Morning Report: Bank earnings pour in 7/13/18

Vital Statistics:

Last Change
S&P futures 2797 -1
Eurostoxx index 385.18 0.81
Oil (WTI) 70.6 0.27
10 Year Government Bond Yield 2.84%
30 Year fixed rate mortgage 4.53%

Markets are flat as bank earnings come in. Bonds and MBS are up small. Slow news day.

The US government held a reasonably strong auction yesterday, where primary dealers took down their smallest positions ever. Meanwhile, speculative shorts in Treasuries (one of the biggest trades on the Street) are struggling as rates stay stubbornly low. Some continue to warn that the flattening yield curve is really telling us that a recession is around the corner.

The prepared remarks for Jerome Powell’s semiannual report to Congress should be out today. Probably won’t be market-moving, but you never know.

Import prices fell 0.4% in June as petroleum and food prices fell. For the year, they are up 4.3% however.

Consumer sentiment fell according to the University of Michigan / Reuters survey. The current conditions index drove the fall, which is usually a function of gas prices. Trade fears also weighed on sentiment.

Wells Fargo reported earnings this morning. Earnings were down due to a tax charge. Stripping out the tax charge, they were flat. They had a tough quarter for mortgages like everyone else. Origination for the quarter was $50 billion, which is up seasonally from Q1, but down 11% YOY. The current pipeline of $24 billion is down 26% YOY. Margins were 77 basis points, which is down 17 from the prior quarter and down 47 bps from a year ago. The stock is down 3% pre-open.

JP Morgan had a similar story to Wells. They originated $23.7 billion in mortgages during Q2, which was higher seasonally and down about 10% from a year ago. Mortgage banking revenue (which includes servicing) was down 6% YOY. Margin compression again was the story, especially in correspondent lending. They marked up the MSR book. JPM is flat pre-open.

A bunch of other banks reported this morning and the whole sector is getting hit, with the XLF down about a percent and a half.

Federal Reserve Chairman Jerome Powell made positive comments about the economy, although he is concerned about trade and the effects of a long trade war with China. He is concerned about rising trade tensions, although he notes that Trump’s goal is to get others to lower their tariffs. If he succeeds in that, then the trade tension would be a good thing, not a bad thing. It is important to remember that China’s biggest weapon against the US is not imposing tariffs on US goods – it is ignoring US intellectual property laws. Those sorts of things will not really show up in the balance of trade numbers, but will have huge effects on IP firms, particularly media and software.

77 Responses

    • I can’t believe these morons can’t tell the difference between subsidizing and banning BC…

      Liked by 1 person

    • “Across the country, Americans are stockpiling emergency contraception in light of Justice Kennedy’s retirement and President Donald Trump’s Monday nomination of Brett Kavanaugh.”

      This is like people buying up guns during the Obama administration.

      Liked by 1 person

      • Exactly like that. Although in the case of Plan B, there’s a lot more money behind keeping it on the market. Big Pharma puts a lot more into DC than Big Gun.

        Like

      • jnc:

        This is like people buying up guns during the Obama administration.

        Except that the threat to, say, Texans’ guns is real, even if the power/influence to make good on that threat is misjudged. The threat to, on the other hand, Californians’ access to emergency contraception is entirely the product of their own delusional ignorance.

        Liked by 1 person

  1. Why is Trump supposed to be freaked out that Mueller incited a bunch of Ruskies for activities under Obama’s watch?

    Like

  2. Someone gets it:

    “Trump is not eroding our European alliances because of personal enmity, and he’s not doing it because he’s a Russian plant (at least, I don’t think he is). He’s doing it because he disagrees with the path Europe is on, and he doesn’t see any benefit to America in following its lead or being enmeshed in its mistakes.”

    https://www.vox.com/policy-and-politics/2018/7/13/17568246/trump-uk-europe-nato-theresa-may

    Liked by 1 person

  3. Completely agree with JNC about the family separation issue, which was expanded from the necessary [Scott’s posing of risk of flight felons] to the near universal by Sessions’ order.

