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Thread: weekend commentary ... US$ soon to be toast ?

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    Default weekend commentary ... US$ soon to be toast ?


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    Default Re: weekend commentary ... US$ soon to be toast ?

    Melonie -

    You are an interesting conundrum. You may be the most "bearish" person I read on a regular basis - and I might be the most optimistic that you'll read (assuming you read me like I read you) -

    The dollar will certainly move - up and down - and have strength and weakeness. The US economy is way more robust than most doomsday folks would like to believe and many of these doomsday folks are profiting from fear.

    Gold moves with inflation - and panic and fear. And drops very fast. Remeber the Hunts and their silver mistakes. The Euro is not yet a substitute for the dollar but is being used more as people have more faith in the Euro - yet even in our worst days, there is less risk in the US than almost anywhere else and certainly that is true when one looks at a major economy.

    There are challenges that we face and people will lose because of speculationa and some will gain because they were early adopters of various investment/speculation theories and practices.

    I like what you write - although I disagree with some of it - it is too bearish for me. Investor psychology can tip something that doesn't exist into reality. That is the challenge with 24/7 news and speculation and the Web creates an opportunity for charlaton's to strip wealth from the unknowing and unspecpting public.

    Have a great day in NYC or wherever you are today and avoid the cold.

    Regards,

    Dan
    Daniel D. Morris, CPA
    dan@cpadudes.com

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    Default Re: weekend commentary ... US$ soon to be toast ?

    Want the other perspective? gold buyers are being set up by manipulation for a squeeze, and a major fall in price. A classic bubble.

    The evidence:
    1. Gold trading in Tokyo used to be (6 months or so ago) a third of NYMEX trading now it exceeds it most days by 25% or more.
    2. Gold trading on the TOCOM (http://www.tocom.or.jp/souba/gold/baibai.html) consists of a year-out contract with 360,800 contract (open interest s it is called) and 5800 contracts for the nearby. This is the precise opposite of what is normal in commodities markets.
    3 Look at the NYMEX (http://www.nymex.com/gol_fut_csf.aspx) 261,000 contracts for February and 11,200 for a year out. This is the normal pattern of contracts in EVERY commodites market--the nearby contract dominates since cost of buying the commodity today and holding it for a year (plus interest) is maybe 6% at US rates (japan would be lower) with interest being most of that. There is no great reason to trade many year-out contracts since the metal is not used up like oil or food is.

    Conclusion--the gold manipulators went into to a thinly traded (illiquid) market and drove up the 12/06 price to drive up the nearby and push up prices on the NYMEX--set the suckers up for a fall and clean them out when the price collapses.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    You mean you don't get your news from , Dan?

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    Default Re: weekend commentary ... US$ soon to be toast ?

    You seem to be muddying up the original point by trying to merge two points into one. The point I posted is about the US dollar being likely to lose a large chunk of value vs the Yen, Euro etc. soon. Your second point is about Gold acting as a commodity and gaining value against ALL currencies (which until recently really wasn't the case) ... which I agree is the result of both fundamentals plus market manipulation.

    Admittedly I'm a bit on the bearish side ... probably because I'm old enough to have been taught that 'fundamentals' count for something, that 'equity' is good, and that 'debt' is bad. From a standpoint of 'fundamentals', I see a middle class that is being bled at every opportunity, I see middle class manufacturing jobs disappearing permanently by the tens of thousands, and I see a huge financial and construction 'service industry' whose fate is directly tied to the shaky future ability of an American middle class who is still able to obtain credit and make mortgage payments on time.

    house of 'cards' ...

    I also see a yield curve which is on the brink of inversion, and sustained high energy costs affecting both corporate profits and individual budgets, and ever increasing levels of gov't expenditures.

    scary stats ...

    But on the pragmatic side, I've also learned the hard way that 'the trend is your friend', 'don't fight the fed', and that Ben Bernakke may indeed drop freshly printed US dollars from helicopters ! Along these lines, I expect US markets to keep rising until the end of the year (even if accomplished by sleight of hand i.e. repos / securities lending / futures purchases). However, once January 1st arrives ... to borrow a term from the submarine service ... AhhOooGah, dive, dive !
    ~
    Last edited by Melonie; 12-10-2005 at 07:55 PM.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    Melonie,
    I do not consider it muddying the waters when you post a link trying to sell gold (them, not you), and someone makes an argument that gold is a high-risk investment at present.

