Clients have been asking very timely questions about the spiraling problem of US government debt – and how that can impact the decisions we make as far as investing is concerned. It is because of situations like this that I apply ‘emotionless’ & ‘soulless’ analytical tools to determine if, and then where, to invest.
Since we cannot control what our illustrious leaders are doing, allow me to pose several questions:
• Are all the same old real world things – like creative destruction, supply and demand, innovation, and trial and error – still happening like they always have?
• Has the US experienced difficult financial times in the past?
• Did the US survive & did people make money during those times?
• Who benefitted – planners or worriers? Which one do you choose to be?
The Boy Scout’s motto is “Be Prepared”, my analytical tools keep me prepared.
When do you want to get started on your financial planning?
I offer modular financial planning in the following areas:
-Net worth & cash flow
-Accumulation
-Retirement planning
-Education funding
-Survivor
-Estate & tax planning
For a complimentary review, call or email me for a questionnaire.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Tuesday, June 21, 2011
Tuesday, June 7, 2011
Market Flash Back?
Whenever we experience a day with volatility & declining markets the mind quickly flashes back to the days, a few years ago, when banks were being bailed-out at a fraction of their former values and Lehman Bros. was suddenly referred to in the past-tense. Sure, there are negatives with regard to the slowing of the US economy however, I must objectively point out the positives that persist, and among them are the continued strong relative strength of the US equity asset class; it remains ranked #1 while commodities are #2, international is #3, foreign currencies are #4, fixed income is #5 & cash brings up the rear at #6.
We have experienced an exhale from the recent highs in indices such as the S&P 500, but we have not seen a change of trend. It is important to remain objective in the face of days such as these, particularly since recent memories encourage emotion-based decision making over objectivity.
In summary: 75% of stocks in the NYSE are currently above their bullish support lines, and the weakness has certainly not been evenly spread; the Banking sector, for instance, has roughly 50% of its components in negative trends and the Savings & Loan sector is even higher. Meanwhile Gas Utilities still shows 86% above trend, while Chemicals and Oil Service also have percentages in the mid-70s.
Yes, while volatility tests our nerves & resolve and the ‘talking heads’ banter about the current ‘hot topics’, we steadfastly apply a non-emotional and disciplined approach to managing your assets. Looking ahead, some of the recent headwinds, the spike in gasoline prices and disruptions caused by the Japanese earthquake and US tornadoes are likely to fade in the second half of the year.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
We have experienced an exhale from the recent highs in indices such as the S&P 500, but we have not seen a change of trend. It is important to remain objective in the face of days such as these, particularly since recent memories encourage emotion-based decision making over objectivity.
In summary: 75% of stocks in the NYSE are currently above their bullish support lines, and the weakness has certainly not been evenly spread; the Banking sector, for instance, has roughly 50% of its components in negative trends and the Savings & Loan sector is even higher. Meanwhile Gas Utilities still shows 86% above trend, while Chemicals and Oil Service also have percentages in the mid-70s.
Yes, while volatility tests our nerves & resolve and the ‘talking heads’ banter about the current ‘hot topics’, we steadfastly apply a non-emotional and disciplined approach to managing your assets. Looking ahead, some of the recent headwinds, the spike in gasoline prices and disruptions caused by the Japanese earthquake and US tornadoes are likely to fade in the second half of the year.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Wednesday, May 11, 2011
Is Inflation Coming?
Look at your grocery bill – it's already here!
Headlines from Wednesday, May 4, 2011:
“Services ISM (Institute for Supply Management’s Non-Manufacturing, or Service, survey) Plummets: …Concerns about Fuel and Commodity Costs…”
Headlines from Tuesday, May 10, 2011:
“April Import Price Index was reported up 2.2%, following a revised 2.6% increase in March (previously +2.7%). Notably, the core of the action was in petroleum and food prices...”
