Public Policy

While US steel producers have reason to celebrate the signing of a trade package that includes Trade Promotion Authority (TPA) and Trade Adjustment Assistance (TAA), other manufacturing organizations will also benefit from the opening up of new markets. However, procurement professionals may perceive the legislation less favorably.

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MetalMiner asked Jennifer Diggins, Director of Public Affairs at Nucor, to explain why these trade initiatives are so important for all manufacturers and specifically how the legislation will positively impact metal buyers.

jennifer diggins nucor stillMetalMiner: A lot of your customers purchase imports. How is this legislation helpful to them in any way?

Jennifer Diggins: The legislation is not targeting fairly traded imports. The American steel industry does not have a problem with imports; imports will always be part of our market. But we do have a problem with unfairly traded imports, where governments break trade rules they agreed to and provide illegal subsidies that allow foreign steel producers to sell products below costs.

If a company cheats on price, it raises serious questions about other ways they may be cutting corners to gain an advantage, which could ultimately come back to hurt their customers. We know China has tried to evade duties on some of their steel products by routing them through third-party countries to hide the point of origin and avoid the trade duty. Steel producers in China have also added chemicals to products to avoid trade duties. Several years ago, China added boron to cut-to-length plate to avoid a duty. Nucor brought that case to the attention of the Department of Commerce who ruled that the boron added did not change the product and was subject to the trade duty.

Behavior like this should raise concerns for any customer. If China is willing to bend the rules like this, can you trust claims of product quality? Do you really know what you are buying? A free, transparent marketplace is best for both producers and consumers.

MM: Arguably the Chinese have done a lousy job curbing excess production and shutting down excess capacity. Do you think this legislation will provide the stimulus necessary for Beijing to finally shutter excess and obsolete production? Why/why not?

JD: The main goal of the legislation is to provide more effective tools to enforce our trade laws to ensure that countries sending products to our market are playing by the rules. The provisions in this legislation should create a disincentive to dump products in our market, but the legislation is not intended to address overcapacity issues in China.

The capacity problem is a much larger issue and won’t be meaningfully addressed until China gets serious about moving away from being a state-run economy to a market-based economy. Unfortunately, there are few signs they are serious about doing this. Earlier this year, China issued a draft of its Steel Industry Adjustment Policy, saying – as it has for years now – that this new policy will resolve its excess capacity problems. The major steel industry associations from North America, Latin America and Europe issued a joint response, expressing their disappointment that the Policy still shows that China insists on a top-down, state-controlled approach to the steel market. We are all in agreement that the Policy actually is less interested in eliminating excess capacity in China, but instead would seek to transfer capacity overseas through government-supported foreign investments and acquisitions.

It’s clear that China has no interest in letting market forces dictate the size of its steel industry. And so long as China maintains this state-supported approach to market competition, it’s hard to see how they can have a place in any free market economy. This legislation is an important step, and should help any company from any nation that fairly competes in the American marketplace. But so long as China can be successful dumping steel in other foreign markets, it is unlikely the Chinese government will get out of the steel business. We need more concerted action from our trading partners to force China to comply with WTO rules.

MM: Why, in general, is excess capacity (steel production capacity) a bad thing for steel buying organizations? Most might say it’s a good thing because buyers can get lower prices. How do chronically low prices harm the industry and eventually your customers?

JD: I think it’s important to note here that we are talking about artificially low prices – not competitively low prices. In a free market economy, overcapacity would be eliminated through the balancing of supply with demand. So in a situation of excess production, customers would buy steel from the companies that best meet their needs, and the other steel companies would go out of business. This kind of competition drives quality up and prices down. In a truly free market, efficient producers survive while inefficient ones go out of business.

