Russ Jones by wuxiangyu


									                                    The Resource Group Annual Meeting

            Flesh Wounds?
                                                                                                                                   Russ Jones
                                                                                                             Exec. Director Sagemark
                                                                                                              Private Wealth Services

        For Continuing Education f or CFP®, PACE and CPE use. Broker/dealer use only. Not to be used with the public.
        Securities of f ered through Lincoln Financial Advisors Corp., a broker/dealer. Investment advisory services of f ered through Li ncoln Financial
        Advisors or Sagemark Consulting, a division of Lincoln Financial Advisors, a registered investment advisor. Insurance of f ered through
        Lincoln af f iliates and other f ine companies. Lincoln Financial Group is the marketing name f or Lincoln National Corporation a nd its af f iliates.

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               Question conventional thinking…

                        Even if your voice shakes

                                                At Least mine is

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                        Point of View

        If you are kind, people may accuse you of
           ulterior motives …Be kind anyway.

        If you are honest, people may accuse you of
           ulterior motives…Be honest anyway.

        The Good you do today may be forgotten
          tomorrow…Do good anyway.

        Give the world the best you have, and it may
          never be enough…Give your best anyway.
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                        Four ‘Agenda’ items today

         How I (we) got here – Mr. T, Federal Reserve
          member, $46m – off to New Zealand, research, CFO
          at Fortune 500 co. – move/land. JPMorgan (10%) - 4

         Government Obligations

         Data Points from Far and Wide

        My Goal is to Alert you to a Possibility
                 Then and only then empower you to potentially proactively
                  address, communicate and adjust your own, and your Clients
                  Expectations and Portfolios

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                        Black Knight

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                        The Black Knight

         The US economy ( Black Knight) is the Strongest and
          most Dominant in the World

         It is virtually invincible

         To date our „Wounds‟ are essentially „Flesh Wounds‟
            “Deep, but not vital” – Conventional widom

         Thankfully „The worst is behind us‟

         Fought off all Foes – WWI, WWII, Cuban Missile Crisis,
          Tech Bubble, Cold War, S&L crisis Assassinations, Oct.
          1987, 9/11 “Nothing can defeat us”

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                        Add Black Knight Python slides

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                        At least Consider, if not Decide

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                        Big Picture Issues

                     “We should avoid ungenerously
                   throwing upon posterity the burden
                      we ourselves ought to bear.”

                                   George Washington - 1796

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                        Let’s Play a Game

         “We might have done nothing. That would
          have been utter ruin. Instead we met the
          situation with proposals to private business
          and to Congress of the most gigantic
          program of economic defense and
          counterattack ever evolved in the history of
          the Republic”

        Whose quote is this :
        1.     Obama
        2.     Bush
        3.     FDR
        4.     Herbert Hover

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                        Federal ‘Issues’

         $10.7T – 10/2008 Total Current Debt
         Add PV of Future Commitments
         Add Additional Current Projected Increases
          2010 – 2019 Projections (always below actual)
         Add Global issues – Iceland, Ireland, UK,
          Mexico, N. Korea, Iran, Iraq
         Add Stimulus Commitments
                 We Lose Track, we are „Numbed‟, Over „Stimulated‟
                    $1.2T Fed Reserve „Quantitative Easing‟ AKA???
                    $1.2T Treasury CDO/MBS buy backs
                    GM, Fannie, Citi, AIG, Banks and More Banks

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                        Stimulus Commitments I
         Program/Entity Commitments (in billions):
        Federal Reserve $7,765.64
        Primary Credit Discount $110.74
        Secondary Credit $.19
        Primary Dealer Credit $147
        ABCP Liquidity $152.11
        AIG Credit $60.00
        Net Portfolio CP $1,800.00
        Maiden Lane LLC (Bear Stearns) $29.50
        Maiden Lane II (AIG) $22.50
        Maiden Lane III (AIG) $30.00
        TSLF $250.00
        TAF $900.00

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                        Stimulus Commitments II
        Securities Lending Overnight $10.00
        Term Asset-Backed $900.00
        Currency Swaps $606.00
        MMIFF $540.00
        GSE Debt Purchases $600.00
        GSE Mortgage-Backed $1,000.00
        Citigroup Bailout (Fed) $220.40
        BofA Bailout (Fed) $87.20
        Treasury Commitments $300.00
        FDIC Total $2038.50
        Public-Private Investment $500.00
        FDIC Liquidity Guarantee $1,400.00
        GE $126.00
        Citigroup Bailout (FDIC) $10.00
        Bofa Bailout (FDIC) $2.50
        Treasury Total $2,694.00