    Have to think the EW Ds who want to kill the messenger by disbanding ICE do not understand that ICE has two distinct missions, or do not care, and do not realize that they are giving their political allies a headache and their political opponents a victory and a talking point, as well.

    I think the Russian meddling in our elections for their own purposes is something worth investigating, revealing, and hardening against. Because the meddling was by its nature helpful to one side and that side did not report offers of help from the foreigners to the FBI the circumstances became cloudy.

    You will recall that previous offers of foreign “assistance” have been routinely reported to the FBI. I think it is possible that the DJT campaign was so amateurish and unused to thinking of foreigners as anything other than more persons to do business with that it never occurred to most of them to report.

    Like

    • Mark,

      Do you think Mueller’s announcement was coincidental to Trump’s upcoming Putin meeting?

      Also, why was Obama so ineffective with Putin?

      Like

      • George, the timing may have been. IDK.

        What I think will come out of Mueller’s investigation that is of lasting consequence will not be revelations about the Trump Campaign and will have nothing to do with it. Also, it may not be made public. Knowing what they are focusing on will have to reveal a whole lot of global cyberspying-cybersecurity issues I suspect that much of what is reported to Rosenstein will be parceled out to CIA and NSA, not for criminal sanctions but for counterintelligence and cyber hardening. I suspect that our allies will be included in some of the parceling of information.

        Frankly, other nations besides Russia have been screwing with us; certainly Israel and China, maybe Iran and India.

        In an in depth investigation this sort of evidence will turn up.

        As to your second question, once Gates left BHO’s FP went adrift. Gates had the ability to persuade BHO to action while Panetta, who was completely in line with Gates, did not. “Red line” in Syria? Once that was shown to be idle, Putin had a much freer hand. And thus DJT’s threats, as they prove to be bark with no bite, will also undermine our position vis a vis Russia, Iran, Pakistan, China, etc.

        Any POTUS whose background was not as strong in FP as say Eisenhower’s or GHWB41’s, especially whose background was zero like WJC and DJT, has an OTJ learning curve. RWR and WJC were much better second term FP leaders because they actually learned on the job and I thought GWB had learned a lot by 2007, too, albeit the hard way. I honestly do not think DJT will learn a damned thing, and I think BHO may have regressed.

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        • Do you think Obama’s feckless FP re Russia had anything to do with his desire to get a toothless, endangering agreement with the Iranians?

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        • Do you think Obama’s feckless FP re Russia had anything to do with his desire to get a toothless, endangering agreement with the Iranians?

          Nope.

          Especially because I think the agreement as far as it went was not toothless. If you had suggested BHO took a narrower agreement than what could have been achieved by a Richard Holbrooke I would guess you were right. But purely as to nukes, it has a serious inspection protocol.

          If you are suggesting that a narrow agreement that did not address exporting terrorism was the result of having to get Russia and/or China on board, you could be right, but IDK.

          And I absolutely do not know why the Indictments were published yesterday or whenever. If they were ready to go before that, I don’t know, if they were ready only during this last week, I don’t know, if you think Mueller should have waited, that would be an opinion I wouldn’t share.

          Does the news say when the Grand Jury foreman signed off? [document itself was signed by the Foreperson yesterday]. Does it say when the case presentation to the GJ was concluded? Was it a month ago? Last Thursday? If it does and you know these facts please reveal them. Some of these facts may be known, btw. But not to me.

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        • Your argument presupposes that Eisenhower’s and Bush41’s FP was good, correct?
          Ditto Clinton and Reagan’s second term FP?

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        • Your argument presupposes that Eisenhower’s and Bush41’s FP was good, correct?
          Ditto Clinton and Reagan’s second term FP?

          Yep.

          Like

        • Ok, that’s interesting.

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        • eorge, the timing may have been. IDK.

          Really?

          Like

    • The thing that bothers me is that the DNC isn’t a part of the government. In theory, it is no different than the Russians hacking the Koch Brothers. Is that a national security issue? I don’t think so. I couldn’t imagine the Democrats caring one bit if the Kochs were hacked.

