Viewing Month: July 1985

Tabell’s Market Letter – July 05, 1985

Tabell’s Market Letter – July 05, 1985

Tabell's Market Letter - July 05, 1985
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 9249660 July 5, 1985 The second quarter of 1985 has come to an end, and the event was duly celebrated by the II'-., r!,e.!'.s!, …..nedneaynwper, ofm'1tpal ful!.c;I.JlerJ,!rma.!lceJor thaLquarJe,-On .average,- ..-..J6..) tile cpllblished 'results were somewhat less spectacular than July 4th fireworks. Although the mean fund performance was plus 6 for the three months ended June 30th, this figure was slightly under comparably measured returns for both the S & P 500 -Stock Index and the Dow-Jones Indus- trial Average. It was, moreover, as the press stories noted, the eighth consecutive quarter in which funds, on average, underperformed the S & P. The record of the past two years will undoubtedly please that minority, mostly in the aca- demic community, which still basinally believes in the strong form of the random-walk hypothesis. This hypothesis essentially states that it is impossible for professional investment management con- sistently to outperform broad unmanaged portfolios for which the S & P 500 may be oonsidered a proxy. Needless to say, as market technicians, we find ourselves in total opposition to this theory. Nonetheless, we think the figures indicate some of the practical difficulties which have faced the investment manager over the past couple of years. They are, in addition, we think, indicative of the changing nature of the market since the beginning of the current upward cycle in August ,1982. It is no accident, in our view, that performance difficulties for profeSSional managers go back exactly two years, to the end of the second quarter of 1983. It is also interestmg to note that, for the year previous to this, managed funds in general tended to outperform the averages by significant amounts, this despite the fact that, during that prior year, the averages in general put on one of their best performances of all time, the S & P 500 rising 53 from June 30, 1982 to June 30, 1983. It is worthwhlle recalling just precisely what was going on during that happy period. What was taking place, of course, was the initial liftoff of the present bull market ,and, as technicians are aware. such periods have a number of normal characteristics. One such charact- eristic is above-average market breadth which means, quite simply, not only that the averages are moving ahead spectacularly, but that most stocks are also di-;;I' so, and tll.-;'t; more. ;, tl , 1-a'llolmo,st ..v …. rru,u pomt or Vlew it is this breadth which makes it easy to avolO the sorts of portfolio mistakes which penalize overall performance. Another characteristic of the 1982-1983 period was that it constituted the last hurrah for the Over'-the-Counter market. While the S & P 500 was up 53, the OTC industrials almost exactly doubled. This suggests that it was a particularly easy period in which to improve portfolio per- formance by juicing up portfolio beta or volatility. There exist essentially two reasons why an individual stock will, at any point in time ,outperform the market averages. One is superior rela- tive strength characteristics, the often-ignored alpha in the equation which measures a