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                        Stimulus Commitments III

        TARP $700.00
        Tax Break for Banks $29.00
        Stimulus (Bush) $168.00
        Stimulus II (Obama) $787.00
        Treasury Exchange Stab. $50.00
        Sallie Mae (Student Loans) $60.00
        FNM/FRE Support $400.00
        FDIC Line of Credit $500.00
        HUD Total $300.00
        Hope for Homeowners (FHA) $300.00
        Grand Total $12,798.14 Trillion
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         $1 Trillion to the IMF and World Bank. $787 Billion to
          „stimulus', and a whopping total of $12.8 Trillion
          committed by the US alone with more to come. Let
          us take a sobering look at the commitments that
          have been created thus far (in Billions of Dollars)
          and eliminate some confusion:
         Keep in mind that the above numbers do not
          represent the total cost of these programs. Just for
          example the second stimulus (HR1), which is
          counted as $787 Billion on the Treasury's tab will
          actually cost $3.27 Trillion. This total is arrived at by
          considering the extension of current provisions,
          total impact of the legislation, and $744 Billion in
          debt service (interest) that will need to be paid on
          the borrowed funds. If that level of understatement is
          present in even a small portion of the programs
          listed above, it will result in a ballooning of the
          overall totals.
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         Goldman Estimates 2009 Fiscal year Deficit
          to be:

               $2.5 Trillion

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                                                  How Big is Our
                                               Growing Fiscal Burden?

          This fiscal burden can be translated and compared as follows:

        Total –major fiscal exposures                                                                                                          $56.4 trillion

        Total household net worth 1                                                                                                            $56.5 trillion

                 Burden/Net worth ratio                                                                                                            99 percent

                Per person                                                                                                                           $184,000
                Per full-time worker                                                                                                                 $435,000
                Per household                                                                                                                        $483,000
                Median household income (2007) 3                                                                                                       $48,201
                Disposable personal income per capita (2007) 4                                                                                         $33,253
     Source: PGPF analysis of US Government data.
     Notes: (1) Federal Reserve Board, Flow of Funds Accounts, Table B.100, 2008:Q3 (December 6, 2008); (2) Burdens are calculate d using estimated total U.S.
     population as of 10/1/2008, from the U.S. Census Bureau; full-time workers reported by the Bureau of Economic Analysis, in NIPA table 6.5D (Aug. 1, 2008); and
     households reported by the U.S. Census Bureau, in Income, Poverty, and Health Insurance Coverage in the United States: 2006 (Aug. 2008; (3) U.S. Census
     Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2006 (Aug. 2007); and (4) Bureau of Economic Analysis, Personal Income and
     Outlays, table 2, (Nov. 29, 2007).                                                                                                                           18
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                                                     The U.S. Federal Debt (Percentage of GDP) –
                                               Expect Estimate to be 10-20% understated
                                                                           This is the Current Plan !


                                                  Civil War

                SOURCE: PGPF compilation. Projections based upon official government sources.
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         $104 Trillion Plus 8 Months of Stimulus Projections =
          +/- $117 Trillion
            Spending and bailouts are not likely finished
         Trillion = ?
            $1m/day, $365m/year for 2157 years
           $117T = $117m/day Paid Back… Add current
             spending of ~ $3.9T or $10.7Billion/day
         That‟s +/- $875,000 per full time worker in America
            This assumes NO Additional Debt or Deficit(s)- of the
             50% who pay tax…what can they afford?
         Q4 2008 – 1st time in US History – Neg. net worth…
                Really a debt to equity ratio of 2:1 @$117T
         Can we earn our way out of this? Could you?
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                            Six Choices

        1. Increase Taxes on the 50% who pay them
                       Or the 5% current seen as „OK‟ to tax
        2. Increase Debt…Faster than we are
                       Defer the problem
        3. “Print” more
                       Also know as debasing one‟s currency
                       Also know as Inflate
        4. Grow our way out
        5. Default – doubt it
        6. Inflate, increase taxes, increase debt, print,

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                        Confirmations and Related
         4.12.2009
        The folks at Deutsche Bank see price declines of 35 to 45 percent
          and maybe more in commercial property, due to the large
          number of loans coming due between now and 2012 that will
          not be able to be refinanced. Not only are loan delinquency
          rates up and rents down, but the go-go years of aggressive
          loan underwriting are gone. The interest-only, high low-to-value
          loans that drove capitalization (cap) rates to the five-percent
          range are history. Property buyers who are required to put
          more money down will offer significantly less for the same net
          operating income to achieve the required return on investment.
        Thus, cap rates for properties in Las Vegas, for instance, are
          closing in on 9 percent according to a local appraiser and may
          be on their way to 10 percent.

