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Wednesday, May 3, 2006 - 8:20pmSanction this postReply
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Ok, this could have gone into the Economics forum, but economics is not so interesting, is it? (Some of us like it, as if a guilty personal pleasure.)  How about the price of gold?  Newsworthy, isn't it? 

I bought gold before it was legal.  I had Mocatta and Engelhard bars in the 1970s.  I bought all the way up in the 1970s and all the way downhill from 1995.  I bought some last week, a no-motto Five Lib, a US $5 Liberty from 1845, before the motto "In God We Trust" defaced our nation's coinage.

On my computer right now, I have an 18K gold sphynx and a 14-k gold dollar sign.  The sphynx stands for the solution of riddles, in honor of Oedipus, the rational man -- juxtaposed to Iocasta the fatalist and Teirsias the priest --  tyrant of Thebes, martyred for reason's sake, who pursued the truth no matter where it led.  The dollar sign, of course, is self-referential.

Over the years, there is hardly a form of gold that I have not owned, from jewelry, to coins, to bars, to nuggets.  Mexcian, French, UK Sovereigns with Victoria and Elizabeth, it comes and goes. I buy when I can and sell when I have to.

Of all the "gold" I own the best is a videotape of Ayn Rand's last public appearance before the gold speculators associated with James Blanchard.




Post 1

Thursday, May 4, 2006 - 12:29amSanction this postReply
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I've made some good $$$ in the recent gold runup. I'm concerned, though, that it signals bad times ahead. I've always understood that rising gold means that the Fed is printing money, which implies inflation ahead. Given that the Fed has been raising rates, inflation worries are even more supported, I think.

Hopefully, some real economists can weigh in on this.




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Post 2

Thursday, May 4, 2006 - 6:00amSanction this postReply
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Much of the recent rise in the price of gold is attributed to political tension, especially due to Iran's nuclear program.
http://www.iht.com/articles/2006/05/03/bloomberg/bxcom.php

Gold has performed well in recent years. The current price is about 92% higher than it was 12/31/2002. However, stocks have done well, too. The S&P 500 rose about 50% over the same period and the Russell 2000 rose 100%.




Post 3

Thursday, May 4, 2006 - 6:01amSanction this postReply
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Wow. I hadn't followed gold prices for a while. Au at $666/oz - has to be a sign of the apocalypse!




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Post 4

Thursday, May 4, 2006 - 7:19amSanction this postReply
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Jordan Zimmerman wrote:
I've made some good $$$ in the recent gold runup. I'm concerned, though, that it signals bad times ahead. I've always understood that rising gold means that the Fed is printing money, which implies inflation ahead. Given that the Fed has been raising rates, inflation worries are even more supported, I think.

Generally, Jordan, you are correct.  At the detail level, you might enjoy reading more about money, money being important to Objectivists. 

You did not not make any money, and what "dollar signs" you made were not "good."  Gold is the standard, not the dollar.  You cannot make money in gold unless you are a primary producer of gold -- or an active arbitrager, buying and selling often.  For most of what gold is all about, gold is for savings, the standard against which the fall of government paper is measured.

Unless one happens to be a "market maker" all market news is past tense.  So, the price of gold does not so much "signal" bad times ahead as the presence of bad times now.  Generally, the near future is always a lot like the present.  (In aviation, we can always guess that the weather numbers tomorrow will be close to the weather numbers today.)  So, yes, the rising price of gold does indicate a continued state of the present with a falling dollar, and lack of faith in the strength of the American economy.

