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Friday 04th of January 2019
 
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Macro Thoughts

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Havens are back, baby: Yen, gold and bonds rediscover their mojo
Africa


The remarkable thing about recent yen performance may not be its
almost 4 percent surge against the dollar on Thursday, but the fact
the currency just clocked its best month in about two years.
That exact statistic also applies to gold, which in December notched
the largest jump since January 2017. Both assets have continued to
climb this year. Meanwhile, bonds of G-7 governments had their best
December in a decade, according to a Bank of America Merrill Lynch
index.
“There are so many worries to investors at the moment -- global
economic slowdown, China, U.S. shutdown, Brexit, political risk,”
Charles St-Arnaud, an investment strategist at Lombard Odier Asset
Management in London, said by email. “On top of that, performance has
been weak and volatility has increased for most asset classes. So it
is understandable that some investors are going to safer havens to
wait for some clarity.”
The risk-off bid is also on display in Europe, where German 10-year
yields are around their lowest in 26 months -- confounding last year’s
bearish forecasts. Investors are increasingly pessimistic about the
region’s economy and have pushed expectations for the European Central
Bank’s first interest rate hike since 2011 into the middle of next
year.

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Ivan Turgenev
Africa


“O youth! youth! you go your way heedless, uncaring – as if you owned
all the treasures of the world; even grief elates you, even sorrow
sits well upon your brow. You are self-confident and insolent and you
say, 'I alone am alive – behold!' even while your own days fly past
and vanish without trace and without number, and everything within you
melts away like wax in the sun .. like snow .. and perhaps the whole
secret of your enchantment lies not, indeed, in your power to do
whatever you may will, but in your power to think that there is
nothing you will not do: it is this that you scatter to the winds –
gifts which you could never have used to any other purpose. Each of us
feels most deeply convinced that he has been too prodigal of his gifts
– that he has a right to cry, 'Oh, what could I not have done, if only
I had not wasted my time.”

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10-DEC-2018 :: Truce dinner @Huawei
Law & Politics


Sirloin steaks, Catena Zapata Nicolas Malbec [2014] Huawei
Technologies Co. and Wanzhou Meng You will recall that Presidents
Trump and Xi Jinping enjoyed a much anticipated ''Truce'' Dinner at
the G20 in Buenos Aires and quaffed a Catena Zapata Nicolas Malbec
[2014] wine with their sirloin steaks and finished it all off with
caramel rolled pancakes, crispy chocolate and fresh cream, a dinner
that ran over by 60 minutes and one where the dinner Guests broke out
into spontaneous applause thereafter.

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NEW COVER: Trump took credit for stock market records. Does he deserve blame for the plunge? Businessweek @BW
International Trade