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                        Statistics I


        The value of global financial assets fell some $50
        trillion in 2008, equivalent to a year of world GDP.

        The same scenario is playing out worldwide. Ireland‟s
        “Celtic Tiger” boom has turned to bust. Across
        Europe, industrial production is down 12 percent from
        a year earlier. The Spanish and English building
        have been subdued and their economies are in steep

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                        Statistics II

        Taiwan‟s industrial production collapsed by 43
        percent year to date, and its exports plunged 29 percent
        in February.

        Singapore‟s exports sank 24 percent,
        Japan‟s 46 percent, South Korea‟s 18 percent, China‟s
        25 percent, Germany‟s 20 percent, France‟s 14 percent,
        and US exports fell at an annualized rate of 24 percent
        in the fourth quarter of 2008. (Exports account for 33
        percent of China‟s GDP, 14 percent of US GDP, and 18
        percent worldwide.)

        Flesh Wounds?
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                        Information continued
         The Russian ruble, down 33 percent since its brief
        war with Georgia in August 2008, frightened the Kremlin
        into calling for the creation of a supranational reserve currency
        as part of a reform of the global financial system.

         On average, world trade fell 31 percent in January

         “The outlook for global consumption remains bleak.
              Exports are likely to remain lackluster until global
              regain their appetite for consumption,”
                            Jing Ulrich, managing director at JPMorgan in
                                        Kong, in response to the dire data.
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                        What Drives consumption?
         “The tired ideas and solutions of the past 8 years will not give
          us the solution(s) to today‟s Global economic crisis”
               President Obama
            “We must abandon capitalism to save capitalism” Past President
         Query „What were those misguided ideas?‟
            Perhaps Consumers borrow as much as you can – Credit Cards
              and Home Equity Loans? To buy the vacation home, the flat
              screen, the bigger house, the extravagant vacation, the
              ATV/Speedboat/ remodel/jewelry?
            Perhaps Banks and Business doing the same?
            Perhaps our Government having borrowed $10.7 T, $5T of it
              over the last 8 years?
            So what is different? We‟ll in the spirit of Vegas – “Double
              Down” Triple Down? More

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         The “Hope” is that we can re-inflate the
         and get consumers and businesses to borrow
          and spend again…I believe that to be…
              Unlikely at best
         Consumer spending is 70% of US economy
         In 2009, private sector credit market debt
          was 174 percent of GDP. Household debt
          service ratio was at an all-time high. US
          households had 39 percent more debt than
          income. (In 1962, consumers had 37 percent
          less debt than income).
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                        Realty Track
        Well, these „potential buyers‟ will certainly have a lot to choose
           from. RealtyTrac reported today that total foreclosure filings –
           which include default papers, auction sale notices and
           repossessions – reached 803,489 in the first quarter, up 24%
           from the same time in 2008. Of these filings, they continue,
           341,180 happened in March – a 17% increase from February
           and a 46% jump from March 2008.
        “In the month of March we saw a record level of foreclosure
           activity – the number of households that received a foreclosure
           filing was more than 12% higher than the next highest month
           on record,” said James J. Saccacio, chief executive officer of
           RealtyTrac, in a statement.
        In other housing news, the Commerce Department reported today
           that building permits fell to a record-low level and construction
           on new homes dropped sharply last month, after a big gain in
           February. On top of that comes news that housing starts fell
           10.8% in March – the second lowest rate since the 1940s

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                          Hussman Funds – April 13th, 2009

                My opinion (Dr. John Hussman) (which we don't invest on and neither
                  should you) is that we're not even close to completing a bottoming
                  process. Frankly, we can't rule out that the final low is in place
                  either…. (Strategic growth fund down 2.34% last 12 months!)

