News: Real Estate, Risk, Economics. Jun. 7-9, 2014

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Table of Contents
(Click to sections below.)

1) [Impressive statistical charting] How the Recession Reshaped the Economy, in 255 Charts – NYTimes dot com

2) Housing inventory manipulation overrides all bearish predictions – OC Housing News


4) Worthwhile Canadian Initiative: John Cochrane on Monetary Policy with Interest on Reserves

5) The ECB is about to [did] introduce negative rates. Can it save the euro?

6) [Highly recommended] Narayana Kocherlakota: Low real interest rates

7) Fed Kocherlakota Goes Out On A Monetary Policy Limb, Again – Real Time Economics – WSJ

8) Thomas Piketty: U.S. inequality is "spectacular" – CBS News

9) Americans fared better after Great Depression than today | Al Jazeera America

10) [Recommended] Finally a Chance for Facts to Decide – NYTimes dot com

11) Debunking the Myth of Wage-Led Inflation – Washington Wire – WSJ

12) Federal Banking Agencies Issue Guidance on Flood Insurance Requirements for Existing Loans Secured by Multi-Family Residential Buildings | Cullen and Dykman LLP – JDSupra

13) Housing on the Mend, Ever So Gradually – NYTimes dot com

14) A rate hike has been the worst market call of 2014 – Economics – AEI

15) Guest post: a new BRICS bank to mark global shift – beyondbrics – Blogs – FT dot com

16) Calculated Risk: MBA: Mortgage Applications Decrease in Latest Survey, Mortgage Rates "lowest levels in close to a year"

17) ECB: Monetary policy decisions [Negative-Interest Rate]

18) Why Negative Rates Won't Work In The Eurozone – Forbes

19) 15 cities where renting rules – MSN Real Estate

20) FRB: Beige Book – June 4, 2014

21) IRS Issues Another Significant Ruling on Spin-off of Real Estate | McDermott Will & Emery – JDSupra

22) ECB shows activism but falls short of true QE | Zsolt Darvas, Gregory Claeys and Guntram B. Wolff at Bruegel dot org

23) Everything you need to know before [about] the big Friday jobs report – Quartz

24) The ECB's Triple Hole in the Water | Yanis Varoufakis

25) [Recommended] BBC News – The ECB's toolbox

26) Priming China's economy: Don't say stimulus | The Economist

  1.    [Impressive statistical charting] How the Recession Reshaped the Economy, in 255 Charts –

    You'll have to scroll down a little at a time even to the bottom to get the full picture.

    Five years since the end of the Great Recession, the private sector has finally regained the nine million jobs it lost. But not all industries recovered equally.

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  2.    Housing inventory manipulation overrides all bearish predictions – OC Housing News

    Something has to give, or we'll be mired in this recession for many years to come.

    No matter how bad housing market conditions look, inventory restriction engineered by lenders will keep prices up and prevent a crash.

    The problem truly has been the Fed's policy of allowing the big banks to sit on the money. The Fed works for the banks. The banks own the Fed, literally. The government has had little say over policy. That's a problem.

    Sure, average politicians don't understand the inner workings, but that could be remedied.

    We really need an automated, open-source system that politics wouldn't manipulate but the bankers too couldn't self-regulate, self-deal bailouts and criminal passes. It's a matter of proper risk management, and we don't have it yet, not even close. Thought?

    Add your comment.


    Full report:

    Total nonfarm payroll employment rose by 217,000 in May, and the unemployment rate was unchanged at 6.3 percent, the U.S. Bureau of Labor Statistics reported today [Friday, June 06, 2014]. Employment increased in professional and business services, health care and social assistance, food services and drinking places, and transportation and warehousing.

    Household Survey Data

    The unemployment rate held at 6.3 percent in May, following a decline of 0.4 percentage point in April. The number of unemployed persons was unchanged in May at 9.8 million. Over the year, the unemployment rate and the number of unemployed persons declined by 1.2 percentage points and 1.9 million, respectively. (See table A-1.)

