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Google Faces Wall Street Revolt 445

Posted by Zonk
from the don't-pull-down-the-o dept.
Fred Flange wrote to mention a Times of London article, which explains a minor rebellion against GOOG on Wall Street. The company, which has always refused to offer guidance for its stock, is now being peppered with requests to do just that. From the article: "Sergey Brin and Larry Page, Google's founders and biggest shareholders, made plain in their listing prospectus that the company would reject many of the orthodox methods of doing business with Wall Street and instead adopt a mantra to encourage its employees to do good and not 'evil'. Other Wall Street analysts last night were also preparing reports that agreed with RBC, The Times has learnt. 'The time has come for Google to step into line,' one analyst said. 'It is in the interest of all shareholders, including the company's employees and officers, that the share price achieves some stability.'"
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Google Faces Wall Street Revolt

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  • by aborchers (471342) on Thursday March 09, 2006 @10:45AM (#14882432) Homepage Journal
    If GOOG was up front with their way of doing business and it's acceptable by SEC and other relevant regulators and the analysts don't like it, then I say the analysts can kiss GOOG's multicolored ass.
  • Hmm (Score:5, Insightful)

    by Doytch (950946) <markpd@gmailFORTRAN.com minus language> on Thursday March 09, 2006 @10:45AM (#14882434)
    Maybe the analysts should do their own research on the company?
  • Question: (Score:4, Interesting)

    by endrue (927487) on Thursday March 09, 2006 @10:46AM (#14882444)
    Is Google the only company that does not give out this information? How common is this?
    • Re:Question: (Score:4, Insightful)

      by Maximum Prophet (716608) on Thursday March 09, 2006 @11:19AM (#14882708)
      Warren Buffet recomends this to all the companies he is on the board of. It's hard to go wrong following Warren's advice.
    • by snowwrestler (896305) on Thursday March 09, 2006 @11:31AM (#14882821)
      Coca-Cola, Gillete, the Washington Post, McDonalds, and Berkshire Hathaway are just some of the companies that do not provide quarterly earnings guidance. In addition the CEO of the U.S. Chamber of Commerce recently called on businesses to end the practice [uschamber.com] in favor of better communication about long-term issues. The only reason Google seems to be singled out on this issue is because it's Slashdot.
      • I think Google is being singled out at this time not because of it being a slashdot article (after all, slashdot did not write the article but posted a link to it) due to the stock price. For a stock price so incredibly high, if I were a shareholder I would definitely want updates.

        Non-quarterly updates and only posting yearly results would in my opinion stabilize the stock. You wouldn't have major fluctuations 4 times per year and should the company get into trouble they still have the capital to attempt
  • Makes sense (Score:5, Interesting)

    by metlin (258108) * on Thursday March 09, 2006 @10:46AM (#14882446) Journal
    If the analysts can't predict, then the stock price would fluctuate.

    This introduces uncertainty, and the last thing that Wallstreet likes is uncertainty. Sometimes, companies have their stock prices going up even after they've lost a major deal simply because the period of uncertainty is over.

    So, this makes a lot of sense - Google is causing uncertainty in the price, and that is definitely not good for GOOG's shareholders (or for Wallstreet, for that matter).
    • Re:Makes sense (Score:4, Insightful)

      by Billosaur (927319) * <wgrother@NosPAm.optonline.net> on Thursday March 09, 2006 @11:03AM (#14882587) Journal
      This introduces uncertainty, and the last thing that Wallstreet likes is uncertainty. Sometimes, companies have their stock prices going up even after they've lost a major deal simply because the period of uncertainty is over.

      But "Wall Street" doesn't know much about anything, whether they have information or not. They forcast that a company should make a profit of 27 cents a share, the company only makes 26 cents, and the stock price plummets! Two companies are going to merge, making them stronger and better able to compete in the marketplace, and their stock prices drop on news of the merger!

      Before you ascribe prognosticative powers to The Street, remember this is the same body that single-handedly created and destroyed the tech bubble because of their rabid need to invest in tech companies with no products, no marketing, and no major capital outlay. Wall Street doesn't have a clue what is really going on and the only people who seem to get rich in the stock market are a) people who are already rich and b) traders, brokers, and analysts and the comapnies they work for.

