Profit From Inflation
This Is Happening Now Get Ready
Inflation is bad news – why not make money from it?
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In this episode, we break down the exact steps necessary to create wealth by shorting a currency like the dollar. It is not enough to buy assets, because inflation can easily erode the gains. Shorting the currency will offset the losses incurred from a loss in purchasing power in the money used for the purchase.
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Profit From Inflation
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FULL VIDEO TRANSCRIPT
00:00
what’s up everybody welcome to heresy
00:02
financial my name is joe brown and we
00:04
are seeing all over the place inflation
00:07
is
00:07
surging in fact just within the last day
00:10
germany’s wholesale prices numbers came
00:12
out and they rose 4.4
00:15
year-over-year in march which is almost
00:17
double what the expectations were we’re
00:19
seeing skyrocketing prices in things
00:21
like lumber copper you know the raw
00:22
materials the stuff that stuff is
00:24
actually made out of
00:25
we’re seeing skyrocketing prices in
00:27
assets as well
00:29
obviously like the stock market bitcoin
00:31
is hitting all-time highs real estate
00:33
all across
00:34
the united states is hitting all-time
00:35
highs and this is impacting
00:37
the cost of living for the everyday
00:39
person and this isn’t
00:40
anything new the amount of inflation
00:43
that we are currently facing and
00:45
probably will
00:46
face uh going into the uh the near
00:48
future is probably going to be much
00:50
higher than it is
00:51
than it has been in the past but the
00:53
dollar has lost 90 percent of its
00:55
purchasing power
00:56
since we left the gold standard that was
00:58
just 50 years ago and it’s lost even
01:00
more than that when you compare with the
01:01
purchasing power of the dollar when the
01:02
federal reserve was established in 1913.
01:05
to make matters worse it seems like this
01:07
is a rolling snowball as we continue
01:10
to print more money blow up the deficits
01:12
increase the national debt it seems like
01:14
we get ourselves
01:15
into more and more problems that
01:16
necessitate even more
01:18
printing spending and debt in the future
01:21
to make up for the mistakes that it
01:22
caused in the past it’s like we’re on a
01:24
hamster wheel of our own
01:26
monetary destruction now thought
01:27
experiment if you were looking
01:29
at a stock and you had seen that this
01:31
stock had dropped 97
01:34
since it ipo since inception and this
01:37
stock produced
01:37
no cash flow the stock produced no
01:39
earnings and the only way
01:41
this company was still paying its
01:44
employees paying all of its expenses
01:46
was literally just by issuing new shares
01:48
of its own stock onto the market
01:50
using the proceeds from issuing new
01:52
shares onto the market to pay for its
01:54
expenses
01:55
and you had obviously seen for all of
01:58
history
01:58
any other stock that had done these
02:01
similar things that exhibited these same
02:03
characteristics
02:04
had very quickly within the time span of
02:05
just a few years gone to zero and been
02:08
delisted if you were looking at this
02:10
stock
02:10
you would probably want to short the
02:12
stock now what i’ve just described
02:15
take that and apply that to pretty much
02:16
any fiat currency all across the globe
02:19
this is essentially what is happening
02:21
the value the purchasing power of fiat
02:23
currencies all around the world
02:25
have dropped by 90 to 98 percent of
02:28
their purchasing power
02:29
since inception since they decoupled
02:31
from sound money like gold
02:33
and they’re continually issuing new
02:34
shares or new units of currency onto the
02:36
market in order to fund the expenses of
02:38
their own economies so the question is
02:40
if you want to short the dollar
02:42
what is the easiest and the most
02:44
effective way
02:45
to do this ready let’s dive in
02:51
all right so number one what does it
02:53
mean to short something well the most
02:55
basic definition is that you
