Especially, now, since I have been living in China where people are desperate to get ahead in the modern capitalistic Chinese world I have seen many people who believe that, if they charge a high price, they will be able to get rich quick and retire early.  As a former member of the Wall Street proprietary trading community, in arbitrage, I have always been taught that greed is not good.  The Wall Street expression goes: bulls make money, bears make money, and pigs end up broke or in jail.

A basic law of economics, based on psychology and logic, is that the demand curve is downward sloping: people are more willing to buy a [product, if the price decreases; less willing, if the price increases.  Then, equilibrium will occur at the intersection of the upward sloping supply curve and the downward sloping demand.  To fill in a few more details, total revenue can be found as the rectangle on such a supply-demand graph touching the intersection and going to the origin of the graph: it is simply Revenue = PxQ where P is the sales price per unit and Q is the quantity sold.

Profit is defined as revenue - cost, which can be put into equation form as: I = R - C = PxQ - ATCxQ, where ATC is the average unit cost and I stands for income or profit.  From calculus, we know that a maximum (technically, an extremum, which could be a max, min, or turning point) is found by taking the first derivative of something and setting it equal to zero.  Thus, in the case of profits, we have the condition for maximum ΔI/ΔQ = QxΔP/ΔQ + P - QxΔATC/ΔQ - ATC = 0.  Other standard concepts, in economics are marginal variables, which are just first derivatives of quantities.  Specifically, marginal revenue = MR = ΔR/ΔQ = P + QxΔP/ΔQ, which is always less than P with downward sloping demand, and marginal cost = MC = QxΔATC/ΔQ + ATC.  In the latter case, we also, note that since cost curves are U-shaped, MC will be under ATC for sometime, and it will cross over at minimum ATC, then, move above it. 

Looking back at our profit maximization condition, we see that we can rewrite it as ΔI/ΔQ = 0 = MR - MC.  Thus, without going into the proper secondary condition for actual maximization, which requires that the second derivative is less than 0, we arrive at the profit maximization condition MR = MC, which simply says that we should sell units up to the point where marginal revenue is just equal to marginal cost.

That condition, in turn, gives us a price and quantity for sales.  If we sell less than that maximal quantity at higher prices, our profits will be less than maximal; if we sell more than that quantity at a lower price, the same is true.  That this theorem is valid, even in the case of a pure monopoly, tells us that we should abide by it because even a pure monopolist, much less a lowly competitor in any other business, cannot get away with charging any price they desire.

For more analysis and information about finance and investment, please visit our website http://www.redhillcapitalco.com .

Craig L. Mattoli, CEO
Red Hill Capital Corporation, Delaware, USA
© Red Hill Capital Corp. 2010, all worldwide rights reserved

At Red Hill Capital, our focus is on investment in inefficient market, and the art market is one of the most inefficient.  Of course that is not true about the part of the art market that is always in the news.  What is already all over the news never presents good investment opportunity.  That is why we prefer to invest in relatively undiscovered artists, not the ones who capture headlines with their stunts or gimmicks.

We discovered the art of Zhao Qian Xu (Xu Zhao Qian) when we first began to invest in contemporary oil paintings, in China, and we liked his art.  We recently paid a visit to him, and we like the new art that he has been creating, and we like his attitude, too.  We believe his art presents good investment value, and we wrote about him on our Leona Craig Art Blog, recently, so, we thought that we should provide the readers of our Red Hill Capital Blog with a link to that article http://blog.leonacraig.com/2010/07/23/zhao-qian-xu-an-artist-who-understands-art.aspx 

We recently made some comments about the state of the art markets, in China.  While the comment centered on the Chinese Yixing teapot art market, on both the buy and sell sides, we also made some general comments about the art markets, in China. 

Art, in China, is one of our biggest investment business at Red Hill Capital, currently, and the prices of many types of art, including paintings and teapots, are misaligned with each other and with world art markets, in some cases, because of the mispricing of the Yuan and because people, in China, have not caught onto the idea of home decoration, the way that we have, in the West.