The Fed continues to insist that inflation is non-existent. The problem as I see it is that when calculating inflation, the fed does not include food or oil, as these two “costs” are “too volatile” or, said another way “short-term changes in food and oil prices don't predict long-term changes in food and oil prices”. Further compounding the error is the 40% of the CPI* that is accounted for by real estate values.
*CPI (consumer price index) (def):
“The CPI represents changes in prices of all goods and services purchased for consumption by urban households. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. This index value has been calculated every year since 1913.”
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Headlines from Wednesday, May 4, 2011:
“Services ISM (Institute for Supply Management’s Non-Manufacturing, or Service, survey) Plummets: …Concerns about Fuel and Commodity Costs…”
Headlines from Tuesday, May 10, 2011:
“April Import Price Index was reported up 2.2%, following a revised 2.6% increase in March (previously +2.7%). Notably, the core of the action was in petroleum and food prices...”
The Fed continues to insist that inflation is non-existent. The problem as I see it is that when calculating inflation, the fed does not include food or oil, as these two “costs” are “too volatile” or, said another way “short-term changes in food and oil prices don't predict long-term changes in food and oil prices”. Further compounding the error is the 40% of the CPI* that is accounted for by real estate values.
*CPI (consumer price index) (def):
“The CPI represents changes in prices of all goods and services purchased for consumption by urban households. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. This index value has been calculated every year since 1913.”
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Monday, April 4, 2011
Emotional Humans
Recently on Jeopardy, there was a contest between Watson (a super computer) and former champions Brad Rutter (won over $3 million) and Ken Jennings (74 consecutive wins). However, 10 racks of IBM servers, 15 terabytes of memory and 200 million pages of programmed information were too formidable an opponent for the humans.
After the contest, Brad Rutter wrote an interesting commentary on the Wall Street Journal blog entitled, "Why I Lost to Watson." He said one pivotal reason he and Ken lost was because they are human:
“Jeopardy is an emotional game. The better you can weather the storm without getting too overconfident or discouraged, the better you are likely to do. Watson’s emotions obviously will never affect its performance. Its only focus is the one clue in front of it, and the more you can get into that Zen-like state, the better. While cockiness can be a player’s undoing, a certain confidence is essential to success.”
“Tell a human contestant, 'You’ll be playing against the two guys who have won the most money in Jeopardy history on national television for a top prize of a million dollars,' and most would immediately start mentally spending the third-place prize. I attribute most of my success on the show to my attitude: someone’s going to win this, why shouldn’t it be me? As a soulless hunk of circuits instead of a living, breathing human, Watson already had a big leg up over any human coming into this challenge."
There is a lot for investors to learn from Brad's observations; emotions are our worst enemy when investing. And, as an advisor, I have to not only deal with my emotions but your emotions as well. Emotions have their place (so my wife tells me), but the investment world is not a place where being emotional has proven to be beneficial.
It is all too easy to get caught up in the moment; unrest in the Middle East, rising gasoline prices, Japanese quake, tsunami & possible nuclear disaster. What does all of this have to do with the stock market? Maybe nothing, maybe a lot - time will tell. I evaluate the markets using an unemotional and systematic approach and as long as the market is continuing to support higher prices and demand is in control of the investments we own, we will continue to play offense.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
After the contest, Brad Rutter wrote an interesting commentary on the Wall Street Journal blog entitled, "Why I Lost to Watson." He said one pivotal reason he and Ken lost was because they are human:
“Jeopardy is an emotional game. The better you can weather the storm without getting too overconfident or discouraged, the better you are likely to do. Watson’s emotions obviously will never affect its performance. Its only focus is the one clue in front of it, and the more you can get into that Zen-like state, the better. While cockiness can be a player’s undoing, a certain confidence is essential to success.”
“Tell a human contestant, 'You’ll be playing against the two guys who have won the most money in Jeopardy history on national television for a top prize of a million dollars,' and most would immediately start mentally spending the third-place prize. I attribute most of my success on the show to my attitude: someone’s going to win this, why shouldn’t it be me? As a soulless hunk of circuits instead of a living, breathing human, Watson already had a big leg up over any human coming into this challenge."