02:56
sell something before you buy it
02:58
normally you’re gonna buy something and
03:00
then later you’re gonna sell it so
03:02
shorting it just reverses the order you
03:04
sell it before you buy it and it’s
03:05
called short because
03:06
the opposite which is when you buy
03:08
something you buy a stock then later
03:09
sell it hopefully for a profit
03:10
that’s called long when you own a stock
03:12
you’re long the stock so shorting it is
03:14
just the opposite
03:15
if you’re long a stock you own it you’re
03:17
eventually going to have to sell it to
03:18
return to a flat cash position
03:20
if you’re short of stock you’re
03:21
eventually going to have to buy it back
03:22
to return to a flat cash position
03:24
now this makes sense when you’re
03:25
thinking of a stock when you’re shorting
03:27
stock
03:27
but it’s a little bit harder to wrap
03:29
your mind around when you’re thinking of
03:30
how do you short a currency
03:32
because you’re used to denominating
03:33
transactions in that currency
03:36
so how do you sell a currency well the
03:38
first thing we have to realize
03:39
is that really inherently there’s no
03:42
thing as a pure long or a pure short
03:44
because
03:45
every transaction you’re simultaneously
03:48
selling one thing and
03:49
buying another now usually your currency
03:52
dollars are part they’re 50 of every
03:55
transaction that you make
03:56
when you go to work you’re selling your
03:58
labor for dollars
04:00
said another way you’re using labor to
04:02
buy dollars
04:03
when you go to in and out you are
04:05
selling dollars to buy a burger when you
04:07
buy stocks
04:08
you’re buying stocks and selling dollars
04:10
that’s opposite parts of the exact same
04:12
transaction you’re always simultaneously
04:15
buying one thing and selling another now
04:16
we’re close but this doesn’t quite
04:18
fit the definition of shorting because
04:20
just because you’re selling something
04:22
doesn’t mean that you’re shorting
04:23
something
04:23
if you want to short something it
04:25
requires one extra step
04:28
borrowing because if you want to short a
04:29
stock you can’t just
04:31
sell a stock that you already own
04:33
because then you’re just returning to a
04:35
flat position from
04:36
selling a stock that you bought that’s
04:37
closing out your long position you’re
04:38
not shorting it if you want to
04:40
short something first you have to borrow
04:43
it
04:43
in order to then sell it so if you want
04:45
to short a stock
04:46
first you have to borrow those shares
04:48
from somebody else who’s okay with you
04:50
borrowing them from them and then you
04:52
take those shares that you borrowed and
04:53
you sell those shares
04:55
to another third party and you pocket
04:57
the cash now your cash position has
05:00
increased because you sold something
05:02
so you got dollars for it but you also
05:04
have debt the thing is though
05:05
you don’t have dollar denominated debt
05:08
you don’t owe a specific number of
05:09
dollars
05:10
you owe a specific number of shares you
05:12
have debt in
05:13
shares regardless of what the price of
05:16
the stock does
05:17
you owe a certain number of shares back
05:19
to whoever you borrowed them from and
05:21
then ideally the stock drops in price
05:23
you then go buy
05:24
those shares from somebody else off the
05:25
open market now you have those same
05:27
number of shares to return to whoever
05:29
you bought from them
05:30
you pocket the difference now just in
05:32
case that’s still a little bit hard to
05:34
wrap your head around we’re going to
05:35
look at doing this with
05:36
iphones let’s say you go over to your
05:38
friend’s house and you notice they just
05:39
bought the new iphone but you look on
05:41
their counter and their old iphone let’s
05:42
say it’s the iphone 10 is just sitting
05:44
there on the counter so you ask them
05:45
what their plans are for this old iphone
05:47
and they say nah i don’t have any plans
05:49
for it i’m just gonna keep it
05:50
just in case my new one breaks or
05:51
something happens to it i’ve got a
05:52
backup so now you know they’re not
05:54