    • Re:Makes sense (Score:3, Interesting)

      The time has come for Google to step into line,' one analyst said. 'It is in the interest of all shareholders, including the company's employees and officers, that the share price achieves some stability.'"

      Uncertainty is also produced by analysts going on TV and speculating.

      Worst of all are the short-sighted stock market gamblers who want ruinous long term tactics for short term profits.

      Just imagine this: "Google isn't leveraging their home page with advertisments like Yahoo and MSN, so I'm downgrading

  • by inkdesign (7389) on Thursday March 09, 2006 @10:47AM (#14882454)
    "I find your lack of faith disturbing"
  • Well, good luck... (Score:3, Insightful)

    by Zitchas (713512) on Thursday March 09, 2006 @10:47AM (#14882455) Journal
    Well, I wish both the best of luck in their endeavors. Wall street will deffinitly need it to get much in the way of change out of google, and on the other hand, one of the things that makes google so attractive is the fact that it doesn't play by the rules. So far, it's *not* just another computer company. I rather think that, once it stops being so distinctive and unique, it will likely stop being as successfull as it is now.

    Stay strong, Google! You may do things we don't like ocasionally, but you're still a wonderfull breath of fresh air in this rather stagnant world...

  • by Anonymous Coward on Thursday March 09, 2006 @10:49AM (#14882468)
    What do they get paid for? Regurgitating whatever the company says?

    A listed company doesn't have to provide guidance. However, they do have to make all information equally available to all investors.

    What Wall Street dislikes is that Google is pointing out how moronic they really are.
  • by aug24 (38229) on Thursday March 09, 2006 @10:49AM (#14882469) Homepage
    Tell 'em to

    1) get bent
    and
    2) do their own work, the lazy bastards.

    Love,
    Justin.
  • It IS time (Score:3, Insightful)

    by Kaellenn (540133) on Thursday March 09, 2006 @10:49AM (#14882473) Homepage
    Simply put: when you become a publicly held company you have a responsibility to your shareholders. Until upper management learns this, their stock price is going to continue to decline sharply.

    How exactly is it an "evil" thing to be open and honest with your shareholders rather than asking them to trust in your "master plan?" That's like listening to the guy in the back alley who says "trust me, just close your eyes." Shareholders are going to become frustrated and begin to unload their shares as they realize that they own hugely inflated stock with no real idea of how the company intends to achieve that valuation on the books and not just in the eyes of stock market prospectors.
    • Re:It IS time (Score:5, Insightful)

      by Angostura (703910) on Thursday March 09, 2006 @12:53PM (#14883549)
      Simply put: when you become a publicly held company you have a responsibility to your shareholders.

      And providing manipulative "guidance" in a desparate bid to stabilise stock prices by giving hints isn't one of them, which is why it is not mandatory. Presumably the shareholders had a duty to read the prospectus where it said the company would not issue guidance.

      Until upper management learns this, their stock price is going to continue to decline sharply.

      Come again? The stock price will change depending on each quarter's results combined with the investor's view on longer term prospects given the company's stated plan and management competence. Without guidance all that happens is that there is a greater divergence of opinion as to what next quarter's results will be.

      How exactly is it an "evil" thing to be open and honest with your shareholders rather than asking them to trust in your "master plan?"

      This has nothing to do with a master plan, this is all about analysts wanting to avoid looking foolish by using hints from Google on short-term results.

      That's like listening to the guy in the back alley who says "trust me, just close your eyes."

      Not really, unless the guy in the back alley also produces quarterly figures.

      Shareholders are going to become frustrated and begin to unload their shares as they realize that they own hugely inflated stock with no real idea of how the company intends to achieve that valuation on the books and not just in the eyes of stock market prospectors.

      I may agree, but guidance or the lack of guidance won't change that.
  • by Alien54 (180860) on Thursday March 09, 2006 @10:49AM (#14882475) Journal
    Many investment firms, especially during the internet bubble, pushed companies to turn around quick profits at the expense of long term growth. This was fine for the cowboy investors, looking to make a quick buck, but very bad for long term prospects. With a strategy for long term interests, you can sometimes do things that are risky as far as short term profits go. Which makes all of the short term investors nervous.

    Sometimes it is better not to let these folks get a foot in the door, because otherwise you get a bunch of people second guessing what your intentions are, and advocating positions that are great for them, but not for the long term prospects of the company.

