{"id":38236,"date":"2022-10-20T04:41:06","date_gmt":"2022-10-20T04:41:06","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=38236"},"modified":"2022-12-22T10:37:37","modified_gmt":"2022-12-22T10:37:37","slug":"important-recession-warning","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2022\/10\/20\/important-recession-warning\/","title":{"rendered":"Important recession warning"},"content":{"rendered":"<p>We have had a number of major indicators warning of a bear market over the year, with the S&amp;P 500 falling by more than 20%, completing a <a href=\"https:\/\/www.incrediblecharts.com\/technical\/dow_theory_trends.php\">Dow Theory<\/a> reversal, and 100-day Momentum holding below zero.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-10-20-spx.png?resize=525%2C363&#038;ssl=1\" alt=\"S&amp;P 500 Index\" width=\"525\" height=\"363\" \/><\/p>\n<p>On the recession front, GDP recorded two quarters of negative growth &#8212; a useful rule of thumb recession measure. The middle of the Treasury yield curve also inverted &#8212; with the 10-year yield falling below the 2-year &#8212; warning of a recession ahead.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-10-20-10y2y.png?resize=525%2C363&#038;ssl=1\" alt=\"10-Year Treasury Yield minus 2-Year Treasury Yield\" width=\"525\" height=\"363\" \/><\/p>\n<p>But unemployment (3.5%) is the lowest since the 1960s and the NBER has not moved to confirm a recession.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-10-20-u3.png?resize=525%2C363&#038;ssl=1\" alt=\"Unemployment\" width=\"525\" height=\"363\" \/><\/p>\n<p>The front-end of the yield curve also remained positive, failing to confirm the signal from the 10-year\/2-year negative spread.<\/p>\n<p>Until now, that is.<\/p>\n<p>On Tuesday, the 10-year\/3-month Treasury spread turned negative, confirming the earlier 10Y\/2Y recession warning.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-10-20-10y3m.png?resize=525%2C363&#038;ssl=1\" alt=\"10-Year Treasury Yield minus 3-Month Treasury Bill Discount Rate\" width=\"525\" height=\"363\" \/><\/p>\n<p>Why is that important?<\/p>\n<p>Because a negative 10-year\/3-month spread has preceded every recession since 1960. One possible exception is 1966 (orange circle below). The 10Y\/3M inverted, the Dow fell by <a href=\"https:\/\/ritholtz.com\/wp-content\/uploads\/2005\/09\/Rydex-66-82.jpg\">25%<\/a>, and the NBER confirmed a recession but later changed their mind and airbrushed the recession out of the record. All-in-all, the 10Y\/3M is our most reliable recession indicator, with a 100% track record in our view, over the past sixty years.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-10-20-10y3m-lt.png?resize=525%2C363&#038;ssl=1\" alt=\"10-Year Treasury Yield minus 3-Month Treasury Bill Discount Rate\" width=\"525\" height=\"363\" \/><\/p>\n<h2>Conclusion<\/h2>\n<p>Our most reliable recession indicator, a negative 10-year\/3-month Treasury yield differential, now confirms the recession warning from other indicators. But the signal is often early and it could take 6 to 12 months for the actual recession to arrive.<\/p>\n<p>After their recent track record, expectations that the Fed will manufacture a soft landing are the <em>triumph of hope over experience<\/em>.<\/p>\n<p>Employment is a lagging indicator and often only falls during the recession. Inflation likewise lags monetary policy by up to 6 months, before the full impact is clear. We expect the Fed to continue hiking, waiting for employment and inflation to fall, until the lagged impact of past rate hikes comes into view. Instead of cutting interest rates to soften the impact, the Fed has indicated they will hold rates high for longer. If so, we are likely to experience a severe recession.<\/p>\n<p>Our strategy is to invest in cash in the short-term and limit exposure to equities, other than precious metals, critical materials, and defensive stocks.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>We have had a number of major indicators warning of a bear market over the year, with the S&amp;P 500 falling by more than 20%, completing a Dow Theory reversal, and 100-day Momentum holding below zero. On the recession front, GDP recorded two quarters of negative growth &#8212; a useful rule of thumb recession measure. &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2022\/10\/20\/important-recession-warning\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Important recession warning&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,46,3761,13,34],"tags":[5373,5440,4278,3010,5535,3725],"class_list":["post-38236","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-deficit-spending-employment","category-gdp-and-activity","category-inflation-economy","category-us-canada-countries-regions","tag-10-year-2-year-yield-differential","tag-10-year-3-month-yield-differential","tag-dow-theory","tag-sp-500","tag-unemployment-u3","tag-yield-curve"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Important