stock's performance relative to the market. The second reason for outperformance is beta or volatility. High-beta stocks will, by definitIOn, magnify moves in the averages in whatever direction. OTC performance during 1982-1983 suggests that there were large numbers of such stocks available for selection. In contrast to this sort of atmosphere, the market environment of the past two years has altered radically. The period subsequent to June, 1983 saw the complete collapse of a large port- ion of the high-beta segment of the market. The same stocks that had done so much to bolster portfolio performance during the bull market's early stages were now producing precisely the op- posite effect, and it became necessary dramatically to reduce exposure to these issues. This was particularly true in view of the fact that the mid-1983-mid-1984 period saw stock prices generally enter a declining phase. Whereas portfolio volatility constituted a major tool for outperforming the averages in 1982-1983, defensive quality constituted the proper medicine for 1983-1984. As mid-1984 approached and the second phase of the bull-market rise began, the market, pre- dictably became more selective. As we noted last week, large segments of the market, OTC issues once agam and capital-goods issues in general, tended to fail to participate in the advance. The same was true, to a large degree, of the important energy sector. Above-average performance -… tended to be concentrated in consumer-goods and interest-sensitive stocks, areas not generally considered as appropriate components for an aggressive portfolio. What we are saying here, of course, reflects our own technician's bias in favor of the thesis that markets possess identifiable characteristics and that a study of these characteristics is import- ant. We think that technical work can, in general, identify the sorts of broad shifts in market sentiment discussed above and can therefore constitute an indispensable tool in the overall portfolio- management process. AWTrB Dow-Jones Industrials (1200 p.m.) 1334.45 S & P Composite (1200 p.m.) 192.33 Cumulative Index (7/3/85) 2568.72 ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL INC. No statement or el'preSS10n 01 opinion or any othe! matter herem contamed is, or Is to be deemed to be directly or mdlrectly, an oller Of the sollc\tatlon 01 an oller to buy or sell any secunty referred loor menlloned The mailer IS presented merely lor the convemenceof the subscriber While we beheve the sourcesol our mlormallon to be reliable, we m noway represent or guarantee Ihe accuracy Ihereof norof Ihe statements made herem Any action to be laken by the subscriber should be based on hiS own mvestlgatlon and Inlormatlon Oelafleld, Harvey, Tabell Inc, as a corporation and ItS officers or employees may now have, or may later take, positions or trades m respect 10 any seculI\les mentioned m thiS 01 any luture ISSue, and such pOSition may be ddiercnl flom any views now or hOrealtcl expressed In thiS or any other Issue Detafleld, Harvey, Tabell Inc, which Isreglslered With Ihe SECas an mveatment adVisor, maYQlve adVice to liS Investment adVISOry and other customers mdependenliyof any statements made In thiS 01 In any olher Issue Further Information on any secuflly mentioned herem IS available on request