    • by panthro (552708) <mavrinac@@@gmail...com> on Thursday March 09, 2006 @11:05AM (#14882604) Homepage

      Couldn't have said it better myself (so I won't). This is precisely why Google's business model has been working so well, in my opinion. Investors calling for Google to go the traditional route (and thus open the ugly, ugly door to input from impatient and fidgety Wall Street suits) are a threat to the long term success of the company. I'm convinced it's in Google's long-term interest to stay the path and let the stock price reflect investments that benefit the future of the company.

  • Let them eat cake (Score:3, Insightful)

    by aussersterne (212916) on Thursday March 09, 2006 @10:53AM (#14882510) Homepage
    Google investors overbought a black box and they were willing to such a thing because of greed. Now that they're invested, they've decided they want to see inside that black box, despite their having known it was a black box when they bought it. Why? Greed.

    Let them stare their greed in the face for a while.
  • by digitaldc (879047) * on Thursday March 09, 2006 @10:54AM (#14882515)
    An analyst for RBC Capital Markets yesterday was the first to call for Google to step into line with the majority of US listed companies

    And who is this person to tell Google what to do? Just because they can not maximize their profit margins more easily, Google must change their ways?
  • Screw Guidance (Score:4, Insightful)

    by Anonymous Coward on Thursday March 09, 2006 @10:56AM (#14882528)
    Serious investors should think long term, not what this quarters profit will be. One huge problem with U.S. companies is that their upper management folks are compensated with stock options (or grants) and are often based on current performance. Why make a long term investment when you can cut current costs to make a profit now? Wall Street thinks you're making money and the stock goes up up up and you can cash in.

    Google's doing the right thing telling "The Street" to fuck off.
    Wall Street is still pissed off that they missed out on the initial public offering by Google going with a "Dutch Auction" where individual investors set the initial price, not a fixed price where insiders who get alloted shares can rake in freebie big payday.
    Ya, I'm talking about you Goldman Sachs.

    Bottom line is Google shouldn't cater to these "analysts". They all have axes to grind and pandering to them is a waste of time and money. Google should pursue success in many paths and if one of them takes years or decades to pan out, so be it.

    Not that Google wasn't pulling a fast one the little guys who did invest in their company. The stock Google sold was "diluted voting rights stock". That's right, the original owners get special super duper voting power over you clowns with 100 shares.

  • by trosenbl (191401) <trosenbl.gmail@com> on Thursday March 09, 2006 @10:59AM (#14882559)
    I'm not a stock broker, but I do know that companies can be delisted from a stock exchange for a variety of reasons. Could Google get delisted for being too tight lipped? They've got to offer at least some guidance to stockholders in their annual reports.

    I'm not saying I don't respect what Brin and Page are trying for, but they're going into a well-established arena and trying to do things in what seems to be a very unique way, an arena which is largely satisfied with the way things work. Perhaps we might see some minimum disclosure requirements added to the requirements for being listed on NASDAQ.

    Frame it in the open source discussion, and some opinions might change. Isn't what analysts are calling for just like what the open source community calls for? We want to know how code works, to make sure it's doing the right things and not hiding wrong things. Isn't this what the Bush administration is criticized for, not giving guidance as to what they're doing? This is financial analysts wanting to get an idea of what's going on underneath the hood, rather than just guessing.

    Again, I respect what they do, and if they push gently, they'll get something put in motion. But, if they push too hard for what they want before the market is ready for their philosophy, something might break.
    • Absolutely not (Score:4, Informative)

      by snowwrestler (896305) on Thursday March 09, 2006 @11:55AM (#14883033)
      There is no legal requirement for a public company to provide quarterly earnings guidance, and in fact a number of large, successful public companies do not provide such guidance. Google can easily meet their legal and fiduciary requirements without providing such guidance.