    One needs to be very bearish, indeed to consider a heavy construction job to not be a good job

    In November, construction employment rose by 37,000, with a large increase
    occurring in heavy and civil engineering construction (14,000).
    page 4 of http://www.bls.gov/news.release/pdf/empsit.pdf

    That is building roads and sewer and water facilities.

    The newly emergent from bankruptcy are very safe credit card holders, because they cannot file bankruptcy and have a low current debt burden.

    The final link has bogus data. Federal spending in fiscal 2005 was $2.47 trillion and average GDP for the same period was $12.293 trillion or 20.11%. It is more likely that he used personal income and just lied about "the economy" in order to bias his statistics http://fms.treas.gov/mts/mts0905.pdf
    page 2.

    I do not know about you but I dismiss as a liar anyone who lies in his statistics (again, them, not you, you just posted the link). "The economy" is GDP, not personal income ( a narrow concept which does not count retained earnings of corporations(75% of corporate profits), etc.)
    In addition he uses selective statistics and ignores the fact that the 20.11% for fiscal 2005 was in fact almost a full 3 percentage points lower than in 1980 before RR became PResident and it has been going down for 25 years and is lower than it was in the Ford Administration.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    One needs to be very bearish, indeed to consider a heavy construction job to not be a good job
    Since this contributes directly to potential US$ exchange rate issues, it's worth taking a step further. America is losing unionized manufacturing jobs in private industry by the thousands. Traditionally, unionized private sector manufacturing jobs have paid very well in exchange for little employee safety risk, have been very secure, and have been funded by the profits of the private sector corporation.

    On the other hand heavy construction jobs also pay very well (but in exchange for higher employee safety risk), are by definition not secure beyond the length of the current construction contract, and are most often funded by gov't expenditures of tax money. Additionally, many construction jobs are seasonal, meaning that further expenditures of tax money go directly to unemployed construction workers during the off-season.

    Thus even though at first glance a union auto worker and a union construction worker might appear to contribute equally to the US economy, upon deeper examination this is clearly not the case. In the most bearish viewpoint, construction jobs on large public projects are little more than 'work-fare' at very high pay rates which in fact 'drain' the US economy in the form of higher taxes (or higher gov't debt ) being channeled to gov't expenditures on construction projects .

    Bottom line, from the standpoint of the future health of the US dollar, union construction jobs are nowhere near as 'good' as union auto industry jobs - even if both carry the same weekly paycheck to the employee.

    The newly emergent from bankruptcy are very safe credit card holders, because they cannot file bankruptcy and have a low current debt burden.
    Again, from the point of view of the future health of the US dollar, offering huge amounts of credit to people with a proven history of financial mismanagement is questionable to say the least. With the new bankruptcy laws now in effect, creditors 'think' that they will be able to continue to receive payments for years and years even if the borrower winds up 'technically' bankrupt again (but unable to file, and unable to dispose of debts).

    However, some are of the opinion that if/when people accept this easy credit and wind up 'technically' bankrupt again a year or two or three down the road will find themselves in a situation of having no way out other than to see most of their material possessions liquidated plus having to send X$ per month in court ordered payments to creditors for years and years to come. Some are of the opinion that the inability to discharge bad debt will lead to a situation where many 'technically' bankrupt people will soon figure out that they are in effect working for nothing - i.e. they're no worse off standard of living wise if they quit their job and sign up for social programs, versus continuing to work but sending a percentage of their earnings to creditors plus paying for their own food and rent. Thus some are of the opinion that the new bankruptcy laws will provide an incentive for many people to stop being productive and start being a financial burden on taxpayers.

    In my own mind, the important point of my original link is that an ever growing portion of the US economy is the result of 'recycling' a greater and greater percentage of the earnings of truly 'productive' people to 'non-productive' people. Thus any 'conventional' measure of US financial health which does not take into account the difference between 'creating' dollars via productivity versus merely 'shuffling' tax dollars from one person to another without producing anything (or making something of limited real world usefulness i.e. a new gov't building) is also 'lying'.
    Last edited by Melonie; 12-11-2005 at 09:58 AM.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    I have to admit I was confused by the initial link too. I am glad that it has been cleared up. Whenever I see that Monex commercial with the snooty british lady speaking over baroque symphony music while playing with gold coins in the study... I think of some Niemen Marcus goof trying to sell me a $2,000 pair of shoes.