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Tabell’s Market Letter – July 12, 1985

Tabell’s Market Letter – July 12, 1985

Tabell's Market Letter - July 12, 1985 page 1
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TABELL'S MARKET LETTER 909 STATE ROAD. PRINCETON. NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE. INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS. INC (609) 924-9660 \ July 12, 1985 Bond prices are up Bnd mterest rates have come down. Inflation hedge stocks are under pressure while finanCIal assets — bonds and the dlsmflation beneficiary stock sector — seem to be the only -;;g;;a;;;m;i;e''1n1owrr–wlienaIlOdia'hese cRan geslil1'lle 'CnaractensticSor-tbe markerow apparent-to – -'I – all of us. become identIfiable Last week, thls letter examined the recent relative performance or lack of performance of the mutual fund mdustry wIthin the past two years. Part of the reason for thIS below average performance was the inability of the money manager to IdentIfy changes withm the market. We concluded by suggestmg that markets do possess identIfIable characteristics and that a study of these characteristics IS. indeed ,Important. Techmcal analYSIS can identify the sort of broad shifts in market sentIment and can, therefore. constitute an indispensible tool in the overall portfoho-management procss. In order to answer the above question. the logical place to start to examine this change or shift In the nature of the stock market should be August. 1982. the start of the current bull market which IS now almost 750 days old. Instead of lookIng at some of the broad-based indices such as the Standard & Poors 500. we have Intead taken a monthly average of S & P groups that either constitute an Inflation hedge or would be a hsinflation beneficiary and have created two separate indexes. Inflation hedge groups would include. among others. metals. gold. copper and the entIre energy sector. DISInflatIon benefIciary groups would Include groups such as aIrlines, utilities, foods, drugs. banks. and insurance. STANDAD &POORS 500 INPlRTION HEDGE VS DISINFLRTON BENEFICIRR( RRTIO The chart above shows the monthly close of the S & P 500 and the ratio of the inflation group to the dlsinUMion group from January. 1972 through June. 1985. In other words. as the inflation hedge mdex IS advancmg more than the disinflatIon benefiClary Index. the ratio hne IS going up (1972-1980). Clearly. It can be shown from the chart that the inflatIon hedge sector has underperformed those groups which are disinflatIon benefICIaries since the August. 1982 low. It IS possible to go back even further than this date to Identify the beginning of this sigruficant change in the market environment, a change that has sustained Itself to the present. The ratio reached its hIgh at the end of 1980 comcident wIth the high 10 the S & P 500. ThIS date, by hIndsight, SIgnaled the peak of the ratIo of inflationary hedge stocks relative to those stocks that are beneficiaries of dlsmflatlon. It was during the subsequent correctlon in the market to the August. 1982 low that the mflationary-hedge mdex turned down. This occurred while the dlsinflation beneficiary index contmuea to move ahead in the face of a 15 decline in the S &; P 500. The final confIrmation of this SIgnificant mternal change came when the market rallied dramatically In August. 1982. but failed to Include the mflation-hedge sector As can be seen from the table on the OppOSIte page, from the ratio peek of December 1980, the mflation-hedge sector has declined WIth mmor interruptIons approximately 33 to June. 1985. The dlsmflatIon beneficiary mdex. on the other hand. has increased 125 to date. This IS not to suggest an immedIate switch mto the dIsinflatIon benefICIary sector was warranted shortly after the peak In the ratio ill December, 1980. However. we would suggest an examination of the data over time would reflect this gradual internal change within the market. By the August. 