The Fed does not print money.  It is a fine point, much like the fictitious "centripetal" or "centrifugal" forces in our common language.  Money (Federal Reserve Notes) is printed for the Federal Reserve by the Bureau of Printing and Engraving.  The Fed uses these notes to buy U.S. Treasury bonds.  The engine of inflation is powered by T-bills.  (About 100 years ago the BEP printed "national bank notes" for several thousand "Hometown" National Banks which were chartered upon the deposit of $100,000 in gold at the the U.S. Treasury. Before 1861, banking was almost completely private with minimal state regulation and almost no federal laws -- and no federal bank.) 
Be all that as it may, ever since 1861, except for some brief spells, (the 1880s, 1929-1933, Gramm-Rudman), inflation has been a fact of life. So, gold is always something to buy.  Hardcore goldbugs recommend that about 10% of your savings be in gold. 

Merlin Jetton wrote:
Much of the recent rise in the price of gold is attributed to political tension, especially due to Iran's nuclear program.
http://www.iht.com/articles/2006/05/03/bloomberg/bxcom.php

See this link from Kitco.
http://www.kitco.com/ind/Texashedge/may032006.html

Gold: It's not Iran, Stupid 
by The Texas Hedge Todd Stein & Steven McIntyre
May 3, 2006
For the past few weeks, as gold has inched its way closer to an all-time high set over two decades ago, the talking heads have cited events in Iran as the catalyst for precious metal price increases. ... We have all read reports of upper-class Iranians stockpiling gold as tensions continue to rise, but ... The reason why gold has more than doubled over the last four years has to do with the diminishing amount of confidence in paper assets, namely those denominated in U.S. dollars.

Merlin Jetton wrote:
Gold has performed well in recent years. The current price is about 92% higher than it was 12/31/2002. However, stocks have done well, too. The S&P 500 rose about 50% over the same period and the Russell 2000 rose 100%
See my comments to Jordan above.  We also read some of these numbers in a recent RoR about Dr. Alan Greenspan. (Granted that he did a great job at a difficult task.) The "rise" in the S&P is measured in dollars.  The fall of the dollar is measured against gold.  Therefore, the 52% fall in value of the dollar -- a wrongly viewed "92% increase in the price of gold" -- must take some of the gains away from the S&P 500, leaving you about 10% short of breaking even there, in other words being down about 42% on the gross investment. 

When some people on RoR complained about Greenspan's "keynesian" policies, others pointed to "increases" in so-called "real wages" or "gross domestic product per capita" and so on.  These numbers must all be reduced to ONE MEASURE: gold. 

Aaron
Wow. I hadn't followed gold prices for a while. Au at $666/oz - has to be a sign of the apocalypse!
There are some things that every Objectivist needs to do.  Ayn Rand cautioned against saving your rationality for the chessboard when you have a whole real life to be enjoyed.  So, too, does practicing the philosophy mean being aware of the money markets -- gold, of course, but business in general.





Post 5

Thursday, May 4, 2006 - 8:30amSanction this postReply
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Thanks for your posts, Michael. I've given up with lauding the manifest attributes of gold on this board. The benefits of gold as a currency should be evident to all Objectivists but it just seems to be an incidental topic here.

Sam




Post 6

Thursday, May 4, 2006 - 9:15amSanction this postReply
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Sam, you and I lived through a time when gold was nominally "illegal" to own.  (It never really was, but that was the popular understanding, much supported by government mis-information.  See here:
http://www.coin-newbies.com/articles/gold_never_illegal.html)  So, we got it, when Francisco said, "Those slips of paper in your wallet, which should be gold..." and why Ragnar bestowed bars of gold, and why Galt's Gulch had its own gold coins, etc., etc., etc.  Today, however, much of that is lost on a generation that can buy Gold American Eagles from the U.S. Mint.

This, of course, focuses only on Objectivists.  In the wider world, you find people who think that the dollar is backed 25% in gold, that Sacagawea coins have gold in them, and so on.

Even among the otherwise astute, people suffer from the predation of govern-mentality.  I remember back in 1973 correcting Franz Pick who claimed that the Swiss Franc was "backed in gold" -- which it was not.  When Switzerland demonetized their 100-franc notes as part of a general devaluation of the franc, in 2000, I headlined that as International Editor of Coin World.  (When it comes to paper money, you cannot trust any government and very few individuals.)