Green means up and red means down in the stock market. Lately there
have been many red days. But the true color of today’s market is
golden orange—the hue of the pompadour atop the head of President
Donald Trump.
Because for better and for worse, this has become Trump’s stock
market. Until October, the extended bull market was reasonably called
the Trump Bump. The decline over the past few months, particularly
since the start of December, is the Trump Slump.
Few would dispute that Trump is a volatile personality who’s having a
volatile presidency. He’s shaken the establishment to its roots. Yet
for most of his time in office, volatility in the stock market was
below its long-term average, with the exception of a spell in February
and March. Investors’ calm always seemed a bit out of step with
reality. But fluctuations do tend to increase when prices are trending
down, and that’s exactly what happened in 2018’s fourth quarter. The
Chicago Board Options Exchange Volatility Index hit 36 the day before
Christmas, up from below 15 in the summer and early fall.
One question to ask at this point in the turmoil is how much Trump has
affected the stock market—for better during the bump and for worse
during the slump. The opposite question is how much the worst year for
stocks since 2008 has affected Trump. Will the market rout chasten
him, cause him to retreat from some of the policies and language that
have sent markets into a tizzy? Or will it drive him to attack the
status quo even more ferociously to prove himself right and recapture
some of that bull-market magic?
The conventional wisdom among economists is that presidents get too
much credit and blame for the ups and downs of stock indexes. They
are, it is said, like a mahout astride an elephant that goes wherever
it wants to. This makes some sense. The fact that stocks have done
better on average under Democratic presidents than Republican ones
(back to Herbert Hoover) isn’t proof Democrats have a special touch
for equities.
But there are times when presidents do matter, a lot, and this is one
of them. The Trump tax cuts passed one year ago are an example. They
directly benefited the stock market by boosting companies’ after-tax
profits, which of course underpin stock valuations. Trump’s
deregulation agenda also boosted stock prices. The federal government
published fewer than 20 “economically significant” regulations in
2017, down from close to 100 in 2016 and the least since the beginning
of the Reagan administration, according to George Washington
University’s Regulatory Studies Center.
Some might argue that it was a mistake to cut corporate taxes at a
time of soaring deficits, or to ax regulations intended to protect the
public’s health and safety. But the changes clearly did help the
stockholder class by lifting share prices. They also helped smaller
companies that aren’t publicly traded. “The president has been more
aggressive than any previous president we can remember in creating a
good environment for people who run their own businesses,” says Jack
Mozloom, senior vice president for public affairs at the Job Creators
Network, a Dallas-based small-business advocacy group.
Those Democrats who hate to credit Trump for anything positive are
loath to admit that the stock market’s upward march had anything to do
with him, preferring to attribute the rise to his predecessor or the
Federal Reserve or just plain luck. But it’s hard to ignore that
stocks jumped in the days after his surprise election and continued to
gain ground for almost two years. That’s the Trump Bump.
There’s even a theory as to why volatility remained low despite the
Trump chaos: It’s that investors couldn’t read the confusing signals
from Washington, so they ignored them. “One day NATO is obsolete,
another day it is not. One day China is a currency manipulator,
another day it is not,” financial economists Lubos Pastor and Pietro
Veronesi of the University of Chicago Booth School of Business wrote
in May 2017 for VoxEU.org, a website of the Centre for Economic Policy
Research. “Markets continue listening to politicians, but they pay
less attention than they used to.”
Sometime around the start of October, though, something soured for
stocks. The question is what—and who’s to blame. After the failed Bay
of Pigs invasion, a rueful President John F. Kennedy said, “Victory
has a thousand fathers; defeat is an orphan.” Trump has turned JFK’s
expression on its head. In a string of exultant tweets he took credit
for the bull market; now that stocks are falling, he’s tried to pin
the decline’s parentage on others, including Democrats (for pushing
the Russia investigation) and Jerome Powell, his choice to chair the
Federal Reserve.
There’s something to be said for Trump’s defense. It’s true that the
Powell Fed isn’t doing stocks any favors. Investors really don’t like
rising interest rates. The Meltdown Before Christmas came on the heels
of a Dec. 19 statement from the Federal Open Market Committee that
skated past the market’s weakness, cited “strong” economic growth, and
said “some further gradual increases” in rates would likely be
necessary.
Trump’s Twitter attacks on Powell could also be backfiring. Even some
market analysts who think the Fed should back off from raising
interest rates say that the president’s messaging could induce Powell
to demonstrate his independence by forging ahead with unnecessary
hikes. Or, for bond investors worried that the Fed will accede to the
president, there’s an expectation of accelerating inflation. That
would cause bond prices to fall—which generally causes stock prices to
fall as well.
Trump’s leadership style is also wearing poorly. His strategy of
keeping people guessing and off balance might work well with
adversaries, but it alienates friends. “I’m not aware of another U.S.
president trying to weaponize uncertainty. And for good reason: It
harms American interests as well as foreign ones,” says Steven Davis,
a professor at Booth who helped develop an economic policy uncertainty
index. (The news-based version of the uncertainty index is just below
the top 10th of its 34-year range of values.)
At times, Trump seems to be using presidential announcements to goose
the market. Stocks rose on Dec. 31, for example, after a weekend tweet
in which he said that a phone call with Chinese President Xi Jinping
on trade had gone well. But that tactic goes only so far: Investors
can react badly if reality doesn’t match expectations. Even some of
Trump’s biggest supporters see his boasting as an error. “If you’re
going to tie yourself to the stock market, you’re going to go down
when it goes down,” says Mozloom, the small-business advocate. “As a
political matter, he should have anticipated this.”
The Trump Slump is a bigger phenomenon than just a downturn in the
stock market. But every red day on Wall Street is another punch to the
president’s gut.