    I am not sure I would classify investment in public works such as roads and sewers as "work fare." These things most of the time are the infrastructure that brings benefits to our society. If it is bearing bonds for the latest millionaire's sports team's stadium - then I would question the expenditure. (But it seems no one else really does - he gets to rent the stadium for a buck at tax payer expense while I have to spend hundreds on so called toll roads.)

    Regarding credit to the newly bankrupt - I can certainly see why people would stop trying. I think when the point is they have paid off all their original debt and still see thousands based on interest, late payment fees, and what ever else fee they can come up with - that is the point where people are just going to give up. I think there will be a time when we will hear "I lost everything to the credit card" in the future just as people say "I lost everything to the bottle" these days. I have to grin when I hear the monied complain about high tax rates but think it is perfectly OK to charge someone 21% interest on borrowed money.

    I am with Melonie in regards to their being very fundamental problems brewing in the basement of our economy. When the basement is in trouble, the rest of the house is in trouble.

    In addition to the idea of "penny wise - dollar foolish" we need to add the maxim "good for today, bad for tomorrow."

    It seems that we have forgotten about the element of time in our financial affairs these days. The aforementioned 21% interest is OK because we just have to pay "just" 30 bucks a month. Without the knowledge of time we don't realize we are paying 1.4 times the price of a couch when financing it - is that really what you are willing to pay for that couch? We don't save because we don't see the results right away - and many have no idea how to calculate compounding interest to begin with!

    It is like everyone has turned into daily traders - looking for the big kill for today and leaving tomorrow to be tomorrow.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    It is like everyone has turned into daily traders - looking for the big kill for today and leaving tomorrow to be tomorrow.
    This is EXACTLY the root of America's financial problems, and it goes much farther than you have discussed. A large percentage of American 'workers', as well as essentially all of the American 'poor', have a long term financial planning horizon of about one month !!! As long as they can cover the monthly payments (or as long as next month's social benefit check shows up on time), there is essentially no thought in regard to savings, building equity, paying down debt.

    Not wanting to blend financials with politicals, but IMHO an 'entitlement mentality' is now pervasive in American society. Today American 'workers' and American 'poor' have no mental concept of the possibility that they could actually wind up being seriously cold and hungry, putting faith in the 'fact' that the US government will (continue to) come to the rescue. From a financial standpoint, this pervasive gov't 'safety net' mentality has a very real effect on the borrowing, spending and saving habits of many Americans.

    However, down in the 'basement', as you put it, the economic fundamentals which make sustainable funding of a 'safety net' possible (i.e. taxing 'private' earnings to fund 'public' expenditures) are rapidly eroding. Without 'private' earnings at the supply end of the tax money cash flow, it will be impossible to 'recycle' public earnings to fund public expenditures indefinitely (since doing so basically consumes an additional slice of the pie with every recycling). Lacking 'private' earnings on the supply side, to continue the public expenditures the gov't must have alternate sources of 'new' money ... which basically boils down to printing money as fast as the presses can be run, or issuing new bonds to foreigners who are willing to lend money to America today in exchange for a promise that our children will repay it. But the almost certain effect of printing new money is a devaluation of the US dollar, which will quickly put the foreign bond holders in a position of taking heavy losses on bond principal after currency exchange. IMHO these two issues hold the seeds of a dim long term future for the American economy, despite short term positives.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    In my own mind, the important point of my original link is that an ever growing portion of the US economy is the result of 'recycling' a greater and greater percentage of the earnings of truly 'productive' people to 'non-productive' people. Thus any 'conventional' measure of US financial health which does not take into account the difference between 'creating' dollars via productivity versus merely 'shuffling' tax dollars from one person to another without producing anything (or making something of limited real world usefulness i.e. a new gov't building) is also 'lying'.
    This is my concern as well; we are a nation that is living on the lie of the Free Lunch Concept, and I fear the reckoning that is coming.
    Idealism is fine, but as it approaches reality, the costs become prohibitive.

    William F. Buckley, Jr.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    One needs to take great care with language in such discussion, especially words like "does not take into account the difference between 'creating' dollars via productivity versus merely 'shuffling' tax dollars from one person to another without producing anything (or making something of limited real world usefulness i.e. a new gov't building)"


    I know Melonie is not likely to assert such as statement in a deogratory fashion about our Armed forces, but the 1.43 million people in the armed forces also produce nothing "tangible of real world usefulness". I, and I believe she, believes they do. They do something I believe is of great value (as I believe Mel does too), although the value is not tangible. Chalk it up to the awkwardness of the language. Art also can be tangible, but have little value, but I like pictures on the wall as much as the next person, even if only I like them.