    Among the major worker groups, the unemployment rates for adult men (5.9 percent), adult women (5.7 percent), teenagers (19.2 percent), whites (5.4 percent), blacks (11.5 percent), and Hispanics (7.7 percent) showed little or no change in May. The jobless rate for Asians was 5.3 percent (not seasonally adjusted), little changed from a year earlier. (See tables A-1, A-2, and A-3.)

    Among the unemployed, the number of job losers and persons who completed temporary jobs declined by 218,000 in May. The number of unemployed reentrants increased by 237,000 over the month, partially offsetting a large decrease in April. (Reentrants are persons who previously worked but were not in the labor force prior to beginning their current job search.) (See table A-11.)

    The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 3.4 million in May. These individuals accounted for 34.6 percent of the unemployed. Over the past 12 months, the number of long-term unemployed has declined by 979,000. (See table A-12.)

    The civilian labor force participation rate was unchanged in May, at 62.8 percent. The participation rate has shown no clear trend since this past October but is down by 0.6 percentage point over the year. The employment-population ratio, at 58.9 percent, was also unchanged in May and has changed little over the year. (See table A-1.)

    The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), at 7.3 million, changed little in May. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. (See table A-8.)

    In May, 2.1 million persons were marginally attached to the labor force, essentially unchanged from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)

    Among the marginally attached, there were 697,000 discouraged workers in May, little different from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.4 million persons marginally attached to the labor force in May had not searched for work for reasons such as school attendance or family responsibilities. (See table A-16.)

    Establishment Survey Data

    Total nonfarm payroll employment increased by 217,000 in May, with gains in professional and business services, health care and social assistance, food services and drinking places, and transportation and warehousing. Over the prior 12 months, nonfarm payroll employment growth had averaged 197,000 per month. (See table B-1.)

    Professional and business services added 55,000 jobs in May, the same as its average monthly job gain over the prior 12 months. In May, the industry added 7,000 jobs each in computer systems design and related services and in management and technical consulting. Employment in temporary help services continued to trend up (+14,000) and has grown by 224,000 over the past year.

    In May, health care and social assistance added 55,000 jobs. The health care industry added 34,000 jobs over the month, twice its average monthly gain for the prior 12 months. Within health care, employment rose in May by 23,000 in ambulatory health care services (which includes offices of physicians, outpatient care centers, and home health care services) and by 7,000 in hospitals. Employment rose by 21,000 in social assistance, compared with an average gain of 7,000 per month over the prior 12 months.

    Within leisure and hospitality, employment in food services and drinking places continued to grow, increasing by 32,000 in May and by 311,000 over the past year.

    Transportation and warehousing employment rose by 16,000 in May. Over the prior 12 months, the industry had added an average of 9,000 jobs per month. In May, employment growth occurred in support activities for transportation (+6,000) and couriers and messengers (+4,000).

    Manufacturing employment changed little over the month but has added 105,000 jobs over the past year. Within the industry, durable goods added 17,000 jobs in May and has accounted for the net job gain in manufacturing over the past 12 months.

    Employment in other major industries, including mining and logging, construction, wholesale trade, retail trade, information, financial activities, and government, showed little change over the month.

    The average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours in May. The manufacturing workweek increased by 0.2 hour in May to 41.1 hours, and factory overtime was unchanged at 3.5 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.7 hours. (See tables B-2 and B-7.)

    In May, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $24.38. Over the past 12 months, average hou rly earnings have risen by 2.1 percent. In May, average hourly earnings of private-sector production and nonsupervisory employees increased by 3 cents to $20.54. (See tables B-3 and B-8.)

    After revision, the change in total nonfarm employment for March remained +203,000, and the change for April was revised from +288,000 to +282,000. With these revisions, employment gains in March and April were 6,000 lower than previously reported.

    The Employment Situation for June is scheduled to be released on Thursday, July 3, 2014, at 8:30 a.m. (EDT).