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@jpmorgan Asset Management is keeping faith in the Fed -- and taking a contrarian bet on U.S. interest rates to show it. @business
Law & Politics


While many have given up on the Federal Reserve’s tightening path,
Ramon Maronilla, a bond and currency investment specialist at the
firm, says that view may underestimate the strength of the U.S.
economy.
Even if American economic exceptionalism ends and growth levels
converge toward the longer-run trend, the central bank isn’t likely to
veer from its forecast for two more rate hikes this year, he said at a
briefing in Hong Kong Thursday.
Maronilla sees opportunities for U.S. interest rates to surprise on
the upside, and has built up holdings of futures which will pay out if
the current consensus view that the Fed won’t move its benchmark this
year proves mistaken.
“We could take advantage of this through eurodollar futures, and we’re
doing this to some degree,” he said. The trade, which represents a
small portion of JPMorgan Asset’s risk budget, would pay off if “our
forecasts do play out and markets are wrong,” he added.

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Currency Markets at a Glance WSJ
World Currencies


Euro 1.1393
Dollar Index 96.369
Japan Yen 108.35
Swiss Franc 0.9876
Pound 1.2637
Aussie 0.7022
India Rupee 69.8555
South Korea Won 1123.75
Brazil Real 3.7565
Egypt Pound 17.907
South Africa Rand 14.29410

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"Dubai continues to grapple with over-supply in real estate, sluggish white-collar job growth, high cost of living and tougher enforcement of financial regulation," said Hasnain Malik @ExotixCapital @FinancialTimes
Emerging Markets


The International Monetary Fund is forecasting a rebound in growth
from 3.3 per cent in 2018 to 4.1 per cent this year as the city
prepares to host the world expo in 2020. [Dubai’s 2019 budget plan
envisages steady spending on infrastructure ahead of the event.
But the city state’s major business families — active in real estate,
construction and retail — have warned about slumps in revenue of as
much as 40 per cent this year.
“There is little we can do,” said one senior Dubai official. “All the
geopolitical problems are weighing on the entire region, and us in
particular.”
Official statistics show the emirate’s population surpassing 3.1m in
2018, but well-paid executives are moving out to be replaced by
less-experienced staff. Britons, once the economy’s managerial
backbone, have been leaving in droves since their UAE population
peaked before the oil crash at 130,000, with the last official tally
last year pegged at around 100,000. South Asians, who once regarded
the city as a repository for wealth away from their domestic taxman,
are concerned about greater UAE compliance opening up their holdings
to tax scrutiny at home.
Real estate prices have fallen almost] 30 per cent from their 2014
peak, according to online portal Bayut.
The property sector has dragged down the Dubai Financial Market, one
of the world’s worst performing bourses in 2018. Lower discretionary
spending in dollar-pegged dirhams has hit restaurants and retail. At
Meraas’ modish Boxpark retail development around half of the outlets
have closed since the downturn began in 2015.
Long renowned as a tax-free centre, the city introduced a federal 5
per cent sales tax at the beginning of 2018, increasing red tape and
squeezing consumer sentiment. “All these problems are coming at the
same time,” said one Emirati businessman. “Wars and taxes are no
good.”
Leading Dubai businessman Khalaf al-Habtoor has added his weight to
calls for VAT to be scrapped temporarily and has urged a break on
hotel construction. Hoteliers have had to cut room rates to their
lowest levels in 14 years to soak up the growing supply of new rooms.
Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum last year held two
brainstorming sessions with leading business figures, who called for
lower fees, tax breaks and rent holidays to attract multinationals.
One gathering at the ruler’s beach palace resulted in some reforms,
including freezing government and private-school fees and the
introduction of a retirement visa to retain longstanding expatriates.
Sheikh Mohammed held a follow-up in the autumn, when attendees
presented further policy remedies, including privatisation to kick
start markets activity and enhanced medical care.
“Trouble is, it’s too little, too late,” said one attendee.