      Second, what did the DNC hack reveal? Nothing we didn’t already know: that the Party wanted Hillary to be the nominee, and the MSM coordinates messaging with the Party. I think both of those were common knowledge.

      I get that the Party / MSM complex is trying to establish a narrative that this somehow makes DJT an illegitimate president, but I don’t see why Rs are taking it so serious.

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      • Pretty sure the FBI or Mueller never looked at the server. Also, I think they’re referring to the spearfishing efforts and calling that a “hack”, or the media is.

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        • So much of the stuff they refer to as “hacking” wasn’t. What they suggest came from Russian may not have. When they say “on Putin’s direct order” I think they are completely full of poop. They don’t understand what portscanning is.

          Without hard evidence that actual IT professionals would sign off on and be able to explain clearly to other IT professionals, I’m going to assume it’s mostly bullshit or ignorance at play. The whole Russian story has just out of control bonkers, to me, for the most part. That Facebook is involved in this story is crazy.

          While it’s a given other countries have screwed with us (Russia included), the nature of everything they’ve disclosed to the public (and other things they’ve said, and, frankly, Occam’s razor) has made me feel like most of those so positive Russian colluded with Trump to “steal the election”, or “stole the election for Trump without much direct collusion”, or “hacked the election” are either completely deluded or intentionally misleading.

          Israeli intelligence does REAL hacking:

          https://en.wikipedia.org/wiki/Stuxnet

          The malware has both user-mode and kernel-mode rootkit capability under Windows, and its device drivers have been digitally signed with the private keys of two certificates that were stolen from separate well-known companies, JMicron and Realtek, both located at Hsinchu Science Park in Taiwan. The driver signing helped it install kernel-mode rootkit drivers successfully without users being notified, and therefore it remained undetected for a relatively long period of time.

          The certificates were physically stolen in a break-in.

          THAT’S what hacking looks like.

          Like

      • The “hacking” of the DNC–even that done by Pakistan–seemed to be individual or non-state actors, and there has been no evidence that I have seen put forth that it wasn’t. I mean, none. Not even circumstantial. Just bald, baseless assertions–very Trump-like, actually–that it was Russia on orders from Putin!

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    • Mark:

      Completely agree with JNC about the family separation issue, which was expanded from the necessary [Scott’s posing of risk of flight felons] to the near universal by Sessions’ order.

      What is “necessary” depends entirely on what one is trying to accomplish. If one wants to reduce or stop illegal immigration, then to me it seems pretty “necessary” to not let illegal immigrants just go free into the country after they have been caught. Call me crazy, I guess.

      I get that, if one is in favor of open borders anyway (as jnc is), then it makes sense to use the “family separation” issue as a wedge to accomplish it through the back door. But if you favor any kind of border control, it seems nuts to me to take people who have been caught sneaking into the country and just let them go. I seriously cannot imagine any rationale for such a transparently counterproductive policy.

      Like

      • What is “necessary” depends entirely on what one is trying to accomplish. If one wants to reduce or stop illegal immigration, then to me it seems pretty “necessary” to not let illegal immigrants just go free into the country after they have been caught. Call me crazy, I guess.

        Well, what are our alternatives? Immediate deportation for entire family without review? Family detention (this seems like the obvious solution to me, although the courts don’t seem to see it that way)? Or something else that doesn’t involve making it very easy for them to disappear into the country? Possibly with kids that aren’t theirs?

        While I’m in favor of open-ish borders, I want it 100% streamlined and legal, with the only people excluded from crossing our open-ish borders people who have repeatedly violated visas or what have you. That is, we’re open to people coming in, but they do it legally, and pay the fees for green cards, visas, and ultimately citizenship. At the very least, I think we should make immigration easier while we make illegal immigration much, much harder. And end by federal law all entitlement temptations for immigrants (before they achieve actual citizenship). I also want a big damned wall, although this may be unrealistic.

        Like

        • KW:

          Well, what are our alternatives? Immediate deportation for entire family without review?