planning on selling that so you come up
05:55
with an idea you say hey
05:57
uh can i borrow that for six months and
06:00
you can ask for it back at any time
06:02
during those six months i just want to
06:04
borrow it you’re not using it and then
06:05
if you need it i’ll just give it back to
06:07
you and they say
06:08
sure why not i’m not planning on using
06:09
it i’m not planning on selling it i’m
06:11
not planning on doing anything with it
06:12
so here
06:13
go ahead and borrow it from me so you
06:14
take it you go home you immediately
06:16
list it on ebay for sale on the iphone
06:18
10 let’s say you get 300 bucks for it
06:20
now you know
06:21
that in just a couple of months the new
06:24
iphone for the new year is going to be
06:25
coming out
06:26
and so you’re just waiting sure enough
06:28
couple months goes by
06:29
apple announces the new iphone all
06:31
previously existing iphones
06:33
drop in price you go back to ebay buy
06:35
the exact
06:36
same model same color same storage same
06:39
you know iphone 10
06:40
you buy it except when you buy it this
06:42
time it’s only
06:43
two hundred dollars whereas a couple
06:45
months ago and you sold it you sold it
06:46
for 300
06:48
now you go you take that iphone remember
06:50
it’s the exact same iphone you hand it
06:51
back to your friend and they say thanks
06:53
and
06:54
win-win for everybody he’s still got his
06:56
exact same iphone model that he had
06:57
before
06:58
still there as a backup and you just
07:00
profited a hundred dollars by
07:02
borrowing something selling it it went
07:04
down in price you bought it back and
07:05
gave it back
07:06
you borrowed exchanged reversed the
07:09
exchange
07:10
and then paid back the debt now again
07:12
it’s important to remember you
07:13
never owed your friend a dollar amount
07:15
you never wrote in 300
07:17
200 400 you owed him an iphone
07:20
your debt was denominated in units of
07:22
iphones not
07:24
dollars regardless of what the price of
07:25
the iphone did if if worst case scenario
07:27
happened
07:28
iphone prices skyrocketed you would have
07:30
still had to go
07:31
onto ebay and maybe pay 600 or 700 for
07:34
the exact same model that you sold for
07:36
300
07:36
and then you’d be out you sold something
07:38
for 300 bought it back for 700 you lost
07:40
400
07:41
of your own money you had to pay back
07:42
the number of units that you owed one
07:44
iphone in this case
07:45
all right so now you have a firm grasp
07:47
of what shorting is
07:48
borrow something exchange it for
07:50
something else
07:52
reverse that exchange and then pay back
07:54
what you owed and ideally the thing that
07:56
you
07:56
sold when you buy it back you’re gonna
07:58
buy it back for less than what you sold
08:00
it for originally that’s how you profit
08:01
off of that and then you return the
08:03
exact same thing that you borrowed to
08:04
the owner and
08:05
keep in mind that with things like
08:06
dollars and shares these things are
08:08
fungible so it’s not like an iphone
08:10
which could have different scratch marks
08:12
they’re not
08:12
they’re physical items so they’re not
08:13
completely fungible interchangeable and
08:16
exchangeable with each other
08:17
uh but things like dollars and shares
08:19
and bitcoins
08:20
these are you know identical to each
08:22
other they’re fully fungible items
08:24
okay so we know that if you expect
08:25
something to go down in value then
08:27
shorting it is a way to
08:28
profit on that thing going down in value
08:30
but it’s still
08:32
a little bit of a mental leap to wrap
08:33
your head around shorting a
08:35
currency because usually your currency
08:37
is just your mental baseline what you
08:39
use to denominate transactions
08:41
but that’s okay because all we need to
08:43
do is follow the exact same steps
08:46
that we followed for the iphone and for
08:48
stocks when we’re looking at shorting
08:50
the dollar borrow exchange reverse that
08:53
exchange
08:54
pay back what’s owed so let’s apply that
08:56
to a currency
08:58
first we borrow this is intuitive this
09:00
is easy right you can borrow dollars a
09:01
number of ways