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One candidate clearly won Congo election - Catholic church @ReutersAfrica
Africa


Democratic Republic of Congo’s Catholic bishops conference (CENCO)
said on Thursday that results from Sunday’s presidential election in
its possession show that one candidate has clearly won, but did not
say which one.
Donatien Nshole, the CENCO secretary-general, in a press conference
also called on the national electoral commission to publish accurate
results. The commission says it will publish complete provisional
results on Sunday at the earliest.
More than a third of polling stations in the Dec. 30 election were
missing voting materials when polls opened, according to a CENCO
report on Thursday which outlined various shortfalls in the election’s
organisation.

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United States Calls Upon the Democratic Republic of the Congo's Electoral Commission To Release Accurate Results @StateDept
Africa


Those who undermine the democratic process, threaten the peace,
security or stability of the DRC, or benefit from corruption may find
themselves not welcome in the United States and cut off from the U.S.
financial system.

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Zimbabwe govt warns businesses against 'dollarising' economy @africanews
Africa


Zimbabwe’s Industry and Commerce Minister Nqobizitha Mangaliso Ndlovu,
has warned the business community in the country to stop the practice
of ‘dollarising the economy’ in the wake of foreign currency
shortages.
Ndlovu was reacting to a decision by Zimbabwe’s largest brewing
company Delta Corporation which on Wednesday said that its beverages
subsidiary will accept hard currency only from Jan. 4.
The decision means Delta, which is 40 percent owned by Anheuser-Busch
Inbev, will no longer accept electronic dollars known as “Zollars” or
a quasi-currency known as “bond notes” at its Delta Beverages
subsidiary.

Conclusions


Inevitable.

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Ex- @CreditSuisse bankers charged over $2bn Mozambique loan scandal @FT
Africa