                Fundamentally, my view is that the U.S. economy is on very thin ice, and
                   that by focusing on the bailout of corporate bondholders rather than
                   the restructuring of debt, we are courting the risk of a far deeper
                Alan Abelson of Barron's shared some
                research this week(4.6.2009) that estimates probable losses of financial
                   companies from mortgage and non-residential loans at $2.1 to $3.8
                   trillion, less than half of what has been realized to date. These figures
                   are much in line with my own estimates, and exclude additional loan
                   losses to non-financial companies (witness General Motors). Though
                   existing home sales were up recently, the report notes that 45% of
                   them were distressed sales.

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The report concludes, correctly I believe, that the U.S. is “in the middle
  innings of an enormous wave of defaults, foreclosures, and auctions.”
Until we observe large-scale restructuring of mortgage debt and the debt
  obligations of major financial institutions, we will be applying trillion
  dollar band-aids while the underlying cancer metastasizes. The longer
  we wait to restructure debt, to swap debt for equity, and to expect
  those who made the loans bear the losses as well, the more we risk
  allowing this downturn to become uncontrollable and unfathomably
  costly to the public.

The largest losses during bear markets tend to come on the heels of
overbought advances, and our measures presently don't offer happy
   green-shoot optimism that the market's difficulties are now behind it.

John P. Hussman, Ph.D.

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                        Anything New?
             China, Russia, IMF, UK all calling for new global currency to replace
              the Dollar

          On April 8, the London Telegraph ran a story on Moody's warning on
           US municipal bonds.
        “Shock warning on US municipal bonds
        The creditworthiness of the entire US local government system is at risk,
           credit ratings agency Moody's has warned, as the global recession
           continues to pinpoint its latest victims.

          The unprecedented warning -- the first time Moody's has made such a
          warning about the US local government system as a whole -- was
          made in the light of the continued recession and the problems that it
          is causing for city and state governments.
        Moody's said that it was assigning a negative outlook to the entire $2.6
          trillion (£1.8 trillion) US municipal bond sector -- operated by local
          town, city and state governments -- because of the combined collapse
          in the financial and housing markets.”

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                        Famous Historic Quotes I
        “We will not have any more crashes in our time.”--Economist John
          Maynard Keynes, 1927 …um except the one coming 2 years from now

         “There will be no interruption of our permanent prosperity.”--Myron E.
           Forbes, President, Pierce Arrow Motor Car Co., 1/12/28

         “Stock prices are not too high and Wall Street will not experience
           anything in the nature of a crash...increasing due in
           large measure to inventions such as the world never before has
           witnessed...This is a new and tremendously powerful factor in the
           business world.”--Professor Irving Fisher of Yale wrote in the New
           York Times on September 5, 1929, a month before the Crash.

         “American industry has reached a point where a break in New York stock
           prices does not necessarily mean a national depression.”-- Associated
           Press dispatch, 12/28/29 Stock prices were off about 30% going to

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                          Famous Historic Quotes II

         “President Hoover predicted today that the worst effect of the Crash upon
            unemployment will have been passed during the next sixty days.” --
            Washington Dispatch, 3/8/30 Unemployment was @8.7% going to 24.9%

             “While the crash only took place six months ago, I am convinced we have now
              passed the worst and, with continued unity of effort, we shall rapidly recover.” -
              -President Herbert Hoover, 6/29/30 Actually markets were off about 40% from
              the peak at that moment, going to 84%

             “The worst is over without a doubt.”--James J. Davis, Secretary of Labor,
              8/29/30 …um going to 84%

             “We have hit bottom and are on the upswing.”--James J. Davis, Secretary of
              Labor, 9/12/30 …um off 50% going to 84

             “The depression has ended.” --Dr. Julius Klein, Assistant Secretary of
              Commerce, 6/9/31 Well +/- 5 years

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                        Time for a Song

         I Think you‟ve made your point now
         I think you‟ve gone a bit too far to get your
          message through
         Before it gets to frightening
         Before we we….
         Could we start again please?
         Juxtiposed with the hit…The way we were
                 Things we oh so simple then…etc.