1982 low this change should have been clearly identifIed with approprtate shifts m weIghting made to participate In the advance which was to come. Where are we now in terms of thIS ratio The raho. based on data available from 1960 to date currently IS at the lowest level smce 1972, the historical low for the serIes. We know the stock market to be a leadmg inmcator histOrIcally reaching peaks and troughs earher than the correspondmg busmess cycle turns. Although it seems lIkely to expect further strength m the disinflatlOn benefIciary sector in the lmmediate future. It would seem Wlse to continue to momtor serIes of thIS type that attempt to measure shlfts m market sentIment so we do not find ourselves askmg in the future the reasons why bond prices have gone down and why are mterest rates up. Dow-Jones IndustrIals (1200 p.m.) 1336.58 S &; P Composite (12.00 p.m.) 192.80 CumulatlVe Index (7111/85) 259883 ROBERT J. SIMPKINS, JR. DELAFIELD. HARVEY. TABELL INC. NO slalQment or e)'preSStOfl of opinion or any Olher matter herein contained IS or 1510 be deemed to be dlreclly or Indlreclly, an Offer or the soUcl1allon of an offer to buy or sel1 any secl.mty referred to or mQnlloned The matter IS presented merely forthe convenience 01 the subscnber While we betl!;!ve the sources of our information to be reliable we In no wav represent or guarantee the dccllraCy thereof nor of tho statements mad herem Any action to be taken by the SUbSCflher should be based on hiS Own m..esflgaflon and mformatlon Oelafleld, Harvey Tabell Inc as a corporallo'l and liS olilcers or employees may now have, or may later take, poSitions or trades In respect to any SCCUfllles mentioned In fhls or any future Issue, and such pOslhon may be dllferem from any VICWS flOW 01 hereafter ( pressed In thiS or any olher Issue Delafield, Harvey Tatel1 Inc which IS registered With the SEC as an Invcstment adVisor, may give adVice 10 Its Investmenl adVISOry and Olher customers Independently 01 any statements made In thiS or In any other Issue Further Information on any security mel1\loned herein Is available on requesl ,—————————————— – PREPARED BY DELAFIELD, HARVEY, TABELL INFLATION DISINFLATION DATE HEDGE BENEFICIARY DEC 1980 114.58 79.85 JAN 1981 FEB 1981 HAR 19B1 107.47 100.83 104.55 84.47 84.60 91.1B APR 19B1 103.41 95.27 tlAY 19B1 100.95 95.50 JUN 19B1 96.05 100.94 JUL 19B1 100.54 94.49 AUG 1981 105.54 92.27 — -. — SEP 1981 OCT 1991 91. Bl 87.29 91.0B 9i44- ,1' – NOV 1981 91.54 92.71 DEC 1981 92.71 91.96 JAN 1982 82.52 B9.14 FEB 1982 HAR 1982 77 .05 70.42 93.65 97.05 APR 1982 72.3B 101.24 tlAY 1982 72.86 99.94 JUN 1982 66.08 96.97 JUL 1982 63.00 96.95 AUG 1992 62.37 94.95 SEP 1982 70.73 105.BO OCT 1982 79.10 119.47 NOV 1982 7B.57 127.54 DEC 1982 78.39 131.50 JAN 1983 B6.12 127.68 FEB 19B3 84.94 130.37 tlAR 1983 85.91 142.32 APR 19B3 90.77 148.94 IIAY 1983 97.29 148.90 JUN 1983 96.95 150.81 ,——- JUL-'1983' –fOO44 – ,c-150;45'- AUG 1983 SEP 19B3 101.76 102.86 140.75 IH.1B OCT 1983 97.29 147.B9 NOV 19B3 7B.92 149.88 DEC 19B3 79.99 147.5B JAN 1984 79.56 142.57 FEB 19B4 7B.12 134.11 liAR 1984 81.41 133.79 APR 1984 82.29 132.54 IIAY 1984 78.33 131.52 JUN 1984 72.72 131.85 JUL 1984 67.97 130.18 AUG 1984 71.87 138.30 SEP 1984 73.94 141.65 OCT 1984 71.45 141.97 NOV 1984 71.25 145.BO DEC 19B4 68.B2 147.61 JAN 1985 71.99 152.36 FEB 1985 , , liAR 19B5 – – –APRI985' 77 .14 75.67 77.01 160.B6 , -160.77. 162-;19 n', – IIAY 1985 77.06 169.77 JUN 19B5 76.13 180.17 RATIO 1.435 1.272 1.192 1.147 1.0B5 1.057 0.952 1.064 1.144 -1.052 -0;996- 0.9B7 1.00B 0.926 0.B23 0.726 0.715 0.729 0.6B1 0.650 0.657 0.669 0.654 0.616 0.596 0.674 0.652 0.604 0.609 0.653 0.643 -'0.668— 0.723 0.713 0.65B 0.527 0.542 0.558 0.5B3 0.609 0.621 0.596 0.552 0.522 0.520 0.522 0.503 0.4B9 0.466 0.473 0.480 0.471 – O475 0.454 0.423 .- — — – — -. – — – -co- — –7 , — —