However, the global steel market is not a true free market. Chinese steel companies are being artificially sustained by their government, creating the risk that efficient foreign steel companies will go out of business while inefficient Chinese companies survive. With state support, they can produce an overabundance of steel at absurdly low prices, and drive their competition out of the marketplace. The market will not be well served if inefficient steel producers survive at the expense of efficient ones. At some point, customers will have no choice but to buy product from those steel companies. There will be no diversity in the market place – no competition. Just one source of state-owned suppliers. And they won’t be accountable to their customers for their success. The only entity they will have to keep happy is their government’s bureaucracy. In that scenario, you can bet the absurdly low prices will disappear with no guarantee that customers will be getting a quality product.

China’s real goal is not only to dominate global steel production, but also to transfer the global downstream supply chain to China (in order to maximize job creation in China). To ensure the reliability and survival of the supply chain in the United States, including both suppliers and downstream consumers, we need to ensure that global supply chains are free from market distortions.

Disclaimer: Nucor is a sponsor of MetalMiner.

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President Obama just signed two significant trade initiatives – Trade Promotion Authority (TPA), and the extension of the Africa Growth and Opportunity Act and other trade preference programs, which includes renewal of Trade Adjustment Assistance (TAA) and trade remedy improvements. For the full story on how both got passed check out our recap of the last week in steel.

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TPA or “fast track” will ensure an up or down vote on future trade pacts, such as the Trans-Pacific Partnership, before the Senate can add amendments to them. TAA is a bill that will fund retraining programs and other support initiatives for workers displaced by future trade pacts. TAA also will improve enforcement of dumping actions against foreign manufacturers.

container-ship-night-MMslider

Free trade gained some steam today as President Obama signed Trade Promotion Authority and Trade Adjustment Assistance.

The steel industry applauded today’s action, particularly enactment of the trade remedy measures for which the industry strongly advocated:

“Today’s bill signing is the culmination of dedication and hard work by many members of the steel industry, partner industries and numerous steel champions in the House and Senate who worked tirelessly to ensure the trade remedy provisions were included in the trade package,” Said Thomas Gibson, CEO and president of the American Iron and Steel Institute. “We thank the Administration for recognizing the critical role of the steel industry by supporting these initiatives to improve the effectiveness of our anti-dumping and countervailing duty laws.”

Gibson said the steel industry “greatly appreciate having these improved tools at our disposal in our continuing efforts to combat unfair trade, given the trade laws have not been updated by Congress in over 20 years. The surge in foreign steel imports continues at record high levels, leaving us with a great deal more work to do to mitigate the job loss and negative impact on our industry. We urge quick action by Congress to adopt the Senate version of the ENFORCE Act during the House-Senate conference on the customs bill, which will better enable companies and workers to combat the evasion of anti-dumping and countervailing duty orders. We hope to soon see the president signing that bill also,” Gibson concluded.

ENFORCE stands for Enforcing Orders and Reducing Customs Evasion. The tougher customs enforcement bill must still go through a House-Senate conference committee.

“I would not be signing these bills if I was not absolutely convinced that these pieces of legislation are ultimately good for American workers,” President Obama said at the ceremony.

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Echoing Nancy Reagan circa 1988, the US House of Representatives listened to Mitch McConnell and “just said no” – to the Environmental Protection Agency (EPA)’s Clean Power Plan. Meanwhile, the US Supreme Court finally ruled on Michigan v. EPA (involving the toxic emissions rule trying to limit mercury and air toxics, aka MATS), and the outcome, just announced today […]

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Today, the Greek debt crisis touched all markets, including commodities, and a bipartisan group of US Senators unveiled the long-term highway bill that the construction industry has long clamored for.

Greek Debt Crisis Roils Markets

Commodities could not escape the market turmoil caused by Greece’s capital controls and a hefty drop in Chinese equities, with the stronger dollar and risk aversion hitting raw materials led by oil and metals.

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On the London Metal Exchange, amid a sea of red for industrial metals prices, nickel plumbed a six-year low. The metal, an ingredient for stainless steel, fell 4.6% to $11,855 a metric ton, while aluminum was off 1.5%, copper fell 0.5% and tin dropped 2.5%.

Senators Unveil Long-Term Highway Bill

A bipartisan coalition of senators on Tuesday introduced a six-year bill that would boost overall spending on US roads and bridges.