You can link to the blog at:
http://blog.leonacraig.com/2009/09/26/chinese-teapot-art-and-other-art-at-leona-craig-art.aspx 

We resently wrot a paper about phsychology, design, and marketing, in investing and the investment business.  As a professional investor and arbitrageur, I have always focused on the psychology of invetment, and the recent trend in finacial studies ove the past few decades has also focused on the.  The paper looks at how much design and marketing, which I have also been aware of since beginning my career on Wall Street three decades, ago, goes into the finance and investment businesses.  It also examines the psychology of investment that causes people to get suckered into all the get-rich-quick schemes and the resulting "crises" that causes.

Since it was 8000 words, we felt that it was too long to put on the blogs, so, we added it as a downloadable paper on the In Country Analysis page of our website.  you can find it by going, there; it's at the top of the list:
http://www.leonacraig.com/In_Country_Analysis.htm

Detecting different information or return potentials and combining that information, differently, and  before others do is crucial to investing.  Rumors are rife, and there has so much competition to fill twenty-four hour business news services with feed that the media has become prone to be duped into publishing unverified information that, often, is not quite accurate, complete or true.  In that regard, we must not only collect information but we must also continually monitor the source for accuracy and the information for corroboration.

After working on a PhD in mathematical physics, my first career on Wall Street was, naturally, to compile industry, financial, and economic data and to make predictive models for key variables, like GDP or computer sales.  To do that, I had to develop sources of information, in government departments, industry groups, companies, and other investment firms.  I also majored in linguistics with an emphasis on psycho-linguistics, in college.  I took graduate level courses, studied a lot on my own, and worked as a research assistant, in psychology, while working on my graduate physics degree.  I am a student of the behavior of living things, and I realize the importance of psychology, in markets.  Thus, my next career on Wall Street was as a merger arbitrageur.

Merger arbitrage involves business and market psychology, valuation, legal understanding of securities and contracts laws.  There is much information to collect and many types of analyses to perform.  There are also many rumors, flying about, in this very secretive and proprietary investment business.  Moreover, because buying and selling move market prices, you do not want your private information to be distributed to the general community or he public.  So, in addition to testing sources for accuracy, one must also test those with whom one trades proprietary.  The testing is for fidelity or to induce their networks by observing where your information pops up at other sources.

Finance was born from warfare, having arisen in response to the need for funding wars among Italian city-states, in the 13^th century.  It was beneficial for business men to buy war bonds to help fund the side that would do best by their interests.  Having grown up together, finance has taken many of its strategies and tactics from warfare, including from the espionage and   counterespionage parts of that business.   After all, finance and investing must be secretive businesses by their nature.   Especially where money is concerned, I have found, in my three decades, in the business that you can only surround yourself with those who you can completely trust and rely on.  A useful lesson from counterespionage is the additional importance of not only misinformation but also disinformation.  You might consider using untrustworthy contacts for disseminating that. 

In deciding, a priori, which fits into which category, you can test the source, the information, and the network by disseminating information or misinformation, one bit at a time.  After you dole out the information, you can observe where trading activity or return of the information , subsequently, occurs.   If you give out information with the caveat that it cannot be redistributed, and you see results of the knowledge, elsewhere, you know how far you can trust that particular contact.  It is truly something that is done by proprietary traders on Wall Street.

Thus, we can surmise that there is, in use, the strategy of compartmentalization of information from espionage, in the business of investment.  We form investment spy rings, and we also are aware and participate in making the information spread among some of the ring.  Furthermore, we set up a network of misinformation, including trading accounts at a number of discreet brokers, so that even our trading will make tiny tracks, not those of an elephant.

Indeed, most of the time one can only compile a fraction of even specific information.  For example, I might take a survey of business at selected Holiday Inns to try to predict profitability of the whole company.  I would never have the time, and it would not be worth the resources employed to survey all of their branches in the world.  However, I might have several associates who also take similar surveys from different branches, and it would be very useful to share our information for comparison.  It might even help us build a more accurate prediction (model) of the future.

