation, Ted Sarandos, spoke specifically about Korea and Okja (a Korean-Hollywood collaboration that has been a huge hit for Netflix) both of which were surfaced in the keyword tracker above:
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According To One Metric, This Could Be The Best Time For Stock-Picking In A Decade

This article was originally posted on Forbes.

The last three years have been dismal for fundamental long/short managers, and stock picking at large. However, at Sentieo, our analysis shows that we are currently in the best environment since before the 2008 crash for picking stocks. Now, that isn’t to say that this is the best time to buy stocks, nor is it a prediction of fund performance. But, according to an analysis of one metric, cross-correlation, the current market should provide an unusually ripe environment for stock picking.

First, a bit about what we mean by cross-correlation: The pairwise correlation between two stocks is a value between -1 and 1, that indicates how likely the two securities are to move in the same direction. Over a given time period, two stocks that perform identically will have a value of 1, two stocks have no correlation at all will have a value of 0, and two stocks that are perfectly inversely related will have a value of -1.

We ran the pairwise correlations between every stock in the S&P 500 and every other stock in the index (249,500 computations!) from the 2007-8 financial crisis until now. Averaging all of the correlations provides an indicator of how much stocks move in tandem with each other. If the cross-correlation is 1, there would be no opportunities for stock picking since all stocks would move in tandem with each other. The higher the value of the index, the more difficult it is to make money by selecting individual securities at that point in time.

The graph below shows the cross-correlation for the entire S&P 500 over the past decade. There are a few important takeaways from this chart. First, it is clear that the cross correlations of the S&P 500 are at decade lows. Second, we see a preponderance of large spikes in the data.

S&P 500 Cross-Asset Correlation
S&P 500 Cross-Correlation

As you can see, the spikes correspond with market shocks, the major macro events of the last decade. The jump in cross-correlation following a market shock is to be expected. When this sort of event happens, the entire market tends to turn in one direction as it collectively decides to buy or sell. The most recent inflection point, however, the 2016 election of Donald Trump in the United States, behaves differently.

The 2016 US Presidential election has driven correlations to new lows. Furthermore, correlations in the market actually began dropping prior to the November 8th election day, around the time when then-FBI Director James Comey sent a letter to Congress on October 28th. As opposed to the market shocks where the market all reacts in the same direction, it seems the collective market doesn’t know how to react to Donald Trump with any certainty. In other words, as of today, Donald Trump is an inherently uncertain entity that is creating opportunities for security selection.

Impact on Hedge-Fund Returns
As shown in the chart below, hedge fund monthly returns for long/short equity managers tend to react inversely to cross-correlation, as we would expect. This provides further validation to the idea that cross-correlation is a solid predictor of the overall environment for stock picking.

Monthly Returns of Long/Short Equity Funds
Monthly Returns of Long/Short Equity Funds

We can further apply cross-correlation to show the volatility of selected sub-sectors of the S&P 500. Doing so, we can demonstrate which specific sectors may have benefitted the most from the US election, again, purely from a stock-picking perspective.

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Introducing The Sentieo Research Management System (“RMS”)

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Sentieo is pleased to officially announce the introduction of its cloud-based integrated Research Management System (“RMS). The new RMS provides deep analytics to help investment professionals identify and analyze behavior and processes that drive their performance and decisions. How many times did an analyst increase her price target after reading an earnings transcript she annotated as “positive” and did such changes drive positive or negative performance? Sentieo’s RMS allows users to input different variables used in the decision-making process and to track each update.

With a robust set of collaboration tools, Sentieo’s RMS allows teams to work together in the same set of shared documents by jointly highlighting, commenting, and annotating. Teams can further synch across devices, forward emails, clip articles, and automatically integrate notes from Evernote and OneNote in real-time. Furthermore, the platform allows teams to analyze their entire decision-making process tracking relationships between various actions like increasing a price target after conversations with management.