    Many commentators/analysts appear to think this is great news; however, the issue is sustainability, and we just don't see the structural policies and practices in place for such sustainability. Fortunately, Janet Yellen has not said that the Fed will not change course. We think, as is the case especially with the ECB, the Fed has done way too little and is still late.

    PropertyPak Soapbox: We believe that first and foremost, the Fed has sought to carry out its dual mandate under a framework of protecting the major commercial banks' real estate assets rather than moving to have them go through the standard bankruptcy processes available. The banks could have remained open and the general depositors could have been fully protected while the banks were required to mark-to-market and their executives and shareholders to take the hit rather than the rest of the American people.

    For all the money that has been created, those on low-to-moderate fixed incomes and everyone for that matter who had unsuspectingly invested in toxic mortgage-backed securities fraudulently created, issued, and dispensed by Wall Street banks (investment and otherwise at the time) could have easily been kept from falling into poverty or anything even remotely near it. Those, however, who designed the Ponzi schemes and/or knew about them or understood them or even should have and who were wealthy and who benefited from them should have lost, not the American taxpayers in general, who despite talk about the US government regaining what it "invested," truly still lost out and hugely because of how things could have been, how much better they would be now, had things been done the right way rather than the Timothy Geithner, Ben Bernanke, et alia, way.

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  4.    Worthwhile Canadian Initiative: John Cochrane on Monetary Policy with Interest on Reserves

    The Bank of Canada has been paying interest on reserves for 20 years. And when it wants to increase the inflation rate, because it fears inflation will fall below the 2% target if it does nothing, the Bank of Canada lowers the interest rate on reserves. And the Bank of Canada seems to have gotten the sign right, because it has hit the 2% inflation target on average, which would be an amazing fluke it if had been turning the steering wheel the wrong way for the last 20 years without going off in totally the wrong direction.

    How does Canada handle the "velocity of money" issue?

    In addition, this is a strong argument for negative-interest rates on excess reserves at the ECB and the Fed, which negative rates we've been advocating (provided there are strings attached, which appears to be what the ECB is up to; however, we'll have to continue reading to find out — we're in catch-up mode). Stay tuned.

    Add your comment.

  5.    The ECB is about to introduce negative rates. Can it save the euro?

    Matt O'Brien:

    As a first step, the ECB is expected to [it has] start charging banks to hold money with them overnight, which should help weaken the too-strong euro and increase inflation a bit. But that's only a first step. At some point—and the sooner the better—it's going to need to do what Germany really doesn't want to do, and start buying bonds with new euros. If it doesn't, Europe's growth will stay in neutral, and its anti-euro politics might accelerate.

    The only way to save the euro is to print more of them.

    Well, it's not the only way, but selling Europe on interest-free money is for some very strange reason very difficult.

    Those who issue the bonds have everyone else in a stupor on the subject. People are mesmerized not to question the system of issuing bonds to issue currency. It's amazing. Why are they so hypnotized? Why aren't the big names in economics talking about it? Are they also stupefied or afraid or what?

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  6.    [Highly recommended] Narayana Kocherlakota: Low real interest rates

    We think this is Narayana Kocherlakota's best speech we've heard/read.

    Speech by Mr Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, at the Ninth Annual Finance Conference, Carroll School of Management, Boston College, Boston, Massachusetts, 5 June 2014.

    …In this way, unusually low real interest rates should be expected to be linked with inflated asset prices, high asset return volatility and heightened merger activity. All of these financial market outcomes are often interpreted as signifying financial market instability. And this observation brings me to a key conclusion. I've suggested that it is likely that, for a number of years to come, the FOMC will only achieve its dual mandate of maximum employment and price stability if its actions are able to keep real interest rates unusually low. I've also argued that when real interest rates are low, we are likely to see financial market outcomes that signify instability. It follows that, for a considerable period of time, the FOMC may only be able to achieve its macroeconomic objectives in association with signs of instability in financial markets.