09:02
credit cards auto loans heloc business
09:05
loans
09:06
margin loan in a brokerage account or
09:07
mortgages there’s
09:09
multitudes of ways to borrow dollars
09:11
that part is easy
09:12
but that’s the first step we have to
09:14
borrow dollars but remember borrowing is
09:16
not enough because if you just borrow
09:17
dollars and let’s say throw it in a bank
09:19
account
09:19
you’re not doing anything with it all
09:21
you did was borrow you you haven’t
09:22
shorted anything
09:23
the next step is to actually exchange
09:26
those dollars
09:27
for something else you have to use that
09:29
borrowed cash and swap it out for
09:31
something you can use that borrowed cash
09:33
swap it out for a car
09:34
for clothes for food for stocks for gold
09:37
for bitcoin for a house
09:39
investing in your business whatever it
09:40
is step one borrow money step two
09:42
exchange that money for something else
09:45
yes that means that every time you swipe
09:47
your credit card for a bottle of wine or
09:49
late night taco bell drive-through
09:50
you’re shorting the dollar now we’re
09:52
still not done because this is just the
09:54
we’ve completed half the process we
09:56
borrowed then exchanged
09:58
the next step is to reverse the exchange
10:01
what you have to do now is sell the
10:04
thing that you exchanged for dollars
10:06
you have to reverse that exchange and
10:08
buy dollars back with it once you have
10:10
those dollars back with it you can give
10:12
those
10:12
back to the lender who you borrow the
10:15
dollars from in the first place
10:16
now obviously there’s a few things
10:18
necessary to make this
10:19
process of shorting the dollar
10:21
profitable for you number one
10:23
the value of the dollar must go down
10:27
in between exchanging and reversing the
10:29
exchange but it must go
10:31
down relative to the thing you exchanged
10:34
it for
10:34
it doesn’t matter if the dollar goes
10:36
down versus the yen
10:38
if you borrow dollars to buy mcdonald’s
10:40
it’s irrelevant
10:41
the dollar must go down relative to the
10:44
thing that you bought with those
10:46
borrowed dollars
10:47
now said another way it’s the exact same
10:49
thing that just the opposite side of the
10:50
equation
10:51
the thing that you bought with those
10:53
borrowed dollars must go up
10:55
in dollar price the exact same thing so
10:57
if you’re trying to make money
10:59
it would be pretty stupid to short the
11:01
dollar to buy something that’s
11:02
consumable
11:03
like food because you don’t have
11:05
anything left to sell afterwards you
11:07
have to go find those dollars from
11:08
a different source in order to pay back
11:10
that debt or to short dollars and
11:12
exchange them for a worse currency
11:14
that’s losing its value faster
11:16
than the currency that you’re shorting
11:17
like who wants to borrow us dollars to
11:19
buy the venezuelan boulevard right now
11:21
probably not many people so the first
11:24
key to profit from shorting the dollar
11:26
is that the value of the item you are
11:28
purchasing with the borrowed dollars
11:30
must increase in value relative to the
11:33
currency you’re shorting again
11:34
said the other way the value of whatever
11:36
you’re shorting in this case the money
11:38
must fall in relation to the thing that
11:40
you’re buying with that borrowed money
11:42
now this
11:42
is why the rich use debt to buy assets
11:46
because if you just buy assets with cash
11:48
you get one benefit you benefit from
11:50
that asset increasing in value you know
11:52
as long as it’s you know a good asset so
11:54
let’s say you buy a stock for a hundred
11:56
dollars
11:57
and today when you make that investment
11:58
you could have also if you wanted to if
12:00
you chose to you could have used that
12:01
hundred dollars
12:02
for dinner for two now in a few years
12:04
that stock goes up you sell it for 150
12:07
you made 50 in a couple of years not bad
12:09
but now when you take that 150
12:11
and you try to go out to dinner for two
12:13
you realize that same dinner
12:14
that a couple years ago would have only
12:16
cost a hundred now it costs 175.