      Contrary to what the analysts would have us believe, companies do have some rights in what and how they communicate to the public. (Because of Regulation FD, communication to investors and communication to the public are one and the same thing.)
  • Google (Score:5, Interesting)

    by phlipski (960008) on Thursday March 09, 2006 @11:04AM (#14882592)
    What bothers me about this is not that Google refuses to provide more earnings guidance, but that the investor are acting like little whiny bitches. Google told Wall Street this is exactly how they would run their company. I have no sympathy for anybody who bought Google stock expecting the company to act like the most other publicly traded company. If they don't like it they can sell the stock. Does everbody allready forget that Google told people not to expect regular earnings guidance BEFORE they went public? I'm not so sure Page and Brin car if the stock deflates all that much. The stock is over valued to begin with. But I guess in the end you can't fault wall street for trying. If they get Google to change they win. However if they don't, and Google holds strong then they just look like fools to me right now.
  • by vorwerk (543034) on Thursday March 09, 2006 @11:11AM (#14882649)
    It is in the interest of all shareholders, including the company's employees and officers, that the share price achieves some stability.

    I feel that this is incorrect -- Google and its board of directors have a responsibility to ensure that the company remains stable and grows at a reasonable rate. By and large, Google is not responsible for ensuring that its share price become "stable" -- that is for the investors on Wall street to decide.

    It is not uncommon, incidentally, for companies not to offer quarterly guidance. This is particularly the case with companies and in industries that are cyclical (e.g., perhaps they sell more apples in May to August, but practically none in January to April). Berkshire Hathaway offers only a single, yearly report (no quarterly updates), for, as explained by Warren Buffett (its CEO), quarterly guidance merely serves to satiate the manic-depressive Wall Street than to give meaningful insight into company operations.

    I think that the fact that Google has chosen not to offer guidance is a good thing, since it is still growing its core business and may go several months with negative earnings (e.g., it might be expending lots on R&D, buying businesses, or building infrastructure) despite positive growth on a yearly basis.
  • step into line? (Score:3, Insightful)

    by gEvil (beta) (945888) on Thursday March 09, 2006 @11:13AM (#14882661)
    'The time has come for Google to step into line,' one analyst said.

    Oh yeah. Talk like that would surely get me to listen to what they're telling me to do. Boohooohooo. The analysts can't manipulate the stock as easily as they want...
  • Short term goals (Score:5, Insightful)

    by szembek (948327) on Thursday March 09, 2006 @11:15AM (#14882683) Homepage
    I heard a segment on NPR this morning about this. Larry Page was saying that Google wants to stay focused on the long term and that releasing these quarterly estimates would be the equivalent of somebody who is trying to lose weight stepping on the scale every half an hour. I think this makes sense. When companies release quarterly data it can encourage business practices that boost short term profits.
  • Dodge v. Ford (Score:3, Informative)

    by max born (739948) on Thursday March 09, 2006 @11:23AM (#14882748)
    I side with google on this. But their "do no evil" policy may be incompatible with the legal rights of the shareholders. Ever since Dodge v. Ford [wikipedia.org] it's been pretty much accepted in the US that companies cannot practice philanthropy at the expense of shareholders.

    Though we all like the idea of "do no evil", when it comes to business the idea can be very subjective.
  • Casino Capitalism (Score:3, Interesting)

    by sesshomaru (173381) on Thursday March 09, 2006 @11:23AM (#14882752) Journal
    "And as an institution degenerates, so do the attitudes and habits of the people who run it. Investors, for example, come to think that they want companies to deliver 'shareholder value' - and deliver it right away. They want the easy money, the fast money. So, they only care about quarterly results and what happens to the share price. That's what those financial news programs on TV are all about. They report the latest quarterly results and then, they watch investors' reactions. If a company doesn't come up with good numbers, investors dump it. Is that capitalism? Well, maybe, but it's of a particular sort. It's a kind of casino capitalism where everyone hopes to get rich, but not by genuine work, investment or innovation.

    "The managers - who are rarely real capitalists or real entrepreneurs themselves - have the same attitude. They want to get as much as they can out of the business for themselves and then move on. So, it's no wonder that no one wants to make the hard, long-term investments necessary in order to compete in the auto business. Everybody just wants something for nothing...as soon as possible. The unions want their health and retirement benefits. The executives want their golden parachutes. Investors want the share price to rise. Who really cares about the auto business? So, everyone borrows, spends, refinances; they watch stock prices and want to know how much the house down the street sold for. Save money? Invest for the long term? They wouldn't dream of it.