There is a lot for investors to learn from Brad's observations; emotions are our worst enemy when investing. And, as an advisor, I have to not only deal with my emotions but your emotions as well. Emotions have their place (so my wife tells me), but the investment world is not a place where being emotional has proven to be beneficial.
It is all too easy to get caught up in the moment; unrest in the Middle East, rising gasoline prices, Japanese quake, tsunami & possible nuclear disaster. What does all of this have to do with the stock market? Maybe nothing, maybe a lot - time will tell. I evaluate the markets using an unemotional and systematic approach and as long as the market is continuing to support higher prices and demand is in control of the investments we own, we will continue to play offense.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Wednesday, March 23, 2011
Inflation Hitting your Wallet?
Excluding food and energy, the CPI rose 0.2% to a year-over-year rate of 1.1% in February, so say the stats published by the US government. My family buys a lot of food & gas! But I digress. By manipulating what is included in the calculation, our government has gone to great lengths to convince us that inflation is virtually non-existent. However, just in case the price of "things" you regularly purchase, like gas, does end up increasing…you can do something about it.
Let's say you drive 10,000 miles per year and your vehicle gets 15 mpg. Let’s also assume that gas prices are $3/gallon. This means you will need to stockpile $2,000 worth of gas to get you through the next 12 months. Since zoning laws frown upon the idea of installing gas tanks in our backyards, how can we hedge against the risk of further increases in gasoline prices?
It is no secret that I am a fan of ETFs (exchange traded funds) because of their low cost and transparency. In addition to many other commodities, there is an ETF for gas – UGA. If we were to invest $2000 in shares of UGA (approx. 40 shares), we could effectively hedge the price of gas for one year! If gas prices move toward $4 - $5 per gallon the appreciation of UGA will help offset your costs.
If your spouse and teenagers also drive 10,000 miles per year, you will want to adjust the calculation to reflect that. Also, depending upon the type of account you use, the long-term capital gains rate of 15% would reduce the effect of the hedge. Something to consider as we pay our Spring break bills and look forward to summer vacations…
Cost breakdown of a gallon of gas:
Crude Oil: 67%
Taxes (Avg.): 13%
Refining Costs: 11%
Marketing/Transport: 9%
Source: US Dept. of Energy
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Let's say you drive 10,000 miles per year and your vehicle gets 15 mpg. Let’s also assume that gas prices are $3/gallon. This means you will need to stockpile $2,000 worth of gas to get you through the next 12 months. Since zoning laws frown upon the idea of installing gas tanks in our backyards, how can we hedge against the risk of further increases in gasoline prices?
It is no secret that I am a fan of ETFs (exchange traded funds) because of their low cost and transparency. In addition to many other commodities, there is an ETF for gas – UGA. If we were to invest $2000 in shares of UGA (approx. 40 shares), we could effectively hedge the price of gas for one year! If gas prices move toward $4 - $5 per gallon the appreciation of UGA will help offset your costs.
If your spouse and teenagers also drive 10,000 miles per year, you will want to adjust the calculation to reflect that. Also, depending upon the type of account you use, the long-term capital gains rate of 15% would reduce the effect of the hedge. Something to consider as we pay our Spring break bills and look forward to summer vacations…
Cost breakdown of a gallon of gas:
Crude Oil: 67%
Taxes (Avg.): 13%
Refining Costs: 11%
Marketing/Transport: 9%
Source: US Dept. of Energy
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Wednesday, March 9, 2011
Implications of Age Differences Across the World
One of the many challenges facing the global economy is the implications of aging populations in developed countries and young growing populations in emerging countries. Several emerging markets are experiencing a manifestation of this today as much of the political unrest has been ignited by youth movements. The impetus may vary but at the core of most of the recent unrest is unemployment, inequalities perpetuated by a minority ruling party and rising food prices, or some combination of all the above.