12:18
so you actually lost money you’re worse
12:21
off your purchasing power went down even
12:23
though the number of
12:24
dollars that it takes to purchase that
12:25
asset went up the number of dollars that
12:27
it takes to purchase other stuff went up
12:29
more
12:30
inflation outpaced your gains the dollar
12:33
lost its purchasing power lost its value
12:35
faster than your asset
12:37
gained in value so if you just use cash
12:39
to buy assets
12:40
in today’s crazy environment you have to
12:42
buy really good
12:44
assets because they have to give you
12:45
gains on top of inflation for you to
12:47
preserve your purchasing power
12:48
and the higher the inflation rate is the
12:50
harder that is to do
12:52
and so scenario two let’s say you don’t
12:54
just use
12:55
cash to buy an asset let’s say you use
12:57
cash to buy an asset and at the same
12:58
time
12:59
you’re shorting the dollar you’ve got
13:01
your hundred bucks in the bank
13:03
you borrow a hundred bucks as well you
13:05
use that to buy the stock now you bought
13:07
200 worth of that stock now you also
13:10
have 100
13:11
worth of debt so your net worth didn’t
13:13
change right there right because you
13:15
have 200 now of assets but you owe 100
13:18
so your net worth is 100 same as the
13:20
beginning of the original example net
13:21
worth didn’t change
13:22
your assets went up but your debt did
13:23
too so same as in the previous example
13:25
the stock goes up to 150
13:27
a share but you got 200 worth when you
13:29
made your initial investment that means
13:31
at the end of the couple of years
13:32
it made your investment worth 300 now
13:36
you reverse the exchange because we
13:38
already borrowed the dollars and
13:39
made the exchange so now we reverse the
13:41
exchange sell the stock we get our 300
13:44
cash we give back the hundred dollars
13:46
that we owe for the debt and we are left
13:48
over
13:49
with two hundred dollars now how much
13:51
was
13:52
that dinner a couple of years ago
13:54
hundred dollars today it’s 175
13:57
how much do we have now though after
13:59
shorting the dollar and buying the asset
14:01
we’ve got 200 so you go out for dinner
14:04
for two
14:04
spent 175 dollars you got 25 left over
14:07
you gained in purchasing power
14:09
now you actually made money so if you
14:11
short the dollar
14:12
to buy assets you eliminate the downside
14:15
of
14:15
inflation because inflation no longer
14:17
erodes your gains
14:19
because you’re simultaneously profiting
14:21
off of the downward trajectory of the
14:23
value of the currency
14:24
that you borrowed and the upward
14:26
trajectory of the price
14:27
in dollars of the asset that you bought
14:29
in this upside down inflationary world
14:32
debt is the asset it means that what you
14:34
think of as the asset like the stock or
14:36
the house
14:37
is now really just collateral protecting
14:39
the asset which is making the real money
14:41
for you which is debt because it’s not
14:43
really debt it’s just a mechanism for
14:45
you to short a feeling currency now
14:47
you’re probably thinking that example
14:49
works well
14:50
in a hypothetical world but you’re
14:51
forgetting about one big thing
14:53
when inflation goes up interest rates go
14:55
up and absolutely you are right the
14:57
second key to profiting off of shorting
14:59
the dollar
15:00
is the interest rate that you’re paying
15:02
if in the above example
15:03
if you borrowed to buy that stock and
15:05
then at the end of the year you were
15:06
left to 200
15:07
if you had paid 20 interest on that debt
15:10
annually
15:11
you’d be much worse off than you would
15:13
have been if you would have just bought
15:14
the stock with cash
15:15
and so when you do the math it only
15:17
makes sense
15:18
if the amount of interest you’re paying
15:20
is less
15:21
than the inflation rate this means that
15:23
any interest rate that is variable
15:25
will screw you because if inflation goes
15:27
up your interest rate will dynamically
15:29
adjust to that and also go
15:31
up on the flip side this means that
15:32
fixed rate debt is
15:34
basically free money even if inflation
15:37
goes up
15:37
the total number of dollars that you are
15:39
going to owe is locked in it stays the
15:42
same it doesn’t change
15:43
imagine in the original scenario where
15:44
you borrowed the iphone if at any time
15:46
your friend could have said
15:48
you owe me two iphones now or three
15:49
iphones now that’s a variable interest
15:52
rate that’s a bad deal
15:53
if you expect the value of something to
15:55
go down and you want to short it to
15:57
profit you must use a mechanism without
15:59
a variable interest rate because a
16:00
variable interest rate is literally just
16:02
another way to say
16:04
that the lender has the power to choose
16:05
how many dollars you owe back to them
16:07
now the next key to making this strategy
16:09
profitable is that obviously you have to
16:11
choose good assets
16:12
if you refinance your house and yolo a
16:14
few hundred grand into some gamestop
16:16
calls you’re probably asking for some
16:18
trouble but the rich
16:20
are rich because inflation makes their
16:22
debt an
16:23
asset at the same time inflation
16:25
increases the price of the business or
16:27