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                             Roulette Wheel
                 Asset Allocation, Diversification, Efficient Frontier, Monte Carlo
                         Plus Time: 5 + years   =

                 Except No Red, Always on Black
                 IF There is Now a Chance…just a Chance of Landing on a
                  Red Space…
                     Would you Change anything?
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                           Jim Rogers, Felix Zulauf, Jeremy
         WSJ 3/7 – 20% Chance of Great Depression II

         George Soros Partner Jim Rogers – Quantum Fund
                 Multi-billionaire
         “I’m not investing in Dollar dominated investments at this time”
         Wheat, Soybeans, Gold, Oil, and Zinc         Bloomberg Asia Interview
              March 2009

         “US repeating Mistakes made by Japan”
         “ The US risks sending the world into a depression as its bailouts of
          failed companies rob healthy businesses of capital.”
         “Reserves Of Oil are going down all over the world, the price of oil has
          to go much, much higher…We’re going to have serious, serious
          inflation down the road, I wish I knew when.”
                                                                Bloomberg March 17th, 2009

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                        Quotes II

         Run-up of 25-40% followed by a 50% drop in the
          S&P 500 that’s +/- 925 S&P to 460…460
                                 3.9.2009 FELIX ZULAUF Barron’s Roundtable

         Our 7 year estimated returns for the various equity
          categories are in the 10-13% range after inflation for
          7 years. Unfortunately it also compares to a +15%
          forecast at the 1974 low and because of that our
          guess is that there is still a 50/50 chance of crossing
          600 on the S&P500.
                                                    Jeremy Grantham 3.10.2009

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                        Stunning Quote
        The abandonment of the gold standard made it possible for the
          welfare statists to use the banking system as a means to an
          unlimited expansion of credit. They have created paper reserves
          in the form of government bonds which — through a complex
          series of steps — the banks accept in place of tangible assets and
          treat as if they were an actual deposit, i.e., as the equivalent of
          what was formerly a deposit of gold. The holder of a
          government bond or of a bank deposit created by paper reserves
          believes that he has a valid claim on a real asset. But the fact is
          that there are now more claims outstanding than real assets. The
          law of supply and demand is not to be conned. As the supply of
          money (of claims) increases relative to the supply of tangible
          assets in the economy, prices must eventually rise. Thus the
          earnings saved by the productive members of the society lose
          value in terms of goods. When the economy’s books are finally
          balanced, one finds that this loss in value represents the goods
          purchased by the government for welfare or other purposes with
          the money proceeds of the government bonds financed by bank
          credit expansion.
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                        Quote - Greenspan
        In the absence of the gold standard, there is no way to protect
           savings from confiscation through inflation. There is no safe
           store of value. If there were, the government would have to
           make its holding illegal, as was done in the case of gold. If
           everyone decided, for example, to convert all his bank deposits
           to silver or copper or any other good, and thereafter declined to
           accept checks as payment for goods, bank deposits would lose
           their purchasing power and government-created bank credit
           would be worthless as a claim on goods. The financial policy of
           the welfare state requires that there be no way for the owners of
           wealth to protect themselves.
        This is the shabby secret of the welfare statists’ tirades against gold.
           Deficit spending is simply a scheme for the confiscation of
           wealth. Gold stands in the way of this insidious process. It
           stands as a protector of property rights. If one grasps this, one
           has no difficulty in understanding the statists’ antagonism toward
           the gold standard.
                 Allan Greenspan - Gold and Economic Freedom, 1966
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   Mr. Bernanke stated
       (2002): Indeed, under a fiat (that is, paper) money system, a government (in pra
       ctice, the central bank in cooperation with other agencies) should always be able
       to generate increased nominal spending and inflation, even when the short
       term nominal interest rate is at zero [.] What has this got to do with monetary
   policy? Like gold, U.S. dollars have value only to the extent that they are
   strictly limited in supply. But the U.S. government has a technology, called a
   printing press (or, today, its electronic equivalent), that allows it to produce
   as many U.S. dollars as it wishes at essentially no cost. By increasing the
   number of U.S. dollars in circulation, or even by credibly threatening to do so,
   the U.S. government can also reduce the value of a dollar in terms of goods and
   services, which is equivalent to raising the prices in dollars of those goods and
   services. We conclude that, under a paper money system, a determined
   government can always generate higher spending and hence positive inflation."
   (emphasis added)

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                             I don’t Know ‘Jack’ about
                             this…Possible Paradigm
         5 Possibilities – of course many more

                       2006 redo
                       Slow Growth
                       Flat
                       Japan – Drop and Flat for 15 years
                       Depression/ Greater Depression

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                        I don’t know ‘Jack’ about this Possible
                        Paradigm – Totally a hypothetical example

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                        At least consider, if not decide

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