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  7.    Fed Kocherlakota Goes Out On A Monetary Policy Limb, Again – Real Time Economics – WSJ

    … even those who see very tangible benefits to Fed bond-buying don't discount the broad trend of flight-to-quality seen over recent years that has helped keep U.S. Treasurys yields very low even in times of massive federal budget deficits and broad dysfunction in Washington's political class. But they have still seen Fed asset purchases as proactive measures, with tangible impact. Mr. Kocherlakota appeared to see market forces as the main influence on bond yields, leaving the Fed to respond.

    Mr. Kocherlakota is no stranger to rocking the monetary policy boat. He is currently one of the most prominent advocates for aggressive action to help the economy, and he continues to argue rates will remain very low for years to come, while other officials have increasingly speculated about raising interest rates.

    It would be interesting to hear Narayana Kocherlakota's take on how the Central Bank of Canada has used interest on excess reserves to hit 2% inflation. We'd like to hear Mark Carney on it too. He should be able to explain it perfectly. Also, why then wouldn't negative rates work if they have strings attached? We'll get to it. Read on.

    Add your comment.

  8.    Thomas Piketty: U.S. inequality is "spectacular" – CBS News

    This interview is the Most Popular post on CBS MoneyWatch today:

    Economist talks to CBS MoneyWatch about his landmark book on what is causing inequality to surge in the U.S. and in other countries.

    Add your comment.

  9.    Americans fared better after Great Depression than today | Al Jazeera America

    David Cay Johnston:

    … there are some tiny improvements in the job and income numbers, but only if you limit the analysis to the last few years. Look back a decade or four decades or even eight decades, and the story changes from an America of growing prosperity to one of falling incomes, not enough jobs and ever fatter slices of the income pie for the elite.

    David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times, teaches business, tax and property law of the ancient world at the Syracuse University College of Law. He is the best-selling author of "Perfectly Legal", "Free Lunch" and "The Fine Print" and editor of the new anthology "Divided: The Perils of Our Growing Inequality."

    Add your comment.

  10.    [Recommended] Finally a Chance for Facts to Decide –

    Very interesting: Arindrajit Dube:

    Economists often consider the minimum wage in relationship to the median wage as a gauge for the "bite" of the policy. Something around half the median — roughly the average for developed countries — is a reasonable level. By the time it's fully phased in, Seattle's policy would place its minimum wage around 59 percent of the local median (full-time) wage.

    This would certainly be at the high end of the standard, but there are countries where the minimum is at similar levels, including Israel (57 percent), New Zealand (60 percent) and France (62 percent). In the U.S., at its height in 1968, the minimum wage stood at 55 percent of the median full-time wage. Moreover, the federal minimum wage at times has exceeded 60 percent of median full-time wages in low-wage states such as Arkansas or Louisiana.

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  11.    Debunking the Myth of Wage-Led Inflation – Washington Wire – WSJ

    … many economists, including me, just can't get very worried that rapidly rising labor costs will spark an increase in inflation. Not only has there been no hint of rising labor costs yet in the recovery, but there is also a large buffer standing between labor-cost growth and overall inflation—a buffer provided by the historically rapid growth of profits that could absorb any inflationary pressure spurred by rising labor costs.

    Would the super-rich do that? Don't they get politicians and think tanks to press down on labor, to keep eyes off record profits, and to make people falsely believe that the super-rich having more and more and more means more for the lower classes because the super-rich rather than labor produce the wealth (by their brains, etc.) and it ostensibly trickles down?

    Add your comment.

  12.    Federal Banking Agencies Issue Guidance on Flood Insurance Requirements for Existing Loans Secured by Multi-Family Residential Buildings | Cullen and Dykman LLP – JDSupra

    … the maximum amount of flood insurance available under the National Flood Insurance Program ("NFIP") for multi-family residential buildings with five or more units … increase[d] from $250,000 to $500,000 effective as of June 1, 2014.

    Add your comment.

  13.    Housing on the Mend, Ever So Gradually –

    ONE way to tell the housing market is beginning to show signs of health would be that builders of new homes are selling more houses than banks do.