Sentieo RMS is the first of its kind to be integrated into a robust financial research platform, rather than a point solution. The Sentieo platform includes industry-leading financial document search, a powerful financial data terminal, a data visualization suite for alternative data, and more. The RMS is seamlessly integrated into the product, avoiding the need for an analyst to leave the platform to take notes, share, and collaborate on research.

Optimized for compliance and security, Sentieo’s RMS helps asset managers automate and enforce compliance requirements without putting undue burdens on the analysts’ productivity. Sentieo automatically logs all activities and notes, making compliance a breeze.  All data is encrypted at rest and in transit, and all notes are versioned, easily searchable and available via an API to be stored in any data vault.

Much like their corporate counterparts, consumer-grade apps like Evernote and Microsoft’s OneNote have found their way into the information-intensive investment research process. These applications do provide a basic, albeit limited experience with which to capture, organize, and share information*. On the other hand, legacy RMS vendors provide tools to manage and analyze the research process but their clunky interfaces have missed out on the trend in consumerization of IT. Sentieo RMS combines the best of both worlds: a seamless, easy-to-use, interface with enterprise-grade security and detailed analytics and reporting for compliance.


Sentieo Notebook is an information hub to Enhance Data Organization & Accessibility

Sentieo helps make investment professionals more efficient. The notebook provides a workspace for organizing and searching all research including notes, highlights, charts and more. Easily gather content that matters and keep it all in the cloud mobile accessible for quick reference.

Sync Across Devices
Whether you’re on a desktop or mobile device (iPhone, iPad, Android), you can take notes and access your research regardless of whether you’re at the office or on the road travelling. Our offline sync capabilities even let you take notes without Internet access.  
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Evernote and OneNote Integration
Two-way sync with Evernote and OneNote gives you access to all of your Sentieo Notebook content right inside of your favorite note taking apps. Don’t want to disrupt the way you take notes? Create content in Evernote and OneNote and have it sync back to your Sentieo Notebook.
Forward E-mails
Send important emails and attachments directly to your Sentieo Notebook so that you can keep track of all of your notes in a single place. Keep track of interesting articles on the Internet with our web clipper. Save the contents of any webpage for future access in the Sentieo notebook.
Web Clipper
Keep track of interesting articles on the Internet with our web clipper. Save the contents of any webpage for future access in the Sentieo notebook.

Switching back and forth between content sources – SEC filings, broker research, transcripts, company presentations—is a significant waste of time and effort by an investment team member whose skill set is best used to analyze and interpret information, not manage it. Professionals can access all company source documents, investment theses and notes, and financial highlights from a single screen. Read the latest company documents and research reports while seamlessly adding highlights and annotations. All notes are automatically tagged with the appropriate ticker, allowing instantaneous recall of key highlights relevant to an investment thesis.

Collaborate with your team

In an investment team environment, it’s important to recognize the power of the collective intellectual capability of the team. The market greatly rewards investment teams with a diversity of thought and the courage of their convictions. Ideas, theories, and opinions can flow freely and efficiently across the entire decision-making spectrum, helping uncover ideas while avoiding landmines. Sharing knowledge efficiently both increases the alpha potential and also acts as an intellectual risk management tool.

This is why we have designed-in sharing and teamwork all across the platform. Teams can work together on the same set of shared documents (notes, filings, transcripts, research reports, etc.) and collaborate by jointly highlighting, annotating, and commenting directly on any document. Sentieo is where your investment ideas begin to take shape, allowing team members to seamlessly share and exchange ideas with one another.

RMS: Enhancing your team’s efficiency and decision making

Investment professionals not only need to identify actionable ideas, but they also need to share such ideas with a broader team and convince the broader team of the probability of success. Within the RMS, an investment team (or portfolio manager) can review every document an analyst reviewed and failed to review, every note taken within those documents, every investment thesis written about a company, every meeting attended with that company and all of their peers’ prior comments.