    "And it gets worse. Gradually, the whole society becomes more and more corrupt - everyone has to lie and delude him or herself in order to keep up pretenses."
    -- Something Wicked This Way Comes -- Bill Bonner [dailyreckoning.com]

  • Live eviL (Score:3, Insightful)

    by Doc Ruby (173196) on Thursday March 09, 2006 @11:25AM (#14882769) Homepage Journal
    The analysts should earn their own salaries by analyzing Google, instead of republishing corporate PR like they do for every other public company whose stock they resell to their clients. Getting "guidance" to determine the stock price from the company profiting from the stock is almost as corrupt as publishing the "research" based on it to sell the stock at a higher price than that at which the analyst's firm bought it.

    Since the brokers are demanding Google start to play their evil game, it's no surprise that the brokers also want Google to stop saying such bad things about "doing evil". Even though that "mantra" has no relevance to the stock, its info, its guidance or corporate performance whatsoever. They just want Google to stop being so different from the evil they do every day.
  • Uh, how about... (Score:4, Interesting)

    by argStyopa (232550) on Thursday March 09, 2006 @11:27AM (#14882781) Journal
    'Caveat Emptor'

    They said from the beginning that they wouldn't provide typical forecasts.
    Nobody forced anyone to buy their stock.

    Predictably the stock is less stable, and will presumeably (according to simple capitalism) be valued slightly lower because Wall Street prefers stability.

    Done.

    Carping about "oh they should do this" or "should do that" is stupid. You bought it, you don't like the conditions or the company, you sell it. If you have lost value, well, you've just been bitchslapped by 'the invisible hand' (plus your own unrealistic expectations).
  • Caveat Emptor (Score:5, Informative)

    by ausoleil (322752) on Thursday March 09, 2006 @11:27AM (#14882784) Homepage
    It's really simple: as long as Google follows the letter and spirit of the law, then they can manage their company as they see fit under the direction of their board of directors.

    Should investors prefer another philosophy they can replace the management team.

    If they cannot do that, then they can sell their stock and not be involved with Google any longer.

    It's really pretty simple. Analysts have no power within a company other than to make suggestions to management and to offer guidance to investors. They cannot compell Google to do anything whatsoever, so they may as well deflate their chests and get over themselves.
  • Hold the line (Score:5, Insightful)

    by HangingChad (677530) on Thursday March 09, 2006 @11:30AM (#14882803) Homepage
    I think Google should hold the line and keep doing exactly what they've been doing. Focus on building long term value for the user which will build value for the company and ultimately the stockholders.

    Wall St. doesn't like it, too bad. It's about time someone stood up for long term value in this country and pulled their head out of that quarterly numbers mind fuck that's all to common. I'm glad to see Google taking the lead.

    Stay out of that line. Focus on value. The share price is grossly inflated right now anyway. It'll go up, it'll go down. You pays your money and takes your chances.

  • by wrook (134116) on Thursday March 09, 2006 @11:39AM (#14882890) Homepage
    I fully support Google's stance on this issue. Providing guidance is just an invitation to cook the books. What they are asking is to forecast how much money the company is going to make or lose in the next quarter/year. And *then* they are asking the same company to report how close they came to the mark. If the estimate was wrong, the shareholders may have reason to launch a lawsuit.

    So what happens? The company does it's best to juggle the numbers so that they match the estimate. This is one of the reasons that accounting practices are as bad as they are -- there is a huge amount of incentive to mislead.

    But not only this conflict of interest, what does a company do if they have inside information that will affect their profits in the next quarter? They can't announce the information *and* they can't give accurate numbers (because they can't justify them). So if you are planning a big cash purchase and you know that earnings are going to be low because of it, you are stuck -- you either mislead the analysists or you give them a hint that something big is coming down the pipe. Both are really bad.

    But having listened to a number of analyst meetings, I am constantly shocked how clueless these analysts are. They aren't even aware of basic public information that is published in the newspaper. One company I worked for won a large lawsuit (several million dollars) from the federal government a month before the quartly results were released. It was big news in all the papers. At the analyst meeting for the results, the analyst from Merill Lynch asked where the money came from. "The government lawsuit" was the reply. "What government lawsuit?".