          I don’t find that to be particularly unreasonable. There is no reason for legitimate asylum seekers to sneak into the country and not openly present themselves for asylum at a port of entry, so it seems to me a reasonable default assumption that if you sneak into the country, your asylum claim is not legitimate. Besides which, there is no point in establishing a manner by which asylum is supposed to be claimed if there is no downside to not following it.

          Family detention?

          I don’t see any problem with this either.

          At the very least, I think we should make immigration easier while we make illegal immigration much, much harder.

          I agree with this, too.

          Like

      • The choices are not so limited. I have read that the ankle monitors actually are very effective.

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        • Mark:

          The choices are not so limited. I have read that the ankle monitors actually are very effective.

          I’d be interested in just how effective they are for illegals. I vaguely recall reading that only something like 60% of illegals with a bracelet show up for their hearings. But I can’t confirm that (or any other number) anywhere, so I may be mis-remembering.

          Like

      • “it seems nuts to me to take people who have been caught sneaking into the country and just let them go.”

        In the context of the current asylum law, it’s a better solution than detaining everyone with an asylum claim.

        If you want to truly reduce or stop illegal immigration, that’s not going to be possible with the current state of the law.

        Trump & Sessions are trying using the limited enforcement discretion they have to offset the incentives in the law. I don’t think the benefits of stopping illegal immigration are worth the costs.

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        • I don’t think the benefits of stopping illegal immigration are worth the costs.

          What is the cost to American citizens?

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        • jnc:

          In the context of the current asylum law…

          OK, how should current asylum law be changed?

          …it’s a better solution than detaining everyone with an asylum claim.

          Better in what sense? Cheaper?

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        • Yes, and more humane.

          To achieve what you want, you’d have to change the asylum law so that you can’t apply for it if you are in the country illegally.

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        • Sessions’ efforts to change/modify what constitutes legit asylum claims should allow BP to immediately reject claim. At least till illegals are recoached on their next attempt.

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        • jnc:

          Yes, and more humane.

          I suppose, although the same would be true with regard to incarcerating literally any criminal. I don’t think the goal should be simply the humane treatment of illegals. I think it should be the most humane treatment possible without the context of actually enforcing the law. And I don’t see anything particularly inhumane in detaining people who enter the country illegally.

          To achieve what you want, you’d have to change the asylum law so that you can’t apply for it if you are in the country illegally.

          As suggested by my response to KW the other day, I think that would be a perfectly reasonable policy.

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  4. Brent, what do you think of the assertion [made by TV analysts yesterday] that as Fed interest rates rise to meet inflation banks will become more profitable because they will float interest rates that are higher?

    Let’s call the Fed rate differential from the various prime rates quoted “margin 1”.

    It seems to me the that the cost to borrowers is followed by the increase in interest paid to depositors. Let’s call that “margin 2”. So then the sum of profitability is “margin 1” plus “margin 2” multiplied by the number of transactions, which are dependent, it seems to me, more upon the general state of the economy than upon the supply of money, which is where I am confused because the Fed manipulates rates.

    In any event, I would tend to think the Fed’s reaction to inflation is not necessarily bullish for bank earnings. Could you get a bit wonky and lead me behind the TV analysts’ glib sound bite?

    I may send this to you as an email, but I hope you can answer this here.

    Like

    • The Fed can only affect the shortest term rate directly. So, in theory, the Fed could raise the short term rate, and you could see rates further out in maturity move up, down, or not at all. The short rate is what drives deposit rates (which is the bank’s source of funds), while the rates further out drive what banks charge for loans to customers. Banks will refer to this as net interest margin, which is the difference between what they earn on their assets, and their cost of funds. When the yield curve flattens, as a very general rule, you should see net interest margins drop, which would translate into lower profitability.