    We are not there yet, but the gap is narrowing, even as overall home sales slow.

    Over all, home sales have slowed in recent months, raising some worries that the rebound in housing might be fading away. But Jonathan Smoke, the chief economist at Hanley Wood, said much of that decline was caused by reductions in both foreclosure volume and in sales of homes that banks acquired through foreclosure.

    "The total volumes are not nearly as important as the composition of what is being sold and who is buying," Mr. Smoke said. "You can fret all you want about the total volumes being up or down, but the reality is that the residential real estate market is getting healthier and healthier each month. The health is reflected in the share of nondistressed, normal transactions continuing to rise."

    We think one can't properly think about that without raising the degree to which banks slow the release of REO relative to new and existing severe delinquencies.

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  14.    A rate hike has been the worst market call of 2014 – Economics – AEI

    Expressing "surprise" about falling interest rates, given weakening GDP growth, is like being surprised at feeling faint after having bled profusely for an hour.

    Add your comment.

  15.    Guest post: a new BRICS bank to mark global shift — beyondbrics – Blogs –

    Stephany Griffith-Jones and Richard Kozul-Wright:

    Assuming a total capital endowment of US$100bn, of which 20 per cent would have been paid in, the level of annual lending could — according to preliminary estimates we have made — reach, after 20 years, a stock of loans of up to US$350bn, equivalent to about US$34bn annually. The latter amount could be used for investment projects worth at least US$68bn annually, given that there would be co-financing by private and public lenders and investors.

    This would be far bigger than World Bank loans.

    This is another piece in the puzzle of slowly eating away at the United States Dollar as the world's reserve currency.

    Add your comment.

  16.    Calculated Risk: MBA: Mortgage Applications Decrease in Latest Survey, Mortgage Rates "lowest levels in close to a year"

    Bill McBride:

    Note: It appears mortgage rates will be down year-over-year in a few weeks.

    Add your comment.

  17.    ECB: Monetary policy decisions [Negative-Interest Rate]

    5 June 2014 – Monetary policy decisions

    At today's [Thursday, June 5, 2014] meeting the Governing Council of the ECB took the following monetary policy decisions:

    3. The interest rate on the deposit facility will be decreased by 10 basis points to -0.10%, with effect from 11 June 2014. A separate press release to be published at 3.30 p.m. CET today will provide details on the implementation of the negative deposit facility rate.

    More on this coming up ….

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  18.    Why Negative Rates Won't Work In The Eurozone – Forbes

    Frances Coppola sees the ECB's negative-interest rate move as likely not about getting money moving into the real economy via loans but to weaken the euro. Well, depending upon the strings attached, which we're still going to get to, it could certainly be both. Either or both would be "good" for the EU economy, but Frances thinks it won't work, that it will stifle growth. We respectfully reserve judgment (because we think there are too many unaddressed variables and not to say that Frances Coppola has painted herself into some corner) and will, along with the rest of the world, await more details/clarifications and then what actually will have happened.

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  19.    15 cities where renting rules – MSN Real Estate

    As a renter, it's easy to feel pressure to buy. Owning a home means you can start building equity and cash in on tax breaks. But in some parts of the country, it can take quite awhile to break even on a home purchase, making it more financially advantageous to rent for a few years.

    Based on Zillow's breakeven horizon — the number of years it takes before owning a home makes more financial sense than renting the same home — here are the top 15 cities where renting rules.

    Add your comment.

  20.    FRB: Beige Book – June 4, 2014

    Residential real estate activity has been mixed since the last report, with a lack of inventory at times cited as a constraining factor. Boston, New York, and Kansas City indicated that existing home sales were being held back due to low or dwindling inventories. Sales rose modestly in the Cleveland, Richmond, Atlanta, Chicago, and Dallas Districts, with inventories described as low in Richmond and Chicago and declining in Cleveland. Sales activity, however, softened in the Philadelphia, St. Louis, Minneapolis, and San Francisco Districts, though Philadelphia did note some signs of improvement in May. San Francisco attributed some of the weakness to severe weather. Home prices continued to increase across most of the Districts; Boston reported some pullback in prices of single-family homes, though condo prices in that District, as well as in New York, rose. New York, Chicago, and Dallas reported strengthening demand for apartment rentals, whereas Boston noted some slackening in demand.