Sentieo helps investment teams stay organized when it comes to their portfolio and ideas on a company:

  • Dashboards: The portfolio and ticker dashboards broadcast all recent activity related to companies in the coverage universe. Stay on top of activities such as recent notes, documents, document highlights, company events, comments, and tasks—all on one screen. It also includes a high-level overview of all notes and documents related to the particular ticker, with an activity feed that shows the work that has gone into this ticker all on one screen.
  • Portfolio Summary Table: The Portfolio Summary table enables an understanding of the current state of ideas and investments in a team’s investment universe.
  • Thesis sheets: Our customizable thesis sheets allow the user to easily summarize the key points of a thesis on a stock so that their team has a collective view on all investment ideas. This is where you house your team’s thesis on the stock. With multiple people on the team all covering different stocks, this becomes the go-to place to understand the thought process behind the investment. All fields on the thesis sheets are customizable and trackable
  • Task Manager: Managing deadlines and remembering items on a to-do list can be difficult. With the new Sentieo Task Manager, a user can add tasks to notes and assign them to themselves or a team member, along with due dates. All tasks are automatically aggregated across notes and made available on the ticker dashboard.

…and more


With an organized way to analyze the research process, portfolio managers, risk managers, and directors can drive transparency across the organization along with oversight into analysts’ recommendations. Management can quickly and easily ‘analyze the analyst,’ validating any investment recommendations being made as well as analyzing each team member’s strength, weaknesses and overall performance in a coherent and logical manner.


Research management that’s compliant

Compliance is at the forefront of every investment professionals thoughts these days. The entire financial ecosystem wants to ensure they are compliant while pursuing their mandates. Sentieo’s RMS helps investment management firms automate and enforce compliance requirements without putting undue burdens on analyst productivity

Our platform has been architected from the ground up to meet an asset manager’s ever increasing security and compliance demands. Sentieo has worked hand in hand with some of the world’s largest hedge funds to deliver fully synced compliance backend systems.

As analysts conduct research in Sentieo’s integrated and secure research environment, Sentieo works behind the scenes to provide data management, electronic recordkeeping, and communication control.

Given the sensitivity of research information, we offer a high-end encryption protocol, along with options for single-tenant and a virtual private cloud offering. These configurable options allow for the security equivalent of an on-premise solution along with the cost and maintenance benefits of a cloud solution.

Last, but not least, management and compliance have access to any and all information across the entire research platform via an administrative login or compliance dashboard. Sentieo automatically logs all activities and notes making compliance a breeze. An organization’s notes, including those synced via our OneNote and Evernote plugins, are versioned, easily searchable and available via an API to be stored in the firm’s data vault.

The overall result is a research workflow that makes teams happier, faster, and more efficient. For more information on our new RMS, e-mail us at hello@sentieo.com or request a free trial.

 


*Note: While we believe consumer-grade note-taking apps are not the ideal research management solution, the Sentieo Notebook can integrate with those apps and support compliance recordkeeping needs for users already using them. Your organization’s notes, including those synced via our OneNote and Evernote plugins, are versioned, easily searchable and available via an API to be stored in your data vault.

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The VIX Is Back To Pre-Crisis Lows. Does It Matter?

The CBOE Vix Index is a popular measure of the implied volatility of the S&P 500 index options, calculated and published by the Chicago Board Options Exchange.

The Sky – Is It Falling?

If you watch major business news channels, you may have recently heard that the last time the VIX fell to its current low coincided with the beginning of the Great Financial Crisis of 2007-2008.  It’s a sensational storyline.

Shown below is a chart from the Sentieo platform with the S&P 500 Index (^GSPC) in light blue and the VIX Index in black.  The chart shows that the VIX has recently moved down to levels not seen since right before the financial crisis in 2008.  At the same time, the broad stock market appears unconcerned.

It’s a sobering historical comparison and, based on this data point alone, one might think that the S&P 500 Index is on the brink of sailing right back into the Bermuda Triangle of finance.

But does television chatter of a potential stock market selloff – premised solely on exceptionally low volatility – square with reality?