A more elaborate part of merger arbitrage was that we hired lawyers to sit at courts waiting for any filings, to immediately forward papers and analyze.  Those types of services cost several hundred thousand dollar per year, and both their cost and understanding the legal arguments and issues are out of the reach of the ordinary person.  It is an example of both economies of scale on investment funds and barriers to entry based on expert knowledge.  Even so, we all had different lawyers, so there might still be usefulness in comparing note.

In the end, professional investing is very hard and technical work, involving elements of psychology, warfare, and espionage.  It is neither possible nor economically feasible to collect and properly process all of the information.  Thus, admitting that no man or woman is an island, we begin to develop contacts and networks for the collecting, testing, synthesizing, and disguising relevant and irrelevant information.  Testing sources and information networks is necessary to develop the amount of precision, in this business where large losses are lurking, awaiting the more careless.  It is the reason that I advise my students in finance at the universities where I teach and my assistants at Red Hill Capital to, first, read both Machiavelli’s The Prince and Sun Tsu’s Art of War.  After that, I also advise them to read both physics and psychology books, on their own: physics, not because investment is about math, but, instead, to develop good general analytical skills.  Moreover, in psychology, I would especially encourage them to study concepts in psycholinguistics and behavioral finance.  Then, the comparative tools that they have learned can be combined and compared with others.  After all, the fundamental basis of investing is comparison, whether it is interest rates, PE’s, or imagination, ability, and technical skills of artists.  Comparison needs points of comparison in sets of information.  Indeed, the latest craze in investment modeling is neural networks, which, I assume, is just a precise abstract version of the points that we have been discussing.

You can read more of the things that we have written about in this and our other blogs and on the In Country Analysis page of our website.

© 2009 Red Hill Capital Corporation, Delaware, USA; all rights reserved.

As someone who understands some things about models, psychology, mathematical physics, theoretical finance, arbitrage, and trading in real markets, I will admit that beat-the-market trading systems can be invented.  Even the hardliners in financial theory have softened their stance on the efficiency of modern investment markets, as one after another so-called anomaly was discovered by the academic world (professional investors had know it all along).  However, I will further state that any so-called trading system that can consistently garner excess profits, if shared with the public or any larger number of other actors in the market, will lose its ability to earn excesses.

If the academics focus on the sterility of rational financial theory in application to real markets, the average man on the street is still convinced that get-rich-quick schemes really exist.  The truth lies somewhere in the middle ground.  Indeed, over the past thirty years, just after the Efficient Market Hypothesis and around the time of Black Scholes, another branch of finance began to develop.  In Behavioral Finance, the focus is on the fact that people are not actually the rational machines on which financial theory, as begun by the mathematical physicist, John VonNeumann, in the early part of the twentieth century.  That new hypothesis, alone, means that there will be overreaction and underreaction, leading to mispricing.  Of course, a corollary of that implication is that, if you understand how people will act irrationally and under what conditions, then, you will be able to take advantage of those situations and, again, make excess returns.

However, the continued effectiveness of such excess-profit strategies depends on their being kept secret, which may not be an easy task.  Even though you might never tell anyone about your system, at the least, the people who execute your orders to buy and sell will see your order flow and might realize that you continually take on winning positions.  That can be an especially salient problem, if, for example, you manage a large quantity of money.  When I traded in merger arbitrage, we, in the business, often used multiple brokers to execute our orders, so that it would take people a longer time to figure out that one entity was accumulating a large position.

In the end, anyone who knows about your system will replicate your actions, and, therein, lies the rub.  Market prices are affected by buying and selling.  There will always be only a limited supply of an investment asset, like stock or gold.  Thus, there will be only a limited amount being either bid for or offered at various prices.  For example, there might be 10,000 shares of ABC offered at $50; 15,000 offered at $50.25; 25,000 offered at $50.30; 30,000 offered at $51.  If you are the only one who knows your trading system, and the proper place to buy is at $50, you can execute your strategy, if you want 10,000 shares or less.  However, if other people know your system, they may all put in orders to buy and push the stock up to $51, which is 2% higher and may represent a price that no longer offers an excess return.