    Add your comment.

  21.    IRS Issues Another Significant Ruling on Spin-off of Real Estate | McDermott Will & Emery – JDSupra

    In certain recent transactions, a corporation distributes a subsidiary corporation holding the distributing corporation's real estate assets to the distributing corporation's shareholders in a tax-free "spin-off." Not only is the spin-off tax-free to the distributing corporation and the distributing corporation's shareholders, but the spun-off company elects real estate investment trust (REIT) status and thus enjoys potentially substantial tax savings going forward due to pass-through treatment of a REIT. Recently, the Internal Revenue Service has issued at least two favorable private letter rulings for such transactions. This type of transaction could be of significant relevance to a corporation owning significant real estate assets.

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  22.    ECB shows activism but falls short of true QE | Zsolt Darvas, Grégory Claeys and Guntram B. Wolff at

    The ECB has just published a significant proposal with many different measures to tackle the low inflation problem.

    The other main improvement is that TLTRO is conditioned on new lending. However, all depends on whether there will be significant demand for credit coming from the corporate sector. In many countries, debt in the corporate sector is actually quite high and the sector attempts to deleverage. So our take is that the TLTRO will help to reduce fragmentation but its effect on inflation may be less important than what one hopes for.

    What they could do is pay lenders to just give money to those who will spend it conditionally. The spending should be on the real economy. People would apply and then prove the purchase(s). Everyone would get the same amount. If not enough people apply, just do it again even if those who already applied do it again.

    That's one way to get money circulating.

    Causing some inflation really isn't hard. The hard part is getting people to imagine the easy ways of doing it and getting the inflation hawks in Germany to relax.

    Importantly, this is the "strings attached," which obviously is not concerning the negative-interest rates.

    We have run out of time for today's post but will continue reading for a definite statement from the ECB. We have yet to listen to or read Thursday's presser.

    Add your comment.

  23.    Everything you need to know before [about] the big Friday jobs report – Quartz

    [Reworded to past tense] Expectations were high for the May jobs report, that came out Friday morning. Economists expected that the economy produced 220,000 new jobs during the month. It turned out to be the case that 217 thousand jobs were created. May is the fourth consecutive month that more than 200,000 jobs were produced, something that hasn't happened since the boom years of the late 1990s.

    The figures could end up being revised up or down. The US population has grown since the late '90's. Will the trend line nose dive, taking away the "gains"?

    We'd love more jobs. We still have a long way to go at this rate to get everyone working again and to get all the young people finally working.

    Add your comment.

  24.    The ECB's Triple Hole in the Water | Yanis Varoufakis

    We do agree with Yanis Varoufakis that the ECB's new plan still seems to be way too little. It certainly is late.

    Add your comment.

  25.    BBC News – The ECB's toolbox

    Part of Linda Yueh's short but sweet analysis:

    In terms of total cash that's being injected, it's not negligible but also not exactly massive. This is why ECB president Mario Draghi says that there is still more to come. Buying assets – asset-backed securities – is being discussed as is leaving the door open to QE.

    The euro has already regained the ground that it lost within hours of the new measures being announced. It's a sign that markets doubt the scale of the ECB's monetary easing is enough to be effective to counteract deflation. If not, then QE may well be next.

    Add your comment.

  26.    Priming China's economy: Don't say stimulus | The Economist

    All this is still a far cry from the 4 trillion yuan stimulus the government launched in 2008, which led to an even bigger leap in lending. It is also important to note that the looser constraints on banks are partly intended to balance the effects of a clampdown on off-balance-sheet credit flows. But the pattern of the past two months suggests that the government will be firing off new expansionary measures as long as its growth target is in jeopardy.

    Add your comment.

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