Fortunately, quick use of the Sentieo Plotter function shows that while the VIX and the S&P 500 do trade inversely, low volatility by itself is not at all a good predictor of stock returns.

The following is a regression analysis run using the Plotter function in Sentieo comparing the VIX Index vs. the S&P 500.

The r-squared is 0.67, and the coefficient is a healthy -7.02.  In fact, the VIX Index has a -0.82 correlation with the S&P 500 over this time period (of course, higher volatility is almost always associated with lower stock returns).

S&P 500 and VIX Index Regression analysis in Sentieo Plotter.

But Is Volatility Predictive?

One way to test the significance of volatility on forward returns is to lag one of the data series and re-run the regression with the lagged series.  Fortunately, this is easy to do in Sentieo’s Plotter: We simply lag the S&P 500 returns, as shown, using the “Axis Options” feature.  In this case, we’re lagging by a positive 8 weeks as shown.  Now when we re-run the regression we will see if a change in the VIX Index is associated with an 8-week-later change in stock prices.

Axis Options: add 8 weeks to the S&P 500.

The result?  After comparing the VIX Index with the following 8 weeks’ returns of the S&P 500, the R-squared between the two series actually drops from 0.67 to 0.24!  That is to say, based on this sample, that, while a significant coincident indicator of stock returns, the VIX Index is not a future indicator of returns.

Conclusion:

Tune out the TV chatter.  Try Sentieo and do your own homework.

It’s a great headline, but the analysis here suggests the VIX does not foretell another crisis.

 

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Sell In May Has Gone Away?

With the S&P up 7% year to date, is it time to sell in May and go away?

It’s an old Wall Street adage, and the data appear to bear it out.  Since 1950, the S&P has returned 3.4% on average for the year up to April, while returns from June to October have averaged only 0.9% over that time.

However, over the last five years, the dynamics of the monthly seasonal trade have not only changed but have become even more pronounced.

Summertime Has Been Producing Good Returns:

Beginning in 2012, January to April returns have averaged 4.9%, similar to the full series from 1950, but June to October returns have also averaged a healthy 3.95%.

Most notably, July has emerged as a very strong month, and June has turned from negative to positive.  Also of note, the seasonal weakness in September has pulled forward into August.

This analysis suggests that August, not May, is the real bogeyman for investors.

Volatility Has Been Spiking In August:

Another way to come to the same conclusion is to look at the average returns of the CBOE VIX index shown below.

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Introducing The Sentieo Trump Tracker: Follow The President’s Impact On Your Investments

trump-tracker-facebook-og-image (2)

Today, we are excited to introduce the Trump Tracker. It’s a bot that constantly scans new public financial documents for mentions of President Trump. These documents include all SEC filings, conference call transcripts, investor presentations, press releases, and more. The bot instantly surfaces new mentions of Trump as soon as they’re published, while intelligent queries automatically sort them into topics like Obamacare, Mexico, and NAFTA.

Anyone interested in following the administration’s impact on public companies can engage with the Trump Tracker by checking the dedicated website, following the @trumptrackerbot Twitter account, or signing up for a daily email alert on the site.

The Trump Administration is Now a Stated Risk Factor for Public Companies

When we last wrote about the Trump administration at the end of January, we noted that the markets paid six times as much attention to the new president’s policies as compared to those of President Obama over a comparable time period. Sixty days after President Trump moved into the White House, we see that trend continuing.

The number of regulatory filings mentioning President Trump sharply increased after Inauguration Day on January 20th. We measure a total of over 1750 filings mentioning President Trump from January 20th through March 22nd, 939 of which are SEC documents.

There is a significant change in the tenor of those mentions as well. We see references to President Trump shifting from high-level comments to more formal statements in the “Risk Factors” disclosure sections of SEC filings. Overall, 60% of references to President Trump within SEC filings are in the “Risk Factors” section. This is a substantial increase from the less than 15% we observed during the presidential campaign. This trend is even more pronounced in the healthcare industry, where we find that 85% of mentions since Inauguration Day were contained in these sections.