Working against a July 31 deadline, the senators acknowledged that it will be an uphill effort to corral their Senate colleagues and the House to pass a bill.

The six-year bill would increase highway spending by almost 13% over the current level, bumping it up by more than $2 billion each year. It includes a new program to spread more than $2 billion a year among states to invest in improvements for freight facilities that move goods and products.

It further streamlines project approval, cutting federal red tape that state officials say has slowed projects down. It holds flat at $819 million the money for pedestrian and cycling improvements and for roadway landscaping. Senator Barbara Boxer (D.-Calif.) joined Sen. James Inhofe (R-Okla.), the committee’s chairman, and Sens. David Vitter (R-La.) and Thomas R. Carper (D-Del.) in writing the bill. The cost of the bill is estimated to be about $350 billion and would require new funding if it is passed.

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The US Steel industry has long said that a wave of cheap and illegally subsidized imports is crushing its ability to compete.

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While not turning a blind eye to the situation, Washington has not been as responsive to the situation as many in the domestic steel industry would like. The lobbying efforts of domestic steel have largely fallen on deaf ears when it comes to enforcing existing trade laws and placing tariffs that would be punitive enough to stop foreign nations such as China from overproducing.

Yet, today, a key bill supporting tougher anti-dumping enforcement has passed the House, has a path to passing the Senate and even more customs protections could be passed as early as next week. All from a Congress known more for not passing legislation than passing it. How did this happen? First, let’s see how we got here.

WTO Claims Chinese Imports Aren’t Subsidized

Some relatively modest tariffs were revoked a year ago when the World Trade Organization said the US broke the rules for imposing duties on Chinese steel products, solar panels and other goods.

The WTO’s judges said that under the 1964 Marrakesh accords (which also set up the WTO) countervailing duties can only be levied when there is clear evidence that state-owned or partially state-owned enterprises passing on the subsidies are “public bodies.”

The panel found that Washington had produced insufficient evidence to prove subsidization, and was also at fault in its calculations of the value of the subsidies to Chinese firms. This was a very novel reading for the WTO as there is…

Actual Proof That Chinese Steel is Subsidized

Last year, and now, evidence exists that Chinese steel is subsidized on the state and national level and exports are sold below cost.

This history of ignoring evidence is why we didn’t expect big things for steel this week. Maybe more ambiguous language about actually enforcing existing law as a sweetener in the Trade Promotion Authority bill that both the president the republican congress support, but nothing more.

How, then, did steel become the big winner?

TPA Goes Down in Flames

When democrats in the House refused to approve TPA it looked like the bill, that would ensure an up or down vote for future trade agreements such as the Trans-Pacific Partnership, wouldn’t move forward.

When TPA was separated from a worker aid package for those displaced by future trade deals known as Trade Adjustment Assistance, we still didn’t think it would result in help for domestic steel, yet competing interests that put free-trade Republicans and the Obama administration on one side and more liberal democrats on the other worked in the industry’s favor.

Long Live TPA

TPA, once separated from TAA, passed the House and then the Senate. It still looked like more trade deals and no help for steel or US manufacturing. But with TAA still stuck in the House, guess what the perfect sweetener to get democrats on board become? Support for the US steel industry. The Congressional Steel Caucus is a bipartisan group that spans several key states. Senators and congressmen and women from the midwest, south and southwest coalesced around their support for local steel.

TAA Passes With Stronger Steel Support

Not only did the House leadership promise new safeguards for the steel industry as part of the revamped TAA bill that passed yesterday, but a customs enforcement bill that would force US Customs and Border Protection to enforce anti-dumping laws as written also passed both houses earlier in the week. It awaits a conference committee negotiation, one that the American Iron and Steel Institute favors the Senate version of the bill in. Everything’s suddenly coming up steel.

TPA passed both houses by midweek and TAA passed the Senate and, after being sweetened with support for the steel industry, the House yesterday. Even more customs enforcement protections are still waiting in the conference committee.