    I would not dispute that the world is not optimal, and would change a number of things--tht soes not mean they are either out of control or going tohellin a handbasket. Nothing has yet been said to dispute the fact that Federal government outlays have been going down (irregularly, to be sure) for 25 years. The irregular component is both in the numerator and denominator.

    I too, believe that expenditures are too high, both in absolute terms and realtive to GDP. That is a value judgement, not a subject of truth or falsehood. An item which is a matter of truth or falsehood is that the problem is not worse than 7-8 years ago, and is much better than 20-25 years ago, when things were turning around.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    yes Monty you're exactly right that the US armed forces, public school teachers, NASA etc. all derive their paychecks from tax money, and that IMHO at least they DO provide a valuable service. My comment was aimed along the lines of attempting to make up for the loss of private sector union manufacturing jobs with publicly funded construction jobs, attempts to make up for the loss of private sector white collar pharma jobs with publicly funded white collar stem cell research jobs etc. This recent political/economic trend looks 'equal' at first glance, but ultimately has no source of cash flow other than increased taxation / govt borrowing.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    I don't see how you can describe that as a "recent political/economic trend."

    I also diasprove on editorials being considered fact, especialy when they come from hacks trying to sell something. A retail statistician trying to predict the world economy is not gospel.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    I don't see how you can describe that as a "recent political/economic trend."
    Well California proposing a 3 BILLION dollar gov't bond issue to fund the establishment of stem cell research facilities was very recent, and on an unprecedented scale.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    Massive for a state, but I guess I'm not seeing how this is special and new relative to gov't in general.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    I guess I'm not seeing how this is special and new relative to gov't in general
    Just look at the rising percentage of gov't expenditures by category on the graph in the article I linked to. Social Programs are now clearly the #1 item on the list.

    At any rate, back to the central point about the likelihood of a major US dollar decline ...



    "Dollar Drops Versus Euro as Fed May Alter Interest-Rate Wording

    Dec. 12 (Bloomberg) -- The dollar fell the most in more than two months against the euro on speculation the Federal Reserve may say tomorrow that interest rates are no longer stimulating the U.S. economy.

    Seven straight increases in the Fed's benchmark rate since January have propelled the dollar toward its first annual gain versus the euro and the yen in four years. The Fed will stop saying interest rates provide ``accommodation,'' a word it has used to describe monetary policy since 2002, according to 12 of the 22 primary dealers in U.S. Treasuries surveyed by Bloomberg.

    ``Until now what has been supportive of the dollar is not only the fact that the Fed has hiked rates but also that the Fed's hikes have been predictable,'' said Naomi Fink, senior currency strategist at BNP Paribas Securities in New York. ``Now may look like a good time'' to sell the dollar, she said.

    The dollar weakened 1.2 percent to $1.1953 versus the euro at 5 p.m. in New York from $1.1812 late on Dec. 9, according to electronic foreign-exchange dealing system EBS. The U.S. currency also slid to 119.77 yen from 120.66, the biggest drop since September. The euro reached a record high of 143.61 yen today.

    The U.S. currency also declined after Yu Yongding, an adviser to China's central bank, said the country should slow its purchases of dollar reserves. In a subsequent interview with Market News International, he said China and other Asian nations should reduce their dollar holdings.

    ``If it devalues by 20 to 30 percent, it will cause serious losses to our foreign-exchange reserves,'' Yu told reporters in Beijing. ``Therefore we should not have the reserves grow at this speed any more.'' (snip)
    .

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    Default Re: weekend commentary ... US$ soon to be toast ?

    As a Californian - and a "No Voter" on that initiative - a year after the ballot approval there has yet to be any movement on this issue - just a number of cities trying to grab the political dollars. I personally believe that Stem Cell Research is fine - but best done by private rather than public methods - especially if the gov't is merely the provider of funding and releases their interest in the downstream profits. When gov't gets involved when private enterprise decides not to get involved - there is little probability for success and ultimately just an employment scheme at my, and my fellow citizens expense.

    Dan
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    dan@cpadudes.com

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    Default Re: weekend commentary ... US$ soon to be toast ?

    Quote Originally Posted by Melonie
    Just look at the rising percentage of gov't expenditures by category on the graph in the article I linked to. Social Programs are now clearly the #1 item on the list.
    Some would say that is a good thing. I'd be interested to see that compared to the countries that make up the EU.
    Last edited by lunchbox; 12-12-2005 at 11:09 PM. Reason: misread dan's post

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    Default Re: weekend commentary ... US$ soon to be toast ?