So, we old-timers have something of a burden of responsibility here on RoR to keep gold right up there with movie plots and unnaturalistic fallacies as a topic of conversation.




Post 7

Thursday, May 4, 2006 - 9:34amSanction this postReply
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Michael: I remember seeing Harry Browne's How You can Profit From the Coming Devaluation in about 1970 in an airport bookstore and I browsed through it. A few years later I realized how right this guy was ó and this was about the time I was introduced to Objectivism. So when his next book, You Can Profit From  a Monetary Crisis, came out in 1974 I jumped on his advice and opened up a Swiss bank account for custody of gold bullion and an account in Swiss francs. I also opened a bank account in Beirut in Lebanese pounds which had the highest backing of gold of any currency. I held this throughout the civil war there and broke even but I did great on the other holdings. I started buying gold and silver when gold was $171 an ounce and lived though the attempt of the Hunt brothers to corner the silver market.  Exciting times.




Post 8

Thursday, May 4, 2006 - 9:34amSanction this postReply
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Michael,

Thanks for posting this thread on gold (and the other money threads, too). It's great to get this special and relevant guidance -- from those in-the-know, like you and Sam Erica!

Your knowledge and skill are appreciated,

Ed




Post 9

Thursday, May 4, 2006 - 10:55amSanction this postReply
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Iranians are some of the people who are driving up the price of gold (I can't find the exact link to this). They, like anyone who has a grasp of economics, knows that gold is the last refuge as a store of value and medium of exchange. When governments cannot inspire the confidence of their citizens in their currency the economy collapses and gold, and silver become the de facto currency.

I hope that the US military strategists are monitoring the Iranian interest in gold as it speaks of the mood of the country independent of the clerics.

Sam




Post 10

Thursday, May 4, 2006 - 11:36amSanction this postReply
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I hope that the US military strategists are monitoring the Iranian interest in gold as it speaks of the mood of the country independent of the clerics.
According to Michael Ledeen of the AEI,  the mood of the country independent of the fake-lerics (and their clients) is to get rid of them. You may read, in example, this article:

Iran Is at War with Us, by Michael Ledeen
 
"He [president terrorist Ahmadinejad] and his cronies have a lot to worry about, because the Iranian people, in the face of a vicious wave of repression that recalls the worst moments of this dreadful regime, are showing themselves prepared to stand against it, and to move to remove it. Lacking a full picture, we should base our judgment at least in part on the behavior of the mullahs, and their dispatch of so many armed forces to three different regions suggests they are profoundly worried. This is not a good time to throw the mullahs a diplomatic lifeline. We should instead show them and their democratic enemies that the tide of history is running against them.
 
"Itís time to take action against Iran and its half-brother Syria, for the carnage they have unleashed against us and the Iraqis. We know in detail the location of terrorist training camps run by the Iranian and Syrian terror masters; we should strike at them, and at the bases run by Hezbollah and the Revolutionary Guards as staging points for terrorist sorties into Iraq. No doubt the Iraqi armed forces would be delighted to participate, instead of constantly playing defense in their own half of the battlefield. And there are potent democratic forces among the Syrian people as well, as worthy of our support as the Iranians."
 
I think he is a bit too optimistic on the current capacities (a) of the Iranian population of breaking their totalitarian yoke, and (b) of the American government of making a tough decision if required; in example:

One up for Tehran in Its Secret Bout with Washington,  from DEBKAfile
 
"[...]"

"The American [diplomatic] delegation proposed that Tehran be satisfied with the sensation it caused by its uranium enrichment bombshell and abandon its centrifuges and weapons program.