“We commend the House for passing legislation today that will improve the effectiveness of our anti-dumping and countervailing duty laws to combat unfairly traded imports,” said Thomas Gibson, president and CEO of the AISI. “These modifications to the trade laws come at a critical time for the steel industry, as we are currently faced with a surge in steel imports that are causing injury to the domestic industry, including significant reductions in domestic steel production and job losses. We look forward to President Obama quickly signing this bill into law.”

It’s about time.

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A couple of weeks ago we identified a new metal war ready to be waged against hospital-acquired infections, aka healthcare-associated infections (HAIs). And not surprisingly, only a few types of infections make up the majority of the problem, with the cost pegged at anywhere from $28 billion to $88 billion annually.

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So we wanted to know where the bacteria that cause some of these infections actually live and how hospitals have sought to lower infection rates.

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What can antimicrobial copper door handles and bedrails mean for hospital infections? A lot.

Quite simply, we see metals – specifically antimicrobial copper – as a big part of the solution (we will come to that in a moment).
In our prior piece we indicated the 4 most dominant categories of healthcare-associated infection: urinary tract infections, surgical site infections, bloodstream infections and pneumonia. The causes for many of these HAIs involve contamination of the healthcare setting, surgical procedures, medical devices, needles and tubes used for blood work, catheters, endotracheal procedures, contagious diseases between and among health care workers and patients, and more.

“Between” and “Among” are the Operative Words

So, where do these germs spread “between and among?”

Recently, the Wall Street Journal reported on the Hospital Microbiome Project, which collected microbe samples in a hospital setting to see how the design, room setup and items in a room exacerbate the spread of HAIs. Not surprisingly, bacteria and microbes live on places such as windows, counters, AC vents, cell phones, doorways, beds, curtains, tray tables, chairs and shower heads.

In short, microbes live on many surfaces containing metals or could contain metals such as bed rails, tray tables, counters, doorways, handles, fixtures, etc., and many of the above-referenced items.

MetalMiner followed up with Jack Gilbert of the US Department of Energy’s Argonne National Laboratory, who ran the Hospital Microbiome Project, and though the results of this study will not be released until 2016, Gilbert indicated that he supported the use of antimicrobials in hospital environments.

Furthermore, the World Health Organization (WHO) outlines a number of procedures and strategies designed to reduce infections from the environment as it pertains to hospital equipment and “all horizontal surfaces.” As one would expect, the horizontal surfaces look a lot like where the Hospital Microbiome Project saw all of the microbes.

Copper: Antimicrobial Alloys, Deploy!

And that’s where copper fits in. In 2008, five different groups of copper alloys received an EPA registration. The registration enables the registrant to “market these products with a claim that copper, when used in accordance with the label, ‘kills 99.9% of bacteria within two hours.’”

The alloys themselves contain a minimum of 60% copper and are currently marketed under CuVerro (by Olin Brass), the market leader. And herein lies the catalyst for Copper Wars – these new materials will need to compete with incumbent installed surfaces including stainless steel, plastic and other materials.

In a follow-up post we’ll examine the cost impact of regulatory penalties placed on poorly performing hospitals with unsatisfactory performance around HAIs. [Hint: it’s significant].
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President Obama and congressional republicans won a battle for trade authority in congress and a major rare earths restructured and sought bankruptcy protection.

Trade Promotion Authority Passes Senate

The US Senate voted Wednesday to give President Barack Obama “fast track” authority to negotiate trade deals—one of the final steps in a long political battle that pitted the White House against House Democrats in a battle over trade authority for the president. Fast track means deals such as the Trans-Pacific Partnership, which will be debated later this year, must be given an up or down vote by the Senate.

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The bill—which passed 60-38 in the Senate—will be sent to the president’s desk. Separate bills to provide assistance to American workers displaced by trade deals, known as Trade Adjustment Assistance, and to provide tougher anti-dumping enforcement protections from US Customs and Border Protection, particularly for the steel industry, are expected to follow and possibly be signed by the president simultaneously.