      Here is where drawing conclusions for bank earnings gets tough. First, banks earn a lot from fee income, which is insensitive to interest rates. Things like ATM fees, money management fees, etc. Second, banks will charge a margin (ie spread over the risk-free rate) on their loans, which can change as well. Say a bank makes a 5 year loan at T+150 (or 150 basis points over the 5 year rate). If the 5 year rate goes up, you might have a scenario where banks are competing with each other for loans and they might change the rate to T+125. And finally, if the Fed is raising rates because the economy is strong, then you would expect banks to report lower delinquencies (which they are). So, you could have a situation where net interest margins fall, but everyone is paying their bills so it turns out to be a wash.

      I would say as a general rule though, net interest margins seem to be falling as banks compete for loans and the yield curve flattens.

      Like

  5. Here’s another thing that men are innately better at than women, female beauty pageants.

    As I’ve said many times, both my wife and I are feminists, but as a man I’m just a little bit better at it than her.

    Forgot to include link:

    Like

    • Wait a minute.

      If one really feels one is a woman but has a penis how does one enjoy sex? I don’t get it. I do understand going through the surgery to be able to perform like the gender of one’s comfort, but at some point one is either a homosexual in transgender clothing or an actual heterosexual who has made a commitment to one’s chosen identity.

      Am I overthinking this? I am confused. In any case, the gym locker shower rule should be based on one’s “equipment”, I think.

      Like

      • If one really feels one is a woman but has a penis how does one enjoy sex?

        With their very feminine penis.

        Eh, things change. There was a time when there was too much real stuff going on to worry about gender identity. Or what your pronoun was. And this new 76-genders thing is really very new (a sign of how easy we got it now, if you ask me). The debate was and still is, for many, one of “I’m a man even though I was born a woman” or vice-versa. But for lots of younger folks it’s a matter of: “sure, I know what gender construct I was assigned at birth, but what is my *true* self? What is my *authentic* gender?” The next-next generation (the millennial tail or the post-millennials, whatever they are called) are going to be very weird to us old fogeys when it comes to sexuality.

        The one anecdotal take away (for me) is that the millennial and post millennials are going to produce a lot more of what we old farts would call “lesbians” or “bisexuals” back in the old days. Now they’ll be genderqueer or some new gender name.

        I think the gym locker thing is going to have to change from what it is to something more expensive, but ultimately necessary with 76 genders and at least 5 or 6 relatively common different gender identifications: toilets and showers and changing areas in private booths/rooms. No more gender specific bathrooms or locker rooms, just individual closets for you and whatever your gender is.

        Like

        • KW:

          The debate was and still is, for many, one of “I’m a man even though I was born a woman” or vice-versa.

          The obvious question to ask such people is…what do you mean by “man” and “woman”? I guarantee you they will be incapable of answering the question coherently.

          and at least 5 or 6 relatively common different gender identifications

          What are these common gender identifications? I am genuinely curious.

          Liked by 1 person

        • What are these common gender identifications? I am genuinely curious.

          Well, some people are using sexual orientation as interchangeable with gender now. So you can guess what those are, and I’ll let that go because you know what I think of that: we have different words for “sexual orientation” and “gender” for a reason.

          For genders, you get: Man, Woman, Transman, Transwoman, Genderfluid (or Genderqueer), Transitioning (?) , maybe Agender or Bigender. Also non-binary, which seems exactly the same as Genderfluid to me, but whatever.

          I wouldn’t be surprised in Non-Binary or Agender show up on the drop-downs of forms you’ve got to fill out pretty soon. I know the Student Information Management system I work with has recently updated the Gender field to accept multiple gender options beyond male and female. And, anecdotally, it seem like the most common “gender” for young people who are biologically female but don’t want to say that’s what they are is some form of non-binary, gender fluid, or agender (non-gender).

          If the federal reporting requirements start accommodating more than the 2 familiar genders, though, I’ll let you know!

          Like

      • “Am I overthinking this? ”

        No you aren’t. It take a lot of effort to sell the bullshit that “there are women with a penis and men with a vagina” and much less to call it out.

        And Rachel Dolezal still can’t get away with “identifying” as black.

        Like

    • This stuff will get stickier and more acrimonious as more people start claiming to be the ethnicity they feel they were born as. It will be harder to challenge those folks when they start claiming to be both a different gender and race. And I’m expecting the term “cisracial” or some variation will become a thing.