Three former Credit Suisse bankers were charged by US prosecutors
alongside Mozambique’s former finance minister over alleged fraud
connected to the southern African nation’s $2bn hidden loans scandal.
A spokesperson for the US attorney’s office for the eastern district
of New York said that three former employees of the Swiss investment
bank were arrested in London on Thursday and their extradition was
being sought over alleged money laundering and defrauding of US
investors in the loans.
The trio — Andrew Pearse, Surjan Singh and Detelina Subeva — were
arrested pursuant to provisional arrest warrants and released on bail,
the spokesperson said.
The charges stem from a 2013 deal for Mozambique, one of the world’s
poorest countries, to borrow from international investors ostensibly
to fund maritime projects, including a state tuna fishery, ahead of
investments in offshore gas.
The loans were partly concealed from the International Monetary Fund
and donors before they collapsed and ignited a severe financial crisis
amid signs that the projects were suspect.
Manuel Chang, Mozambique’s finance minister at the time of the loan
deals, was also arrested in South Africa on Saturday in connection
with the indictment.
Mr Chang and the bankers “created the maritime projects as fronts to
enrich themselves and intentionally diverted portions of the loan
proceeds” to fund $200m of bribes and kickbacks, according to the
indictment.
The indictment charged four counts of conspiracy to commit money
laundering, conspiracy to violate the US Foreign Corrupt Practices
Act, conspiracy to commit securities fraud and conspiracy to commit
wire fraud. Mr Chang was not charged on the FCPA conspiracy count.
The US charges are likely to reignite a political crisis in Mozambique
over the financial fallout from the hidden debts, ahead of national
polls this year where President Filipe Nyusi and Frelimo, the ruling
party, face a fight to retain power.
The IMF and international donors cut off support for the government’s
budget after the loans were discovered in 2016, triggering a severe
slowdown for what was one of Africa’s fastest-growing economies. The
scandal also imperilled investment in the offshore gasfields.
Auditors later found that $500m of the money raised by the loans could
not be accounted for and that the companies behind the debt paid over
the odds for equipment.
Mozambique eventually defaulted on the debts, which are being
restructured. Credit Suisse is advising investors in the loans.
Analysts say that Mr Chang’s arrest in particular will increase
tensions within Frelimo as he was close to Armando Guebuza, Mr Nyusi’s
predecessor as president.
Mr Chang’s South African lawyer has indicated that he would fight a US
request for extradition.
The former Credit Suisse bankers allegedly deceived investors over the
loans’ true purpose and circumvented the bank’s internal controls to
conceal the alleged fraud, according to US prosecutors.
The indictment accused the bankers of using personal emails to conceal
their activities and misleading the bank over the nature of the
companies behind the loans.
Lawyers for the three bankers in London did not immediately return
emailed requests for comment late on Thursday.
Credit Suisse has not been charged. A spokesperson for the bank said
in a statement that the trio “worked to defeat the bank’s internal
controls, acted out of a motive of personal profit, and sought to hide
these activities from the bank”.
“Credit Suisse will continue to co-operate with relevant regulators
following these indictments, and separately looks forward to
continuing to work with the relevant authorities to move forward with
the proposed debt restructuring,” the bank spokesperson said.
Prosecutors also charged Jean Boustani, an executive of Privinvest, an
Abu Dhabi-based group that supplied boats and gear to the projects. Mr
Boustani was arrested in New York and ordered detained, according to
the spokesperson for the US attorney’s office.
A New York-based attorney for Mr Boustani did not immediately return a
request for comment. Privinvest could not be reached for comment.
Mr Pearse and Ms Subeva left Credit Suisse to work for Privinvest in 2013.
Last year the UK’s Financial Conduct Authority dropped its own
criminal investigation into Credit Suisse’s conduct over the
Mozambique loans.

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Mozambique Ex-Finance Minister to Fight U.S. Extradition @business
Africa


Mozambique’s ex-Finance Minister Manuel Chang will oppose extradition
to the U.S. after he was arrested on charges related to a debt deal
that led to a default in 2017, according to his lawyer.
The nation, among the world’s poorest, borrowed about $2 billion from
2013 to 2014 to buy tuna-fishing boats and a coastline protection
system, but only disclosed the bulk of the debt to the International
Monetary Fund in 2016, prompting the lender to halt funding. Chang,
who was arrested Dec. 29 in South Africa, presided over the deal at
the time.
Mozambique is trying to restructure the loans after telling creditors
two years ago it couldn’t afford to pay them
Auditors in 2017 found that $500 million of spending remained
unexplained, while also suggesting the assets purchased with the money
were overpriced by about $700 million
On a side note, the nation in November finally struck a deal with
Eurobond holders, almost two years after defaulting on that debt. It
was an agreement in principle with holders of 60 percent of its bonds
Chang has received an indictment from the U.S. Department of Justice
detailing charges linked to three loans to Mozambican state companies,
lawyer Rudi Krause said by phone Wednesday. Chang will apply for bail
at a Jan. 8 hearing in a Johannesburg court, he said.
“The allegations relate to those three loans,” Krause said, referring
to debts taken on by Ematum, ProIndicus and Mozambique Asset
Management. “He will oppose the application for his extradition.”
Chang was arrested at O.R. Tambo International Airport in
Johannesburg, while en route to Dubai. South African authorities had
told him to clear immigration when his plane landed from Maputo,
Mozambique’s capital, Krause said. That isn’t normal procedure when
passengers are in transit, and Chang was arrested after going through
immigration, he added.
“The circumstances of his arrest are concerning if not alarming,”
Krause said. Officials “secured his entry into South Africa by way of
deception.”
The Department of Justice may use the charges to get Chang to provide
more information for the investigation, according to Darias Jonker, an
analyst at Eurasia Group.
“The U.S. will probably use these initial charges as leverage over
Chang, thereby coercing him to cooperate with international
investigations,” he said in a note Dec. 31. “This process is likely to
answer key questions that were never adequately addressed by the
independent audit of the scandal.”