recession warning - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Important recession warning - the patient investor\" \/>\n<meta property=\"og:description\" content=\"We have had a number of major indicators warning of a bear market over the year, with the S&amp;P 500 falling by more than 20%, completing a Dow Theory reversal, and 100-day Momentum holding below zero. On the recession front, GDP recorded two quarters of negative growth &#8212; a useful rule of thumb recession measure. &hellip; Continue reading &quot;Important recession warning&quot;\" \/>\n<meta property=\"og:url\" content=\"https:\/\/thepatientinvestor.com\/index.php\/2022\/10\/20\/important-recession-warning\/\" \/>\n<meta property=\"og:site_name\" content=\"the patient investor\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/profile.php?id=61572934660810\" \/>\n<meta property=\"article:author\" content=\"https:\/\/facebook.com\/people\/The-Patient-Investor\/61572934660810\/\" \/>\n<meta property=\"article:published_time\" content=\"2022-10-20T04:41:06+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-12-22T10:37:37+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/static.incrediblecharts.com\/images\/2022\/2022-10-20-spx.png\" \/>\n<meta name=\"author\" content=\"Colin Twiggs\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Colin Twiggs\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/\"},\"author\":{\"name\":\"Colin Twiggs\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#\\\/schema\\\/person\\\/d42b18d516a80149d739845749ac6454\"},\"headline\":\"Important recession warning\",\"datePublished\":\"2022-10-20T04:41:06+00:00\",\"dateModified\":\"2022-12-22T10:37:37+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/\"},\"wordCount\":377,\"publisher\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.incrediblecharts.com\\\/images\\\/2022\\\/2022-10-20-spx.png\",\"keywords\":[\"10-Year\\\/2-Year Yield Differential\",\"10-Year\\\/3-Month Yield Differential\",\"Dow Theory\",\"S&amp;P 500\",\"Unemployment (U3)\",\"Yield Curve\"],\"articleSection\":[\"Banks &amp; Interest Rates\",\"Deficit Spending &amp; Employment\",\"GDP and Activity\",\"Inflation\",\"US &amp; Canada\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/\",\"url\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/\",\"name\":\"Important recession warning - the patient investor\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.incrediblecharts.com\\\/images\\\/2022\\\/2022-10-20-spx.png\",\"datePublished\":\"2022-10-20T04:41:06+00:00\",\"dateModified\":\"2022-12-22T10:37:37+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/#primaryimage\",\"url\":\"https:\\\/\\\/www.incrediblecharts.com\\\/images\\\/2022\\\/2022-10-20-spx.png\",\"contentUrl\":\"https:\\\/\\\/www.incrediblecharts.com\\\/images\\\/2022\\\/2022-10-20-spx.png\"},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2022\\\/10\\\/20\\\/important-recession-warning\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/thepatientinvestor.com\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Important recession warning\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#website\",\"url\":\"https:\\\/\\\/thepatientinvestor.com\\\/\",\"name\":\"The Patient Investor\",\"description\":\"Smart. 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He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters. Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis. Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008\\\/2009 and 2020 bear markets well ahead of actual events. 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He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters. Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis. Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008\/2009 and 2020 bear markets well ahead of actual events. He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.","sameAs":["https:\/\/facebook.com\/people\/The-Patient-Investor\/61572934660810\/","https:\/\/www.instagram.com\/colin_thepatientinvestor","https:\/\/au.linkedin.com\/in\/colintwiggs"],"url":"https:\/\/thepatientinvestor.com\/index.php\/author\/investor\/"}]}},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9tQ4n-9WI","jetpack_likes_enabled":false,"jetpack-related-posts":[{"id":36038,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/08\/01\/negative-yield-curves-and-market-timing\/","url_meta":{"origin":38236,"position":0},"title":"Negative yield curves and market timing","author":"Colin Twiggs","date":"August 1, 2022","format":false,"excerpt":"The 10-Year\/3-Month Yield Differential is plunging towards zero. An inverted yield curve is one of the most reliable indicators of a coming recession. The 10-Year\/2-Year is already below zero but is less reliable. We prefer using the 3-Month T-Bill rate as it is a more accurate indication of Fed monetary\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"10-Year\/2-Year Yield Differential","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-01-10y3m-yielddiff.