      Like

      • Rachel Dolezal, call your office.

        Liked by 1 person

        • There’s going to be a switch flip, where Rachel Dolezal, et al, move from being generally ignored by lefty culture, or mildly condemned as “cultural appropriators”, to people speaking their “own truth” and “stretching the boundaries of our understanding of the intersectionality of race and ethnicity”.

          There will be resistance, of course, and probably some more prominent liberal resistance than you get with “I’m a woman because I say I am” new-genderism. But they cannot confine the “identity fluidity” to just the gender box.

          Like

  6. I wouldn’t fuck her with Trotsky’s dick.

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  7. Hard to argue.

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    • Truth, although there are lots of non-vegans who enjoy vegan dining options, it’s still not enough to make such options rational economic decisions in the marketplace. McDonald’s McLean burger was awesome and they sold modestly well, but for most businesses, “modestly well” doesn’t cut it.

      Bike lanes are fuckin’ pointless. A huge project was done here about 2 years ago to put bike lanes all over the place on the major roads and their offshoots. Which was done not because people were biking on those roads (they weren’t and they still aren’t) but because certain people just liked the idea of the city having bike lanes. In reality, every frickin’ biker I see is still riding in the middle of the lane on two-lane roads in the exurbs.

      Although I could believe they wanted the bike lanes just to NOT use them, so they could be too cool to use the designated bike lanes.

      Like

  8. Ok, I laughed.

    Liked by 1 person

  9. Ok, I’m lesbian too.

    Like

  10. This Kos Kidz diary is particularly delightful. The comments are absolute perfect.

    This one made me laugh out loud.

    When Roe v Wade is overturned, women in the female slavery states will be dependent on underground distribution systems for mifepristone, misoprostol, and before long for oral contraceptives. As those states Gileadize, they will push to eliminate choice federally throughout the US. That will start a hot civil war.
    Please log in or sign up to continue.
    trumpeloeil July 15 · 11:39:58 AM

    https://m.dailykos.com/stories/1779945

    Like

    • You can just tell how bad they want it. That “hot” civil war. Although I love how little understanding of Roe they have that they think all that much will change when it gets over-turned–just the locus of the battle with change, and almost certainly to the arenas in which it should have been in in the first place. And all they’d frickin’ have to do is elect a bunch of pro-choice Democrats and eventually they could just pass a law legalizing abortion in a variety of situations and legally suggesting Plan B is more contraceptive than abortion . . . and it’ll work out. And perhaps with better access to abortion than they have now.

      “The female slavery states” . . . Christ, wouldn’t that be a slogan? What young man wouldn’t want to move to: “Texas: The Female Slavery State”.

      Like

    • We are threatened with living in Robert Bork’s America

      Christ, I wish that were true. That’s like saying we’re threatened with winning the lottery and getting a blow job from a supermodel. Not a threat and also not remotely likely to happen. Wrong on two counts. At least.

      The answer is simple—when Democrats return to power, they must exercise this power to undo this theft by reshaping the court and the courts. This requires simply passing legislation to that effect.

      No, the answer is even simpler than that. We wave a magic wand and get everything we want with magic! Presto change-o!

      Good luck on simply passing legislation to change the court. A: What can be done can and, in this case, almost certainly will be undone. And when the 5 new justices are ejected by the next Republican president/congress, they aren’t going to be the conservatives. And the precedent of the original court packing will be cited.

      Progressive Übermensch and Democratic God-Emperor FDR couldn’t get the court-packing done. With a largely friendly congress and senate. What makes them think the Democrats are ever going to have a situation that well-aligned again? Especially in a country that just elected Trump? I cannot see a scenario where they could get the 2/3rds majority to override a veto. These people live in a fantasy world.

      And I can see the political ads for 2020. “Democrat Kamala Harris is on record saying she intends to pack the supreme court with justices that ‘agree with her’ if you vote for her . . . ” There’s no way the optics of even the attempt will work in their favor. And how much red meat do they really want to throw to the base?

      Like

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