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Tabell’s Market Letter – July 19, 1985

Tabell’s Market Letter – July 19, 1985

Tabell's Market Letter - July 19, 1985
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 924-9660 July 19, 1985 On Wednesday of this week. the Dow-Jones Industrial Average posted B. new closmg record high of 1357.97. Wlth inflation at 8 low level and mterest rates appearing to want to work lower 11–'there–8 Slo1fe–a-syilchlhg-of !–assets' fromb6nQs- to'stocks-raklng–place–.. CO,u'1ea.wiltfij.n-tliiS'–o'– market environment 18 the contmued dommance by the institutIonal investor overshadowing an uncertain individual investor. Confirming this impressive actIOn of the market averages has been the continued strength in market breadth statistics. The chart below shows the DJIA from the August, 1982 low to date. together with two daily breadth indexes which are computed based on the number of advancing and declining issues for each day. We have had breadth statistlcs available to us for total issues traded on the New York Stock Exchange on a daily basis for over 60 years. Historically, Interpretation of thIS indicator has sug- gested that if succeSSlve new hlghs on the Dow were not confIrmed by new highs m the breadth index. lower stock prices were mdicated. An obYloUS example of this type of divergence occurred from June, 1983 through January, 1984, and is shown on the chart above with appropriate trend lines drawn. On the other hand, when breadth continues to outperform the Dow over time, a bull-market condition continues to exist. Such is the case today. The action of the breadth indicator of total Issues traded from the August, 1982 low to date has been extremely informative. From this low. each rally in the Dow to a new high through June. 1983 was fOllowed shortly by a confIrming new high m market breadth. Subsequently. new highs in the Dow were not confirmed by the new highs in the breadth index and the market corrected itself 15.59 to the August. 1984 low of 1086.57. Since that time, each new hlgh in the Dow has been followed by 8 new hlgh in breadth. In fact, thIS week, the cumulative NYSE advance/decline total lssue breadth index confirmed the recent high in the Dow. and in so doing reached 8 level exceeding its June, 1983 hIgh, As comforting as thls seems, and it is, it should be pointed out the total issue index has been distorted because of the recent strong performance of the preferred stock sector withIn the total issue index. Preferred stocks represent approximately 25 of total issues traded daily. During the late 1960 1s. the NYSE began reportmg daily breadth statistics of total Issues traded anCl, also of common stocks. The technician was now able to construct a breadth index of only common stocks as shown above. For the past few years. the total Issues breadth Index has outperformed the com- mon stock breadth index by a relatively constant margin. Both mdices moved in concert and any measured differences were msigniflcant. ThIS was true until the Fall of 1982. As can be seen by inspectIng the two breadth indexes, the inclusion of preferred stocks in the total issue breadth index has provIded an upward bias to this serIes. ThIS we must logically assume is because of the strength in the overall interest-sensitive sector of the market. Even while laggmg, the common-stock breadth index is currently close to posting a new hIgh for the year, albeit clearly well below its hlgh of June, 1983, The condition of the maturmg bull market IS indeed healthy. Overall breadth figures remain positive, the major stock-market indices are at record hIghs with no inwcation of negative dlvergence conditions existing. There is good reason for the market to contmue to sustain itself. We should only respect its age. ROBERT J, SIMPKINS, JR. DELAFIELD, HARVEY, TABELL INC. Dow-Jones Industrials (1200 p.m.) S & P ComposIte (1200 p,m,) Cumulative Index (7118185) 1354,84 194,46 2636,10 No statement or xpresslOn of opinion or any other matter heren) contained IS or IS to be deemed to be dlrec1lyor mdlfeClly, an oHer or the soliCitation of an offer to buy or sell any security referred to or mentioned The matter IS presented merely for the convenience of the subscriber While we beUeve\he sources 01 our information to be reliable we Ir1 no way represent or guarantee the accuracy thereof nor of the statements made herein Any action to be talen by the subSCriber should be based on hiS own investigation and information Delafield, Harvey, labell Inc, as a cOlporatlon and Its officers or employees may now have or may later lake, pOSitions or trades In respect to any secunlles mentioned In thiS Of any future Issue and such POSition may be dlifp.rent 1rom any views now or Mlealter explessed In thiS or any other Issue Delafield, Harvey, labelt Inc which IS regIstered With the SEC as an Investment adVisor may gIVe advice to ItS Investment adVISory and other customers Independently 01 anv statements made In thiS or In any other Issue Further informatIOn on any secuflty mentioned herem IS available on request

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Tabell’s Market Letter – July 26, 1985