"If not, Washington would deliver threefold punishment: A. The heat would be maintained for UN Security Council sanctions; B. The Saudi and Egyptian nuclear programs would be allowed to move forward. And if Tehran started building a weapon, both these Arab states would either produce or buy a nuclear weapon from countries like Pakistan. C. The US would line up a nuclear-armed Middle East front, including Israel, against Iran. Moscow and Beijing might then rethink their support for the Islamic Republic and weigh its worth against lost points in the Arab world and Persian Gulf. Tehranís clerical rulers did not back down in the face of the American ultimatum.

"They adopted four courses, revealed here by DEBKA-Net-Weeklyís Iranian sources: 

1. Supreme ruler Khamenei, while leaving the shrill rhetoric to president Ahmadinejad, tightened his grip on the national nuclear program and cut the president out of the ongoing diplomatic talks with the Americans.

2. Rafsanjani took over dealings on the Iraq issue and relations with Arab governments, while Larijani was put in charge of contacts with the Americans, the Russians and the Europeans.

3. To balance the American track, Iran went into secret negotiation with Moscow on a new Russian plan for international oversight of its enrichment activities.

4. Rafsanjani was dispatched on a tour of the Arab emirates to calm their fears of Iranís nuclear motives and invite them to lend their support to its nuclear option. Our Gulf sources report that he failed in his mission. Aside from Damascus, which was his last stop, the emirates presented a solid wall of resistance to any suggestion of an Iranian nuclear bomb."


Today, in America, the State Dept, the CIA, and the MSM almost rule the country. Still, trust me, the best government in the world is the American one.

(Edited by Joel Catalŗ on 5/05, 9:25am)




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Post 11

Sunday, May 7, 2006 - 1:45amSanction this postReply
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Gold has performed well in recent years. The current price is about 92% higher than it was 12/31/2002. However, stocks have done well, too. The S&P 500 rose about 50% over the same period and the Russell 2000 rose 100%.
Early in March of 2003, I put all of my money into stocks and gold -- 45% into the Nasdaq exchange traded fund (QQQQ), 45% into the Russell 2000 exchange traded fund (IWM) and 10% into gold coins. Since then, the Nasdaq ETF has risen 65%, the Russell ETF, 90%, and gold is up 94%. I bought it at $350 an ounce, and the current buy price for bullion coins is now $680.

In addition to the American Eagle, I bought the Canadian Maple Leaf, South African Krugerrand, Australian Nugget, Austrian Philharmonic, Chinese Panda, and Mexican Peso. These are beautiful coins: the Maple Leaf is virtually pure gold - 99.99% - as is the Nugget, Philharmonic and Panda. The Panda is gorgeous, with a glassy luster. The Eagle is 91% gold, with some copper alloy, as is the Krugerrand. The Peso is even more copperish in appearance, but is a very impressive coin containing almost an ounce and a quarter of gold, so it is quite a bit larger than the others, with some very nice ingraving. The Austrian Philharmonic has several orchestral instruments ingraved on its obverse side. Very pretty as well. I believe that the Maple Leaf and Krugerrand are legal tender in their respective countries, which is rather surprising, since, of course, the Eagle is not legal tender in the U.S. These coins have a nice heft to them, as gold is almost as heavy as lead.

The dealer I bought these from suggested that I sell them when gold reaches $800 an ounce; he was fairly confident it would, and it looks like he could be right. But if love these coins, which are like little works of art. I'll be loath to sell them, even if the price more than doubles. So I suppose I shouldn't consider them an investment, but a collection.

- Bill



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Post 12

Sunday, May 7, 2006 - 4:51amSanction this postReply
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See my comments in Post 4.  The "rise" in the S&P is measured in dollars.  The fall of the dollar is measured against gold.  ... leaving you about 10% short ...

WD: In addition to the American Eagle, I bought the Canadian Maple Leaf, South African Krugerrand, Australian Nugget, Austrian Philharmonic, Chinese Panda, and Mexican Peso. These are beautiful coins:...
They are, indeed, beautiful, all of them.  I never saw a gold coin I didn't like. That said...  I do not care for the bald headed guy on the Mexican gold, though the Eagle is OK.  In fact, for what it is worth, I have an ancient Greek silver coin with the same image: an eagle killing a snake.  It is taken as an allegory of Justice or Rebellion.  So, there is that. 
 