Meanwhile, developed countries faced with aging populations, are facing smaller work forces, shrinking tax bases and strained social security systems. We are seeing the effects of this at work in Wisconsin…
This century, it's going to be more important than ever to understand the dynamics of age distributions in populations and how this will affect key socioeconomic issues across global markets. The CIA World Factbook: Median Age, provides the median age of most countries. Within the developed countries, the average median age is 40.83. Interestingly, we American’s are doing a good job replacing ourselves as we have a median age of 36.8; the lowest median age out of the top ten countries in the ACWI (MSCI All Country World Index). The two countries with the highest median ages, are two of the most industrialized; Germany at 44.3 and Japan at 44.6. In fact, Japan’s median age is well above any of its neighbors within the Asia-Pacific region. Within emerging markets, the average median age is 30.92. South Korea and Russia have the highest median ages – in the upper thirties while Brazil has a median age of 28.9. The lowest median age in the top ten emerging markets is South Africa at 24.7. In fact, low median ages are quite prevalent in Africa with Uganda at 15 and Egypt at 24.
Most economists believe that China and India are the two main challengers for economic supremacy in the 21st century, yet there are major differences in their demographic makeup; China currently has a median age of 35.2 while India has a median age of 25.9.
What does all this mean for the future? Lower median ages point towards larger future working-age populations and the likelihood of increasing demand for raw materials and agricultural products within emerging markets. On the other hand, a larger youthful population could lead to unrest, similar to what is happening in the Middle East and Northern Africa in recent weeks. So, to ensure some degree of stability it is incumbent on developing countries to provide at a minimum, the perception of equality, and to also enable their citizen’s to pursue meaningful and productive employment so that they can maintain purchasing power in an economic environment with rising prices due to increased demand.
Bottom line, farming may once again be a lucrative way to make a living!
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Meanwhile, developed countries faced with aging populations, are facing smaller work forces, shrinking tax bases and strained social security systems. We are seeing the effects of this at work in Wisconsin…
This century, it's going to be more important than ever to understand the dynamics of age distributions in populations and how this will affect key socioeconomic issues across global markets. The CIA World Factbook: Median Age, provides the median age of most countries. Within the developed countries, the average median age is 40.83. Interestingly, we American’s are doing a good job replacing ourselves as we have a median age of 36.8; the lowest median age out of the top ten countries in the ACWI (MSCI All Country World Index). The two countries with the highest median ages, are two of the most industrialized; Germany at 44.3 and Japan at 44.6. In fact, Japan’s median age is well above any of its neighbors within the Asia-Pacific region. Within emerging markets, the average median age is 30.92. South Korea and Russia have the highest median ages – in the upper thirties while Brazil has a median age of 28.9. The lowest median age in the top ten emerging markets is South Africa at 24.7. In fact, low median ages are quite prevalent in Africa with Uganda at 15 and Egypt at 24.
Most economists believe that China and India are the two main challengers for economic supremacy in the 21st century, yet there are major differences in their demographic makeup; China currently has a median age of 35.2 while India has a median age of 25.9.
What does all this mean for the future? Lower median ages point towards larger future working-age populations and the likelihood of increasing demand for raw materials and agricultural products within emerging markets. On the other hand, a larger youthful population could lead to unrest, similar to what is happening in the Middle East and Northern Africa in recent weeks. So, to ensure some degree of stability it is incumbent on developing countries to provide at a minimum, the perception of equality, and to also enable their citizen’s to pursue meaningful and productive employment so that they can maintain purchasing power in an economic environment with rising prices due to increased demand.
Bottom line, farming may once again be a lucrative way to make a living!
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Friday, February 11, 2011
Commodity prices are heading up
Egypt is experiencing mass demonstrations with protestors calling for a regime change and improved employment opportunities, i.e. a better quality of life. The results of this development within the most populous Arab country are as yet unknown, but the turmoil has concerned Egypt’s neighbors and trickled over into commodity markets.