Tabell’s Market Letter – July 26, 1985

Tabell's Market Letter - July 26, 1985
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 924-9660 July 26, 1985 But many that are first shall be last. – . Matthew XIX, 30 .-, — On-the face or iClast 'week's -stock'market wa,s rather a dull., ,-'Justa week- ago, he Dow-Jones Industrial Average, in the course of its rather ' followthrough after PresIdent Reagan's recovery, had posted yet another new alltime high accompanied by a breadth confirmation, By week's end, the average had beaten a modest retreat to around 1352, an almost unnoticeable decline of less than 1. However, underneath the surface of all this, the market seemed bent on trying to prove the biblical adage. Essentially, what took place was an all-out assault launched against those stocks which had treated investors best over the past five years. One could pull a hundred or so individual examples of this sort of thing out of the week's trading, but perhaps the best simple proxy is probably the Dow-Jones Utility average. This rela- tively staid indicator had, until just recently, been scoring new peaks along with the Industrials. Its alltime high had been on July 12 at 168,92, Over a period of eight trading days ending on Wednesday, it had declined to 157.83, a drop of 6.56. This rather extraordinary performance in- cluded a one-day decline of 3.27 on Tuesday. The word extraordinary is here used advisedly. There have been, over the 35 years since 1949, only 10 trading days on which the Utility Average declined by an amount greater than 3. Over those 10, only two saw a drop significantly greater than the one which occurred this week, a 7.3 decline on May 28, 1962 and a 4.84 decline on April 23, 1974. The drop brought the Dow Utilities back to a level they had not seen since early May. On a relative-strength basis, the decline was even steeper. Utilities had, in general, been achieving peaks relative to the S P as recently as last month. Many of them dropped off this week to a position relative to the 500 that they had not seen since March, shortly after the latest leg of the bull market began. As we said above, we are, here, only using the Utility Average as a proxy for a much wider phenomenon. The declines were as dramatic in such industries as Food, n',gs, RRnk. andInsuRn Th ' .;n';, .in nth ,rI, .were lvthose rI'o'ft'n beneficiary stocks identified in this space by our colleague, Bob ,, two weeks ago. As the chart in that letter demonstrated, these issues have been superior nanuvc performers since late 1980. They were essentially resistant to the bear market which continued from that date to the 1982 lows, managed to participate in the first upleg of the subsequent bull market to mid-1983, and have been outperforming on the upside since the overall market turned up again in July of last year. As noted two weeks ago, the ratio of these disinflation-beneficiary issues to inflation-hedge stocks had returned to levels not seen since 1972. Last week's trading, then, represented an apparent sudden diSEnchantment with the sort of market action which has been going on more or less consistently for half a decade. The osten- sible reason for the action was the simultaneous emergence of large numbers of institutional selling programs which appeared to be concentrated in the sorts of issues we have been talking about. A modest pickup in volume on Tuesday and Wednesday lent credence to this theory. While trading activity (143 million shares on Tuesday) did not set records, it was in the vicinity of the peak levels generally seen for 1985 so far. One of the things that makes technical analysis a faSCinating discipline is that markets always constitute a blend of the old and the new. The institutional selling program, which, as last week's trading demonstrated, can create sudden and unexpected effects, certainly constitutes a trading factor that has achieved significance only in recent years and is likely to become more significant as time goes on. Classical technical theory would call for declines such as were seen last week to be preceded by long periods of distribution. Such was most emphatically not the case in recent days. The bulk of the isues that were hit hardest showed no tops of any significance. The retracement, however, conformed to the classic pattern in terms of lack of follow- through. By and large, despite the vicousness of most of the declines, they appeared to be peter- . ing out by the end of the week. Thus, while sudden large sales at distress prices may be a new phenomenon which the technician will have to live with, we think that the classical pattern will adhere in the present case — in other words, that the stocks hit hard this week will demonstrate decent price recoveries over the near term on both an actual and relative basis. Such a Neovery ma turn oilt to be part of a longer and more important distribution process. This, however, re- mains to be seen. AWTrs ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. Dow-Jones Industrials (1200 p.m.) S P Composite (1200 p.m.) Cumulative Index (7/25/85) 1351.69 191.87 2619.43 NO slJtlmenl or (ll'preSSlon 01 opinion or any other matter herein contallloo IS or IS to be deemed to be directly or indirectly an offer or the soliCitation of an offer to buy or sell any securltv retorred loor menlloned The matter IS presJnted merety forlhe convOnlenceof Ihesubscrtber While we beheve Ihe sources of our Information to be reliable we In noway represent or guarantee the accuracy thereof nor of tho statements made helem Any action to be taken bv the subSCriber should be based on hiS own 1fwestlgatlon and IIlfOrmatlon Delafield Harvey, labell Inc, as a COrPOf8tlOn 8nd lIS olllC(.fS Of employees, may now have, or may later take, POSitions or trades In respect to any securities mentioned In thiS or any future Issue and such posl\lon may be dilfeiont Irom any VleViS nowor hereattcr epressed In thiS or any other Issue Delafield, Harvey Tabell Inc which IS registered with Ihe SEC as an Investment adVisor, may QlveadVlce 10 lIS Iflvestment adVisory and olher customers IIldependently 01 any slatern!nts made In thiS or In any other Issue Further Information on any security mentioned herein IS available on request !

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