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-01-10y3m-yielddiff.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-01-10y3m-yielddiff.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":31731,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/03\/30\/10-year-2-year-yield-curve-inverts\/","url_meta":{"origin":38236,"position":1},"title":"10-Year\/2-Year yield curve inverts","author":"Colin Twiggs","date":"March 30, 2022","format":false,"excerpt":"The 2-Year Treasury yield rose briefly above the 10-Year yield, with the spread briefly falling to minus 0.03 of a basis point, before recovering to 5 basis points, from data by Refinitiv. According to Reuters, the inversion is \"a recession alarm\". At the risk of repeating ourselves: Inversion of the\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Jim Bianco","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-03-29-jbianco.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-03-29-jbianco.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-03-29-jbianco.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":37419,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/09\/13\/sp-500-rallying-but-risks-remain\/","url_meta":{"origin":38236,"position":2},"title":"S&#038;P 500 rallying but risks remain","author":"Colin Twiggs","date":"September 13, 2022","format":false,"excerpt":"The S&P 500 is rallying, with a higher trough suggesting another test of resistance at 4200\/4250. But valuations warn that stock prices are still elevated, with Market Capitalization\/GDP -- Warren Buffett's favorite valuation measure -- falling to 2.14 in Q2, compared to the long-term average of 1.03. The price-to-sales ratio\u2026","rel":"","context":"In &quot;US &amp; Canada&quot;","block_context":{"text":"US &amp; Canada","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/us-canada-countries-regions\/"},"img":{"alt_text":"S&P 500","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-09-12-spx.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-09-12-spx.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-09-12-spx.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":36579,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/08\/20\/base-case-global-recession\/","url_meta":{"origin":38236,"position":3},"title":"Base case: global recession","author":"Colin Twiggs","date":"August 20, 2022","format":false,"excerpt":"The Treasury yield curve is flattening, with the 10-year\/3-month yield differential plunging sharply, to a current 0.24%. Another 75 basis point rate hike at the next FOMC meeting is expected to drive the 3-month T-Bill discount rate above the 10-year yield, the negative spread warning of a deep recession in\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"10-Year & minus 3-Month Treasury Yield","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-19-10y3m.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-19-10y3m.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-19-10y3m.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":18301,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/06\/01\/trade-war-reality-sinks-in\/","url_meta":{"origin":38236,"position":4},"title":"Trade war reality sinks in","author":"Colin Twiggs","date":"June 1, 2019","format":false,"excerpt":"Realization that we are slipping into a trade war is starting to sink in. The S&P 500 broke medium-term support at 2800, warning of a correction. The target is primary support at 2400. Volatility is flashing an amber warning, above 1.0%. Nymex crude is plunging as anticipated global demand falls.\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":31607,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/03\/22\/yield-curve-gymnastics\/","url_meta":{"origin":38236,"position":5},"title":"The yield curve recession warning","author":"Colin Twiggs","date":"March 22, 2022","format":false,"excerpt":"A great deal has been written in the past month above the flat 10-year\/2-year Treasury yield curve and the inevitability of recession if the slope turns negative. Wolf Richter sums up the problem: The weight of the Fed\u2019s gargantuan balance sheet is pushing down on long-term yields that the Fed\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"US Treasury Yield Curve","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/us-yield-curve-2022-03-21.png?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/38236","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=38236"}],"version-history":[{"count":3,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/38236\/revisions"}],"predecessor-version":[{"id":38240,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/38236\/revisions\/38240"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=38236"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=38236"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=38236"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}