the other asset the tangible thing that
16:28
they really own in the first place so
16:30
shorting dollars to buy assets makes you
16:32
win on both sides of the equation now
16:34
kind of like a bonus or the cherry on
16:35
top way to make even more money
16:37
when you are shorting a currency in
16:39
order to purchase an asset
16:41
is buying cash flowing assets because
16:44
cash flowing assets will produce income
16:46
for you
16:47
that will at least somewhat and ideally
16:49
more than 100 percent
16:51
cover the debt service cost for instance
16:54
if you
16:54
own a house and it’s a rental property
16:57
and you have a mortgage on that property
16:59
a renter is paying you rent
17:00
that will cover the mortgage and then
17:02
some you’ve shorted the dollar you’ve
17:03
purchased an asset it cash flows for you
17:06
in excess of what the debt actually
17:08
costs this means that you can use the
17:10
cash flow to pay off the debt over time
17:13
and eventually erode the value or erode
17:16
the number of dollars that you owe and
17:18
at the end
17:18
your debt can be wiped out and you never
17:20
actually have to undo the exchange
17:22
reverse that exchange
17:24
now you’re left with the asset that cash
17:26
flows and
17:27
no debt to pay back you don’t have to
17:29
sell the asset in the end
17:30
and now your total cash flow that you
17:32
keep in your pocket increases even more
17:34
because you don’t have to use some of
17:35
that for debt service payments so you
17:37
benefit from inflation killing the value
17:39
of your debt
17:39
you benefit from inflation raising your
17:41
assets cash flow and you benefit from
17:43
inflation increasing your assets price
17:45
now you’re probably thinking this is all
17:47
well and good but what if we have
17:48
deflation
17:49
instead of inflation well what is
17:51
necessary to cause inflation because we
17:53
know that over the long term course of
17:55
history
17:56
thousands of years deflation is the
17:57
natural course of history that’s the
17:59
only way you have growth
18:00
progress innovation getting more for
18:02
less and increasing the quality of life
18:03
with finite resources is deflation over
18:06
time but we also know that during
18:07
history there are bursts isolated you
18:10
know over the course of a couple of
18:11
decades or even a couple of years or
18:12
months or you have extreme
18:14
inflation so what is necessary then to
18:16
cause inflation
18:17
well one thing monetary expansion
18:20
inflation is always and everywhere a
18:22
monetary phenomenon and it’s something
18:23
that we see happening right now
18:25
especially in the united states but all
18:26
around the world
18:27
increasingly with no end in sight and
18:29
with so many trillions of dollars
18:32
shorting the dollar and invested in
18:34
assets
18:35
and this strategy is being employed by
18:37
the ultra-rich corporations
18:39
lobbyists politicians oligarchs
18:42
bureaucrats do you really think that
18:45
those who are in control
18:47
will intentionally choose an outcome
18:49
that will bankrupt them
18:51
i.e deflation when they can avoid that
18:53
and make themselves richer by just
18:55
printing more money which they can do
18:57
because
18:57
they can just choose to do that and they
18:59
stand to gain a lot by continuing to do
19:01
that they will bleed the system dry
19:03
until all of the trillions that they owe
19:06
is literally worthless
19:07
where what they owe is basically nothing
19:09
so i figure i might as well be on the
19:12
right side of the fence
19:13
copy what the big boys are doing because
19:15
if the strategy starts to fail you know
19:17
there’s a big
19:18
juicy bailout just waiting to happen so
19:20
in summary how to short something
19:22
number one borrow it number two exchange
19:25
it for something else
19:27
number three reverse that exchange
19:30
number four
19:31
pay back what you owe and in order to do
19:33
this profitably
19:34
in between the time that you exchanged
19:36
and reverse the exchange
19:37
the value of what you shorted the
19:39
currency the dollar
19:40
must decrease in value relative to what
19:43
you bought
19:44
with that money the asset and the cherry
19:46
on top is to find assets that cash flow
19:49
and especially assets that cash flow in
19:51
excess
19:52
of the cost of servicing the debt
19:54
because then
19:55
in the end it pays for your debt for you
19:58
and then you’re left with an asset
19:59
without ever having to sell it keep in
20:01
mind this video is sponsored by
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me so if you’re interested in any of the
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resources that i recommend
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if you weren’t interested in buying gold
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silver bitcoin real estate anything like
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i have all of my resources that i use
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and recommend listed in the description
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below
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as always i really appreciate you guys
20:16
thanks for watching have a good day
20:21
[Music]
20:28
you