    I'd be interested to see that compared to the countries that make up the EU
    I'm at risk of letting this thread drift too far towards the political. Hopefully these two observations will make the point. In the EU total social spending is probably higher - HOWEVER this spending is funded by very high income taxes as well as by mandated payments from (former) employers, such that regardless of present economic consequences current benefits are being paid by current Euros for the most part.

    The US differs greatly because the social spending is taking place without a source of current dollars to actually pay for it. Instead the 'funding' essentially comes from issuance of new gov't bonds which are purchased by foreigners (and foreign govt's) for the most part. This creates the illusion of financial stability, but is in fact totally dependent on continuing willingness by foreign investors and foreign govt's to keep on buying more and more US bonds. See the quote by the Chinese gov't financial advisor in my link ... who has finally come right out and stated that China should stop buying more US dollar denominated debt at the same pace, because China is at significant risk of taking a 20-30% 'bath' on the US dollar.

    This is a near direct analogy to a family that no longer earns enough money to pay their bills refusing to cut spending and resorting to an ever increasing credit card balance to cover the immediate cash flow shortfall, assuming the future obligation that at some point the debt must be repaid (but never can be unless drastic changes in the family's expenditures takes place). When the credit card's 'investors' refuse to accept any more new debt from this family, their cash flow goes negative, and all hell breaks loose.

    The difference in the analogy of course is that if/when foreign investors and govt's refuse to take any more new debt from the USA, the US gov't has other means of repaying debts which cannot be repaid ... print more money, devalue the currency, 'inflate' half of the debt away, and 'inflate' away half of the real value of the social benefit payments. IMHO if/when this happens, all hell will break loose just the same ... primarily at the expense of US middle class taxpayers, US savers, and US investors.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    Melonie,
    the 12 countries of the EU have a deficit LARGER than the US.
    The estimate for 2005 for EU is 2.9% of GDP and 2.8% for 2006.
    In Fiscal year 2005 the US deficit was 2.5% of GDP and shrinking fast.
    EU http://europa.eu.int/comm/economy_fi...nex0205_en.pdf
    page 180
    I wil let you find US because I need to get to work

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    Default Re: weekend commentary ... US$ soon to be toast ?

    Monty, you know as I do that total 2005 US tax revenue is being influenced by 'one time' events i.e. the repatriation of US corporations' overseas profits law, oil/gas prices (and prices of components/commodities which are based on oil/gas) being much lower for the first 8 months of this year than for the balance or in 2006 (with direct impact on profitability of US corporations). Let's table this point until the 2006 year end figures come in.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    Melonie,
    You won't like the 2006 answer anymore than 2005, because half the money from tax law changes shows up in fiscal 2006. the BEA estimates that the 02/03 tax law changes generates a $40 b (annual rate)swing in corporate profits in Calendar 2004 to calendar 2005. The number I showed was fiscal 2005 which was nine months in calendar 2005, but tax payments are on a cash basis in the unified deficit, not accrual like in BEA or corporate reports, so only 6 months show up in the cash method.

    Half in fiscal 2005 and half in fiscal 2006. Half of $40 billion is $20 billion, or 20% in the deficit swing--the rest is true income growth and real tax payments from the 2 million more job holders than last year.

    Also, as you know, energy buyers are price-takers, so higher US oil company profits come in the short-term from consuming industry corporate profits, neting almost nothing to total corporate tax collections, just who writes the check. It shuffles the deck chairs.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    The value of any currency whose home nation values consumer price over citizen quality of life and career prospects, which invests more time and energy in obsolete energy technologies than in new development, which rewards downsizing and outsourcing with increased stock price and bonuses directors of failing companies and allows industries to avoid progress and efficiency improvements for more than 20 years (auto industry for one example)...that currency is definitely based on a "bubble" and will suffer.

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    Default Re: weekend commentary ... US$ soon to be toast ?

    Quote Originally Posted by proMarket
    The value of any currency whose home nation values consumer price over citizen quality of life and career prospects, which invests more time and energy in obsolete energy technologies than in new development, which rewards downsizing and outsourcing with increased stock price and bonuses directors of failing companies and allows industries to avoid progress and efficiency improvements for more than 20 years (auto industry for one example)...that currency is definitely based on a "bubble" and will suffer.
    You need to look no further than Amtrak or the postoffice.

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