"... the Maple Leaf is virtually pure gold - 99.99% ..."
Governments compete against each other in this market and the Canadian Mint at Winnipeg has become a world leader, the first to produce Four-9s and now Five-9s pure gold.  Queen Elizabeth is not aging well as a portrait, though some artists do better with it than others. She was pretty until middle age.  I like the young heads.
 
"The Panda is gorgeous, with a glassy luster."
Yeah... but the Panda comes from CHINA...  I mean, with all the places there are to buy gold from, China has some drawbacks, does it not?  One of the reasons that the US Mint got into the market for gold coins was to counteract the politically incorrect Krugerrand.  Make of that what you will.  It can also be said that a merchant does not argue religion with his client. As long as your self-interest and his meet, you have a deal.  But on the other hand, a key tenent of Objectivism is not empowering your destroyers.
 
The Austrian Philharmonic is a nice array of instruments, a pleasant relief from heads of state and their heraldic eagles. 
 
The French 20F (about 1/5ounce) of the 1800s have Roosters.  Another issue has an angel inscribing a constitution.  The UK Sovereign will have the ruleron one side and Pistrucci's "Saint George Slaying the Dragon" on the other.  Queen Victoria's "Young Head" is pretty enough and she is stately as a "Mature Head." 
 
US coins, of course, all feature Liberty.  The modern gold reprise the classical Victory that Augustus Saint Gaudens cribbed from the Greeks.  It is probably the one image voted "most beautiful" by American coin enthusiasts.  The US Mint also issued an "Arts" series in gold honoring, among other people, Frank Lloyd Wright.




Post 13

Sunday, May 7, 2006 - 9:02amSanction this postReply
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Bill:

My guide for when to dump gold or silver holdings is when the public is lining up outside the banks to buy. On Jan 18,1980 when gold hit $830 people were literally lining up for a city block in the streets in front of the Bank of Nova Scotia in Ottawa   to buy wafers and kilograms of gold. It was so congested there I went to my local branch where a clerk dialed continuously for two hours to the central clearing office in Toronto to try to get an authoritative quote so she could complete the transaction. The key is to sell at the time of maximum panic/mania.

I still have the receipt for the kilobar I sold that day. I bought it at $171 in 1974.

Sam




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Post 14

Sunday, May 7, 2006 - 10:25amSanction this postReply
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I wrote, "The Panda is gorgeous, with a glassy luster." Michael Marotta replied,
Yeah... but the Panda comes from CHINA... I mean, with all the places there are to buy gold from, China has some drawbacks, does it not? One of the reasons that the US Mint got into the market for gold coins was to counteract the politically incorrect Krugerrand. Make of that what you will. It can also be said that a merchant does not argue religion with his client. As long as your self-interest and his meet, you have a deal. But on the other hand, a key tenent of Objectivism is not empowering your destroyers.
I knew someone was going to ding me on that one! :-) Buying from China?? How dare you! - like you never bought anything that said, "Made in China" on it, have you? Yeah, right! As for empowering our destroyers, do you really think we have much to fear from a country who relies so heavily on our economic patronage? Seriously! it's some destroyer that provides us with all those goods in exchange for our money! If you're really serious about boycotting goods made in China, you'd be in a pretty pickle as to what you could and couldn't buy, wouldn't you?

Now, you can argue that it is the government that produces the gold coins, but it is governments everywhere that produce them. Were I to use that as my criterion, I couldn't buy a single gold coin, not even the American Eagle. And, yes, I did buy the Krugerrand when it was politically incorrect to do so. What most people don't realize is that the black gold miners didn't support the boycott, because it was costing them their jobs. So, I didn't discriminate against them by refusing to buy their products. Right now, things are not a whole lot better in SA, even with the end of apartheid. The unemployment rate is 40%, due largely to the high minimum-wage laws and prevailing wage rates, and crime is through the roof, fueled no doubt by the shortage of jobs.