What is to blame – Hosni Mubarak’s authoritarian regime or some other factor? Since I am a “Financial Advisor” I will stick with what I know. The dollar is the most important currency in the world and the Federal Reserve controls the value of the dollar by setting interest rates and controlling money supply. When the Fed prints too many dollars, price inflation results and often shows up in commodity prices first. When loose monetary policy lifts energy commodities, oil exporters typically benefit. Egypt is an oil producer and refiner, so rising energy prices should be slightly positive for their economy.
Likewise, when loose monetary policy lifts food commodities, food growers and exporters typically benefit. Egypt is a food importer; according to the Egyptian Agricultural Minister, the country imports 40% of its food. So, rising food prices are negative for the nation’s economy.
In the second-half of 2010, the Goldman Sachs Agricultural Index climbed 66%, the steepest increase for any 6-month period since 1974. Recently, there have been several instances where third world governments lifted subsidies on food & fuel and then, because of mass protests and discontent they, at least partially, re-instated the subsidies. In other words, the impact of a declining dollar and rising food prices has been detrimental to the average standard of living in Egypt and, in many other parts of the third world, where you can add rising energy costs to the mix.
Not helping this global situation is the fact that by 2010 the percentage of US corn production devoted to the production of ethanol was 39.4%, or nearly five billion bushels out of total U.S. production of 12.45 billion bushels, add to that the droughts last summer in Russia and Australia and then the floods and typhoon - again in Australia.
Portfolios under my advisement have maintained exposure to metal commodities for several months and recently (pre-Egypt) added broad agricultural commodity exposure. Agricultural commodities stand to benefit from a plethora of dollars, rising global demand and misguided policies.
Confidentiality Notice: The information in this e-mail message, including any attachments thereto, is intended to be confidential and is for the use of the individual or entity named above. If the reader of this message is not the intended recipient, you are hereby notified that retention, dissemination, distribution, or copying of this message is strictly prohibited. If you receive this message in error, please notify the sender and delete the material immediately. Thank you.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
What is to blame – Hosni Mubarak’s authoritarian regime or some other factor? Since I am a “Financial Advisor” I will stick with what I know. The dollar is the most important currency in the world and the Federal Reserve controls the value of the dollar by setting interest rates and controlling money supply. When the Fed prints too many dollars, price inflation results and often shows up in commodity prices first. When loose monetary policy lifts energy commodities, oil exporters typically benefit. Egypt is an oil producer and refiner, so rising energy prices should be slightly positive for their economy.
Likewise, when loose monetary policy lifts food commodities, food growers and exporters typically benefit. Egypt is a food importer; according to the Egyptian Agricultural Minister, the country imports 40% of its food. So, rising food prices are negative for the nation’s economy.
In the second-half of 2010, the Goldman Sachs Agricultural Index climbed 66%, the steepest increase for any 6-month period since 1974. Recently, there have been several instances where third world governments lifted subsidies on food & fuel and then, because of mass protests and discontent they, at least partially, re-instated the subsidies. In other words, the impact of a declining dollar and rising food prices has been detrimental to the average standard of living in Egypt and, in many other parts of the third world, where you can add rising energy costs to the mix.
Not helping this global situation is the fact that by 2010 the percentage of US corn production devoted to the production of ethanol was 39.4%, or nearly five billion bushels out of total U.S. production of 12.45 billion bushels, add to that the droughts last summer in Russia and Australia and then the floods and typhoon - again in Australia.
Portfolios under my advisement have maintained exposure to metal commodities for several months and recently (pre-Egypt) added broad agricultural commodity exposure. Agricultural commodities stand to benefit from a plethora of dollars, rising global demand and misguided policies.
Confidentiality Notice: The information in this e-mail message, including any attachments thereto, is intended to be confidential and is for the use of the individual or entity named above. If the reader of this message is not the intended recipient, you are hereby notified that retention, dissemination, distribution, or copying of this message is strictly prohibited. If you receive this message in error, please notify the sender and delete the material immediately. Thank you.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
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