Molycorp Files for Chapter 11

Molycorp, Inc. filed for chapter 11 bankruptcy protection today.

The only US miner and producer of rare-earth elements—15 elements used in magnets, batteries, catalytic converters and other high-tech products—said it had secured an agreement with creditors to restructure its $1.7 billion in debt. The deal also provides $225 million in new financing to continue operations.

Molycorp and 20 subsidiaries filed chapter 11 petitions in the U.S. Bankruptcy Court in Wilmington, Del. The company said it expects to exit chapter 11 before the end of 2015. The restructuring support agreement is with creditors that hold over 70% of the aggregate principal amount of the company’s 10% senior secured notes.

The Company’s operations outside of North America, with the exception of non-operating companies in Luxembourg and Barbados, are excluded from the filings. Molycorp Rare Metals (Oklahoma), LLC, with operations in Quapaw, Oklahoma, also is excluded from the filings as it is not 100% owned by the Company.

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Greece seems to be teetering on the edge yet again.
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We wrote last year, and this year, as the Greek crisis waned and the international media assumed the problems had been solved that Greece had the potential to come back and make a re-appearance and it certainly has.

ECB, IMF, World Bank Troika

If the troika of the European Central Bank, the International Monetary Fund and World Bank don’t agree on a way forward to release further funds, Greece will default on it’s €1.5 billion repayment due to the IMF at the end of June and the €3.5 billion due to the ECB on July 20.

These are sizable sums of money for a government with no reserves and struggling to meet monthly wage bills, let alone pay suppliers for goods and services, an obligation it has foregone for some months now.

A last minute reprieve may be on the table with proposals the leftist Syriza government coalition has put forward this week. Finally these include proposals to address at least one of two key sticking points. First is raising the pension age to 67, the sticking point is the time frame, both when to start and when the process should conclude.

What Syriza Wants

Athens wants it to be phased in up to 2025 but the troika want it faster. Still, it is at least being discussed now and shows potential. Greek pensions are probably un-payable in the long run as this graph below underlines. Ultimately, a state pension has to fall somewhere in relation to the country’s ability to pay and Greece can’t afford for workers to retire in their early 60’s or sooner and then receive anymore than a subsistence pension; the reality is the country can’t afford it.

In their defense, it should be said, according to the Greek government, 45% of pensioners receive monthly payments below the poverty line of €665. The pensions aren’t generous in overall terms, only in relation to the country’s ability to fund them and the relatively early age that they start.

Screen Shot 2015-06-23 at 08.36.23

Source: Financial Times

The other sticking point is Greece’s value-added tax and raising taxes, in general. The troika want 23% VAT rates to be applied on pretty much everything except food and medicines which would be taxed at a lower rate, but Athens is proposing a number of other sectors be included in the lower rate including energy. But Syriza is also proposing to squeeze businesses further by increasing corporation tax with a one-off 12% tax on corporate profits above €500 million.

The VAT Question

The FT estimates it would raise an additional €945 million this year and another €405 million next year, but would eventually be phased out. The sticking point on the VAT is energy according to a Market Watch report with Athens adamant the VAT should not be more than 13% as this impacts the poorest in society disproportionately but the irony is no one is paying their energy bills, anyway. Last week, the Greek electric power authority reported that its unpaid bills reached €1.9 billion in 2015, more than enough to meet the IMF’s end of month payment on its own.

A more lasting proposal from the government is to raise overall corporate taxes from 26% to 29%, bringing in an additional €410 million next year – assuming companies pay it, of course. Tax revenue is one of the fundamental problems in Greece, whether corporate or private, tax receipts have collapsed particularly among individual taxpayers as people have simply failed to fill in tax forms while they wait to see what happens.

Meanwhile, defaults on bank loans are widespread, around 70% of restructured mortgages aren’t being paid and the banking system is freezing up. Government tax revenues for May were €1 billion short of the budget target exacerbating the state’s problems in trying to meet even day-to-day payments.