  • by reverendG (602408) on Thursday March 09, 2006 @11:40AM (#14882904) Homepage
    I think you're absolutely right. Google's way of doing things is completely unacceptable! They are obviously going to plunge their company into a financial morass of .... hold on, GOOG just dropped to my strike price. I need to go make a major purchase! Later, suckers!
  • by Catbeller (118204) on Thursday March 09, 2006 @12:24PM (#14883310) Homepage
    A week or so ago I posted hereabouts that it seemed like the analysts on Wall Street were intentionally punishing Google because it wasn't playing ball by giving inside information to analysts for their "projections". I thought it funny that so many news items started to crop up denigrating Google and its projects. Everywhere, even on DL.TV, there was widespread Google-bashing, or at least reporting that people were bashing Google. The stock price keeps plummeting. I speculated that analysts were at least refusing to lend a hand to stop the flood of bad news by speaking up about the company's strengths. Not attacks, just refusal to aid. I thought perhaps that they were passive-agressively sending a message to let them in. They are accustomed to the inside information. They need it to make money on the market consistently, something that normal cowpokes trading online don't do, lacking the information that the analysts hold so closely to themselves.

    Damned if the attack hasn't gone full-agressive and public. The message is clear: give us the information we want, or we will do our best to ruin Google. This is extortion.

    The analysts need to be regulated again. This is completely out of control.
  • Investing Basics (Score:3, Interesting)

    by Anonymous Coward on Thursday March 09, 2006 @12:46PM (#14883501)
    A Long, Long Time Ago, In A More Moral Age . . ..

          Investing was about taking money that you have, and using it to help someone else do something you thought needed to be done. Usually, if they proved successful, this meant that the value of the effort you supported grew, and you could sell the portion of that business which you owned if you so chose.

          Oh, and if the endeavor was wildly successful, there would enough of a surplus of money you could get paid without losing any of your interest in the endeavor!

          Today's investment system doesn't care what the company being invested in is trying to do, all that anyone cares about is whether the stock will A) pay dividends which can be used as income (and this portion of the marketplace appears to be dwindling) or B) grow in value so quickly that you can sell your interest in a matter of days or weeks and make a profit.

          Investing used to be about creating products, services, business and livelihoods. Now it is about sucking everything out of a company you can, and moving on to the next company.

          Google said (my interpretation) that they want to cater to the original idea of what investing is about.

          The guys who drive the current version of investing are trying to force Google into the paradigm by which the analysts even exist in the first place . . ..

          What I don't understand is why any of this surprises anyone who's paying even the least bit of attention.
  • It's a free market (Score:5, Interesting)

    by plopez (54068) on Thursday March 09, 2006 @01:46PM (#14884015) Journal
    If you don't like how Google is doing business, don't buy Google. Google fully discloses their corp. philospohy in their prospectus. If you are an analyst, you don't matter because despite what you say they are profitable.

    Investing in a profitable company? Horrors, we can't have that. Gives all the crap analysts and brokerage houses are pushing a bad reputation! You need to buy the blue sky buzz word of the month pump-and-dump being touted on TV. Not some innovative company with large sales and a good product line!

    I wonder. Google has pissed off DOJ and Wallstreet. It isn't the first time the Wallstreet crowd or the Bushites have played dirty.

    In addition, there is a tradition in business of demanding conformity. If you stand out in a corporate culture you are either pecked into conformity or eventually fired for trumped up reasons. Very much like high school in some ways.

    It will be interesting to see what happens. As long as they are profitable they do not have to change. Can they last long enough to change Wallstreet? Or are they doomed to cave in?
  • Wall street (Score:5, Informative)

    by MECC (8478) on Thursday March 09, 2006 @01:50PM (#14884056)
    Google is just following good business practices in refusing to adopt a short-term earnings business slanted model. Since wall street wants to predict and analyze something they have no fundamental clue about, even with guidance they'd make bad predictions, which is bad for everybody. For Google to do things 'the wall street way' would substancially hurt their profitability, and be irresponsible to their shareholders, to whom they actually are responsible. For a business to become so dependant on Wall street capitalization that they change how they do things to suit wall street is likely a death knell or a sign of a long downward slide. People who know nothing about how to run a business should have zero say, especially in terms of short term considerations, which are by definition what WS deals with.

    Other companies that run their own business without WS intervention (i.e. no earning guidance): Coca-Cola, Gillette and The Washington Post.

Prediction is very difficult, especially of the future. - Niels Bohr

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