- Bill




Post 15

Sunday, May 7, 2006 - 10:53amSanction this postReply
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You did not not make any money, and what "dollar signs" you made were not "good."  Gold is the standard, not the dollar.  You cannot make money in gold unless you are a primary producer of gold 
I don't understand this. I ended up with more dollars than I started with. How is that not making money? I know that prices in the US have inflated a lot less than doubling of my dollars.




Post 16

Monday, May 8, 2006 - 10:19pmSanction this postReply
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MM: Yeah... but the Panda comes from CHINA...
WD: Now, you can argue that it is the government that produces the gold coins, but it is governments everywhere that produce them. Were I to use that as my criterion, I couldn't buy a single gold coin, not even the American Eagle.
MDG:  Joeseph Rowlands calls it All or Nothing:
All or Nothing: Philosophy with Degrees (Part 1) - A Survey of Errors
All or Nothing: Philosophy with Degrees (Part 2) - General Reasons
All or Nothing: Philosophy with Degrees (Part 3) - Objectivism's Solution

Whatever we buy from "China" only came from some people who lived in a place on the map of the world.  About 1978 or so, a customer in a natural food store was harranguing the ower over his pistachios from Iran because the shah was a target of leftwing protests.  Well, I thought about that woman more than a few times since.  I wonder how she feels about Iran now?  More to the point, it's not the shah who was out there harvesting pistachios.  So, goods from "China" are the product of individuals whom I have not had the pleasure of meeting but whose interests intersect mine.

As you note gold coins are the product of the government of China.  That is a different question, entirely.  You can buy gold bars from Credit Suisse, Engelhard, and other private firms.  Personally, I have a problem with them because coins are nominally harder to counterfeit than bars, but that is a solvable problem. 

When you buy OLD gold, in the secondary market, your money does not go to the primary producer.  So, a Victoria Young Head sovereign does not put money into the British government exchequer, necessarily.  Buying a new Panda does send money to the Chinese government now, necessarily.  Even in an aftermarket, the purchase validates the supply.

Of all the governments in the world to buy from, the one that bothers me least is the one in Washington DC.  But that's my choice.  Other people might feel good about the fact that Switzerland makes gold coins.




Post 17

Monday, May 8, 2006 - 10:24pmSanction this postReply
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William Dwyer: "What most people don't realize is that the black gold miners didn't support the boycott, because it was costing them their jobs."
When the Krugerrand was re-released in 2000, I wrote about it as the International Editor of Coin World newspaper.  I touted it.  We knew that that is what our readers wanted to enjoy and the facts were verifiable, so we went with the press releases, validating the facts from independent sources, where possible.

My understanding was that the miners supported the world boycott.  They were willing to pay the price to end apartheit.




Post 18

Wednesday, May 10, 2006 - 6:54amSanction this postReply
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One of the problem with trade "sanctions" of various sorts is that it harms the sanctioner as much as the sanctioned.  The Germans tried to cut off trade to Britain to force their surrender in WW II.  Why would a country voluntarily impose a trade war on itself and accomplish by fiat what the uboats could not?  So, this is always a very difficult area - where does one draw the line?  I would not buy stolen goods on the street.  I would not trade in gold melted down from the fillings of exterminated people.  However, what about 50 years later when it is in something else now?  I think what matters is, are you trading with a thief (or genocidal killers) or someone else entirely?  I would not trade with the former but I also don't have the abilty to trace the history of everything I buy (of course most commodities are not as readily lasting as gold is, they usually only last 1 owner, maybe 2).



Post 19

Wednesday, May 10, 2006 - 9:48amSanction this postReply
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Michael, have you seen Post 15 above? I'm curious about this.



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