This shift is illustrated in the graph below:

Each bubble in the above graph represents an industry, while the size of each bubble corresponds to the number of SEC filings mentioning President Trump in that industry. The higher the bubble, the larger the share of those mentions present within “Risk Factors” sections. The dotted line, meanwhile, represents the average share of Trump mentions within “Risk Factors” sections across the market.

As you can see, both the number of mentions and the share of those mentions contained within “Risk Factors” sections has increased significantly since Inauguration Day.

In the months preceding President Trump’s inauguration, only about 15% of mentions were contained in “Risk Factors.” Over the past two months, that number has increased to 60%.

In total, Trump has already been mentioned in the “Risk Factors” sections of 10% of all 10Ks filed across all industries since January 20th.

Why are Tech and Consumer Discretionary so quiet?

We are surprised to find that only 4% of technology companies’ 10Ks and 10Qs filed since January 20th mention Trump at all. Likewise, in the Consumer Discretionary category, only 4% mention Trump.

These industries are reliant on overseas manufacturing and foreign workers, both of which are threatened by the President’s stated policies. We would have expected therefore to see a larger share of cautionary statements. These results, therefore, leave us wondering if management teams are rightfully dismissive or if they are hiding their heads in the sand?

Big Topics, Little Attention

Some prominent topics are largely absent from filings despite having been flagged repeatedly by market participants as a high risk. These include:

  • The Wall: We found only one SEC filing referring to Trump’s wall on the Mexican border.
  • Immigration and H-1B Visas: This is a key issue for many tech companies but also several other industries from Agriculture to anything with a high-street. H-1B visas are not mentioned at all, and Immigration in general is mentioned in only three SEC filings since January 20th.
  • NAFTA: Though Trump has threatened to renegotiate NAFTA, which could threaten American agriculture and associated industries, we find only eight mentions of the topic in SEC filings since January 20th.

Below is a summary table with the results for several key recurring themes of President Trump:

Source: Sentieo Document Search

Methodology

The Trump Tracker is built on top of Sentieo’s powerful financial document search and keyword alert engine. The Bot is constantly scanning through over 9 million financial documents that include SEC filings, conference call transcripts, investor presentations and press releases.

To generate the alerts, we built a series of complex queries that search for the word “Trump” in the proximity to other keywords. In most of these queries we also automatically filter out mentions of some of Trump’s businesses so that our alerts are more focused on real mentions of President Trump. However, the Trump’s Businesses filter allows you to see these mentions.

We plan on adding additional themes and would love your feedback. If you have an idea for a new theme, please email us at trumptracker@sentieo.com.

Banner image of Trump (at top) from AP Images. 

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Consumer-grade Apps Don’t Work For Equity Analysts

Our CEO, Alap Shah, wrote a guest article that appeared in HedgeWeek this morning on the topic of consumer-grade note-taking apps, and why they don’t work for equity analysts*.

Investment analysts, by and large, are a pretty smart group. If they can find a better way to do their job, they will. So it’s no surprise that an industry that relies so heavily on information has adopted a number of consumer-grade apps to enhance their workflow. And while better than nothing, this practice can create more problems than it tries to solve.

In the analyst community, note-taking apps such as Evernote and OneNote now often serve as the foundation for the research process, in spite of the fact that neither were designed with analysts in mind. Why are these solutions being adopted? First, they are mostly an improvement over the ubiquitous network and folder structure. Second, they are fairly cheap and easy to use. But perhaps most importantly, they bypass internal IT operations that would otherwise express security concerns with such apps. While these solutions do offer an improvement over a network and folder topography, many times they are more like putting square pegs in to a round hole – they might fit, but you’re going to have to smash them in there pretty hard.

On the surface, consumer note-taking applications appear to be a good fit to manage the enormous amount of information—broker research, news, internal notes, SEC filings, call transcripts, etc.—that forms the basis of the fundamental research process. However, there are a number of instances where these generic apps fall short, and, ultimately, inject more problems into the research process than they solve.

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