In the medium- to longer-term, Greece will need debt relief. To suggest the country can pay off its debts over the next 10-15 years is to consign Greek society to long-term austerity and, as we have seen with the election of the Syriza government, they won’t accept that.

For now, Europe will, for the sake of the Euro and appearances, muddle through with yet another 11th hour fudge. But Athens’ proposals will not be met in full. Pension payments will be higher, tax receipts will be lower and until Germany faces up to debt relief this problem will not go away.

Not that Greece couldn’t leave the Euro. It could and both Europe and Greece would survive but, politically, Euro block politicians do not want to admit the model is flawed and will continue to seek ways of keeping the shambles together. We don’t see a Grexit at this stage. It could come down the road, although northern European politicians are clearly getting more than exasperated with the situation, they are likely to find a way to make it work. Or at least keep the show on the road and continue to advance good money after bad in the hope something will turn up or it won’t blow up until they are out of office.

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The Wall Street Journal reported yesterday that Senate Republicans are offering a new incentive to support legislation giving the president expanded trade-negotiating power: help for the beleaguered US steel industry.

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As we reported last week, a companion measure to the Trade Promotion Authority bill has passed both the House and Senate and it would strengthen the enforcement of countervailing and anti-dumping duties by US Customs and Border Protection.

New Aid Package

The bills must go to a conference committee now to reconcile their differences, chief of which is that the House version does not have the robust trade remedies that the Senate version features, so the customs bill will not be voted on in the near future. Instead, Majority Leader Mitch McConnell (R. Ky.) is instead offering new language broadening the ways steel companies could win trade complaints. The customs enforcement provision will still likely find its way to the President’s desk, but not until much later.

Packaging Aid With Easier Trade Complaints

The legislative strategy, though, is complex. A number of Senate Democrats would have to cast a procedural vote today on a bill to give Obama and the next president fast-track trade promotion authority. After the fast-track bill passes the Senate, the chamber would then vote on a bill that would renew an expiring program to aid workers who suffer from production shifts overseas or import competition. McConnell’s new addition is that looser rules for making trade complaints for steel companies would be paired with the worker-aid bill. This bill is known as trade adjustment assistance (TAA).

Packaging the bills together is designed to keep the votes of republican senators, who have favored TAA and TPA since the Bush Administration championed them in 2003, even though they generally would not vote for continuing a large government worker aid package. McConnell is attempting to simultaneously bring in the votes of 11 democrat senators who favor the aid package for displaced workers, but have been skeptical of TPA and TAA, and free trade in general, so far.

The TAA vote is scheduled for today. If both TAA and the customs bill eventually pass, the US steel industry would likely enjoy protections not seen since 2003 when tariffs of 30% on most foreign steel imports lapsed.

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Metal prices are falling across the board, more concerning is this fall is happening while the dollar has weakened this month. Recent data shows that US consumer price inflation rose less than expected in May.

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A weaker dollar usually helps push metal prices up but this month that doesn’t seem to be the case. For the month to date, most industrial metals are down on the London Metal Exchange:

Aluminum: -2.9%. The light metal was trading this week below $1,700 per metric ton and near record lows.

Copper: -3.3%. The metal rallied from January through May (in a dead cat bounce) but the rally stopped last month and prices seem to be heading back to the lows recorded in January.

Nickel: Flat. The metal is holding its value in June but as with any other metal, it seems to lack upside momentum.

Lead: -7.2%. Lead made a very suspicious rally in April, it fell sharply in May and the fall continues in June. The metal is now nearing a 5-year low.

Zinc:-5%. Like lead, zinc rallied in April but didn’t succeed. The metal is proving incapable of making significant upside moves while commodities are bearish.

Tin: -3.8%. The metal keeps falling, as if that was the only thing it can do since 2014.

MM-IndX_TRENDS_Chart_June-2015_FNL

What This Means For Metal Buyers

Weakness in metal prices can be seen across the board. Industrial buyers might be tempted to buy a lot of metal as prices look cheap. Contrary, we recommend to wait for signals that the market is turning up. In bear markets, what looks cheap can become cheaper…

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