There are two more truths of the investment business that go hand in hand with what was demonstrated in the above example.  First, arbitrage is a general trading strategy to find misaligned prices among even disparate instruments and markets and initiate simultaneous buying and (short) selling to take advantage of the misalignments.  An easy example is in the foreign exchange markets and is called covered interest arbitrage (CIA).  In that regard, if you can earn 7% in six-month riskless bonds, in country X but only 3% in country Y, you could exchange currency Y for X, in the spot market, invest the money in X-bonds, and enter a six month forward contract to buy currency Y for X.  The key to the viability of that strategy is the price of the forward contract.  In reality, the forward contracts, in this situation, will eventually, if not immediately, be priced so that there will be no interest rate advantage.  If they were not, arbitrageurs would take on the chain of positions, described above, and reap a riskless profit.  In fact, the number and description of possible arbitrages, like this, are as numerous as the imagination can come up with, and the point is that as people recognize these riskless opportunities to profit, there buying and selling of the various components will eventually wipe out the excess benefit.

The second factor that we alluded to, above, is that as more and more non-professionals become aware of an excess-profits trading strategy, their inexperience will make matters even worse.  In that they do not fully understand all of the technicalities involved in a particular trading strategy, it has been observed that they tend to overpay and undersell, taking the original results of the strategy past the point that a professional arbitrageur would, making the eventual results even less than normal profits.  I have seen that happen, for example, in my old business, merger arbitrage, over the last several decades, and the business has become so unprofitable, in general, that, by now, all of my friends and I have exited the business.

Another type of trading “system” that I have observed over the last decade plus is not a system at all but is closer to a pyramid scheme.  In that regard, since the advent of on-line trading and message boarding, there are many self-styled investment “gurus” who post buy and sell recommendations on message boards or, now, on twitter.  Even back as far as the 1980’s, there were people who would spread rumors about certain stocks.  Their underlying motives were that they already had a position, long or short, in a stock, and as the rumors spread, the stock price would move in a direction that made profits for them, and they would unload their positions at a profit.  For the past decade plus, this type of thing has been made even easier with on-line message boards and trading.  If they can get enough people to believe that what they are saying is true, the actions of those followers will create momentum in the stock (or other investment instruments) and make their musing reality.  Moreover, they will gain credibility with their followers because what they recommend seems to always come to pass.  In my opinion, it is that type of pyramiding, rumor-mongering that has been responsible, at least in part, for the incredible bubbles in the NASDAQ, in the late 1990’s, and, more recently, in the Chinese stock markets.  Moreover, in my opinion, it is tantamount to forming an unregistered group, which is illegal under the securities laws, and I hope that, someday, the SEC and other securities commissions will act to do something about it.

That people fall into these traps, in the first place, is that they believe that get-rich-quick schemes do exist, while I believe that they do not: hard work and creative ideas will make you rich.  The people who offer such systems, in my opinion, are preying on hopelessness, desperation and greed.  It is what has always made con games possible.  You might make money for a while, but, if you look at what happened to all of those people who “played” the hot NASDAQ, in the 1990’s, or the Chinese stock market, in the last few years, you may begin to realize that it can also leave you much worse off when the party is over: the NASDAQ lost 80%, and the Chinese stock market lost around 70%, in the end.  I advised people to get out of the Chinese stock market over two years ago; those who did, thanked me; those who didn't, lamented.

You can read some more of the things that we have written about investment, on this blog and, also, at:
The In-Country Analysis page of our website http://www.leonacraig.com/In_Country_Analysis.htm
Red Hill China Blog http://blog.redhillchina.com
Ezine Articles http://ezinearticles.com/?expert=Craig_Mattoli 
Buzzle http://www.buzzle.com/articles/china-exports-purchasing-power-arbitrage.html 
Article Base http://www.articlesbase.com/investing-articles/contrarian-investment-strategy-as-pe-arbitrage-845377.html 

Craig Mattoli, CEO Red Hill Capital Corporation, Delaware  © 2009

We did a blog entry on the current state of the art markets, as seen through the eyes of our Leona Craig Art arm.  In the blog we also give references to other recent articles and commentaries.  Bottom line is that the market seems to be firming up and picking up.  See the entry at http://blog.leonacraig.com/2009/06/14/state-of-the-art-markets-june-2009.aspx 