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Mr Prince aims to raise up to $500m to invest in the supply of metals such as cobalt, copper and lithium that are needed for batteries. @FT
Africa


“For all the talk of our virtual world, the innovation, you can’t
build those vehicles without minerals that come from generally weird,
hard-to-access places,” Mr Prince told the Financial Times.
Miners are pouring billions of dollars into developing deposits of the
niche metals that will be increasingly needed for the global car
industry to switch to electric cars.
One of the largest investors has been China, with Chinese companies
buying stakes in deposits in the Democratic Republic of Congo and in
Chile this year. Mr Prince also runs a Hong Kong-listed security and
logistics company that is backed by China’s state-owned Citic Group.
Mr Prince said the new fund would target unexplored deposits that
could be brought into production and then sold to larger mining
companies. It will look to sell its investments after four to five
years, Mr Prince said.
“ Chinese companies are not necessarily interested in the very
upstream exploration,” he said. “They want to buy something in
production which leaves that gap for us.”
Over 60 per cent of the world’s cobalt supply comes from the DRC, one
of the poorest countries in the world. Chinese companies including
Citic, Jinchuan Group and China Molybdenum are some of the largest
investors in the African country.
Since then Mr Prince has run Frontier Services Group, which provides
security and logistics services to companies in unstable countries.
The company has won contracts to provide anti-piracy support to
Somalia and security to oil companies in South Sudan.
“When I see the R&D budgets of all the major automakers ploughing huge
money into hybrid or electric vehicles, I believe the demand curve for
the unique minerals that make up an electric car and battery
technology will be enormously high over the coming years,” Mr Prince
said.

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Congratulations Kyle McCarter on your confirmation by the U.S. Senate as the next U.S. Ambassador to Kenya! @BobGodec
Kenyan Economy


It's been an honor & privilege to serve here for six years. Lori & I
will forever cherish our friendships & memories of this beautiful
country & its extraordinary people.

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"I am not in the perennial bear shilling camp which comes up with a 15 to 20 per cent devaluation prediction every year. Remittances have skyrocketed and crude oil prices have nosedived both of which are currently supporting the shilling," Satch
Kenyan Economy


“If all these factors come to pass, they will definitely affect the
shilling,” he said. Financial analyst, Aly-Khan Satchu has, however,
played down the fears, indicating the shilling will remain stable.
“I am not in the perennial bear shilling camp which comes up with a 15
to 20 per cent devaluation prediction every year. Remittances have
skyrocketed and crude oil prices have nosedived both of which are
currently supporting the shilling,” Satchu said.

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06-NOV-2018 :: The Shilling. @TheStarKenya
Kenyan Economy


The Central Bank is sitting on the highest hard currency reserves in
its history. Remittances have surged by 71.9% year on year to $266.2M
in June 2018 from $54.9M in June 2017. Remittances are the most
important source of forex bar none. Our single biggest expense Item is
of course Crude Oil and you will have noted that since the Istanbul
incident, the crown prince has been finessing the price lower to
release some of the pressure in what remains a pressure cooker.

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Kenya Shilling versus The Dollar Live ForexPros 102.20
Kenyan Economy


Nairobi All Share Bloomberg -0.51% 2018

http://www.BLOOMBERG.COM/quote/NSEASI:IND

Nairobi ^NSE20 Bloomberg -0.84% 2019

http://j.mp/ajuMHJ

Every Listed Share can be interrogated here

http://www.rich.co.ke/rcdata/nsestocks.php

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by Aly Khan Satchu (www.rich.co.ke)
 
 
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January 2019
 
 
 
 
 
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