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Here's what we know so far about Friday鈥檚 margin call - YouTube
Channel: CNBC Television
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david faber has been covering this ever
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since the block trades
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really hit late last week and he joins
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us this morning on the phone david uh
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happy vacation once again
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uh what do we what's important to know
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this morning
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yeah thanks guys i'm sorry i'm not with
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you and it does seem inevitable first
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vacation in eight months it always
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happens
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and you know it's funny literally on the
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plane seven a.m my phone started to
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light up
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with uh calls from people saying there's
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some very strange block trades now that
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wasn't yet viacom and discovery which of
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course as we know were sort of at the
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center
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of this but it was any of these other
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names baidu you mentioned 10 cent you
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heard dom mentioning at the end of
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squawk box
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block after block and people starting to
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wonder what was going on as friday went
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along of course we started to see those
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enormous blocks both discovery and
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viacom
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we have all three of us sat there and
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talked endlessly as you know over these
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last few months about the enormous move
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up in both viacom and discovery in
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particular two companies that i happen
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to know very well
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far beyond what many at least had
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anticipated would be the fundamental
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strength of these companies
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even with accounting for their success
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so far if you want to call it that in
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direct to consumer
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and now we have an answer as to what was
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going on but we have an awful lot of
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questions still in terms of how this was
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allowed to happen
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and if i could just back up for a minute
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and try to explain to our viewers what
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are we talking about well it does appear
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that archaico says family office
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hedge fund whatever you want to actually
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determine
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um had swap agreements across wall
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street with
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all sorts of different prime brokers
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whether it's gold goldman sachs whether
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it's morgan stanley whether it's
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uh credit suisse which is jim just
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mentioned may have significant losses
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whether it's nomura and on
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and on and none of them seem to have an
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understanding of exactly how large the
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positions were at the other firms and a
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swap
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basically gives a derivative the the
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stock is held in the street name
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but the derivative that's tied to it
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gives the economic value to the owner
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there
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and so archagos had well now we know
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perhaps as much as 15 percent
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or more ownership uh economically
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of discovery and viacom those numbers
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are just astronomic and apparently
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buying them all through the main reason
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they may have moved up to the levels
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that they did
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and then having been thrown as viacom
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proceeded to do that offering
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early last week at 85 a share in the
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stock suffering
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that may have started this cascade where
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the selling began and by the way it's
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not just owning it on swap where there's
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no transparency and nobody at any
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nobody really knows including the
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companies who their true owners are
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it's also leverage being provided by the
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prime brokers gym
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five maybe as much as seven times and
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that's where we are right now and this
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may not be over i've heard from numerous
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people this morning that wells fargo may
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be shopping a large block of viacom as
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well
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and so we'll see they did the 45 million
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last night at what was it 47 i think it
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was
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but there may be more downside here
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we'll have to wait and see but this has
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been a fascinating story jim
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both from the lack of transparency the
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leverage that was being used and the
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size
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nobody knows exactly what this guy who
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runs rk ghost was thinking
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it seems almost insane his behavior yeah
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evie david what i
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think about this i think about what
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would have happened
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if you had done i mean let's say i ran a
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hedge fund and
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you borrowed money and you didn't tell
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the other brokers that you were doing
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this
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and you just had everybody on the hook
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so i think people at home david are
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wondering
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how is it possible that this man could
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have fooled every single broker
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yeah listen there are you know you are
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supposed to
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uh uh say that you don't will not own
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more than 10
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of any one company period apparently he
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didn't
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listen to those roles and didn't obey
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those rules i mean that's all i can
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think now there are various rules as
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well but
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you know the swap market perhaps is more
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opaque as we've said
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uh you it's unknown to the other prime
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brokers if you don't disclose it
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what your economic position is with
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others and so
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clearly he seemed to be above 10 clearly
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he
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well he very well may not have been
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obeying rules at least set by the prime
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brokers gym
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uh and then why he would make the
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decision to buy and buy
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and buy over those last weeks and months
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as that stock went ever higher and many
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shorts covered it's not clear exactly
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what his thinking was
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um and here we are well david i mean i
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think people at home are trying to
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figure out how a three billion dollar
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offering of via combo which by the way
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you talked about viacom doing one every
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day
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if they were if they had a brain how
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three billion dollar viacom could send
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everything
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domino like that you could actually have
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the language of a credit suite saying
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look you know
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we are these are highly significant
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losses david these are
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very big banks i mean i i think people
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say are they all that
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fragile i know i mean listen it's prime
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brokerage certain ones are much more
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focused on the leverage that they're
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providing a client but at the same time
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if the client is not being
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straightforward with them and they don't
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understand the exposure the client has
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across wall street to one name or two
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names and how large they are in that
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name
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it's very difficult for them to
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ascertain and again it's it's both the
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lack of transparency
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and the leverage here that conspired to
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to bring this
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this uh this firm down clearly uh and
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it's going to result in these enormous
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losses that we're seeing i mean memorial
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last night we saw what as much as 2
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billion we don't know the number on
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credit suisse we have other suspects
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that perhaps were
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that there's some concern about so we're
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going to learn a lot more there's going
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to be
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guys going to have to be an
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investigation here of some kind
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most likely there is going to be a
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rewriting of of rules and regulations
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around swaps
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so that there is more transparency um
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you know that's why this is an important
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story
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even if it doesn't spread far beyond and
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obviously it's already impacted the
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stocks that we're talking about
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it's not as so 10 gym is not an enormous
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company the idea that that stock was
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down as much as it was
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is frightening given how important it is
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in china and how enormous it is in china
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shepard smith here thanks for watching
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cnbc
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on youtube
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