Since the fall of 2008, China has been trying to get attention and recognition as a financial power. Indeed, several authors and analysts have been drawn in by their saber rattling.  We, on the other hand, believe in thoughtful analysis of any topic. So, we wrote a blog entry on our Red Hill China blog about China's financial recognition aspirations, called Barking Dogs, which you can read at: http://blog.redhillchina.com/2009/06/05/barking-dogs-chinas-aspirations-to-be-a-financial-powerhouse.aspx

In the course I teach about introductory business finance, one of the topics is evaluating business projects, either stand alone or additions to an existing business portfolio.  The framework is to compare initial investment in a project with the discounted future cash flows that we expect from the project.  For example, we buy a new piece of machinery to make noodles.  Then, we project net cash inflows from making noodles over the life of the machine, and we discount the projected after tax cash flows, using the rate of return that we want or need to earn on our initial investment.

One of the things that my students often have trouble with is what constitutes the initial investment, and I realize that not only my students have trouble with this but also many people who start a business, which I am made even more aware of as I watch literally hundreds of people go in and out of business, in my neighborhood, in China.  It is easy for most to understand that some sort of capital investment is necessary, for example, buying a noodle making machine to be in the noodle making business or remodeling a space for a store or restaurant.  However, some do not even figure out, properly, how much that part of the investment will be.  For example, there was a space being built out, in my neighborhood for a hamburger bar, and the person did not even have the money to finish building out the space, so, a new person took over and turned it into an Indian Restaurant, which was in business only for a few months.  Lately, it is being ripped apart and built out again (why did they even have to do that?) for its third potential business in about a year.  Indeed, there are quite a few tall office and apartment buildings, in Guangzhou, which have been only partially finished for as much as ten years or more. 

If some people do not even plan for the obvious long-term capital investment that is required for business startup, many totally miss the short-term, working capital part of the equation.  Working capital (WC) is the short-term, less than one year, part of the balance sheet: current assets (CA) and current liabilities (CL; NWC = net working capital = CA - CL).  In that regard, if you are going to start a dress shop, you will need to make a long-term capital investment, consisting of: fitting out a space and buying fixtures.  However, you will also need to make an initial invest in inventory ( a CA in WC) as part of startup costs, or you will have nothing to sell.  If you plan on selling partly on credit, you will also have to set aside seed-money for accounts receivable (A/R), which will also need to be part of your initial investment.  For example, if you expect to sell $100,000 per month in dresses (ignoring profits to make it simple), and you will sell 25% on credit (due in one month), then, you will need, not only $100,000 initial investment, in inventory, but also $25,000 initial investment for future A/R.  Otherwise, after one month, you will have sold $100,000 in dresses, but your cash inflow will be only $75,000, so you could only buy $75,000 in dresses to sell in the second month.  By thinking to put aside the extra $25,000 for initial investment startup costs for A/R, you will be able to buy $100,000 in dresses the second month.  By the end of the second month, your credit customers from month one will have paid you, and for the third month and thereafter, you will have $100,000 to buy dress inventory.

Those are the things that people must think about when they are starting a business.  Those are the broad strokes.  The fine points of startup include considering all of the components of the larger classes of short-term and long-term asset startup costs.  For example, purchase of equipment will include purchase, transportation, insurance and installation of equipment.  If you expect sales to grow each year, you might also have to plan for further investments in WC, in future years.  You can also subtract from initial investment, if you expect to be able to buy materials for the business on credit (A/P).  Then, you could make a subtraction from the funds that you will need for your total initial startup costs.

After that, you can toy with the future side of the equation.  First, for a new small business, you might also want to set aside some extra money as a cushion to pay expenses for 6 months or more until you get discovered.  You might look at the future cash flows using different required rates of return (called a present value profile.  You could look at sales and costs under various good and bad future scenarios.

I realize that it is the dream of many a person to have their own business, but don't romanticize and fantasize, understand the game, and then play.  The theoretical idea in finance for this problem is to look at the discounted value of the future cash flows, which means that the money you get from the investment, totaled and accounting for an annual return on investment as percent per year on initial investment.  Then, that amount should be larger than your initial investment total.  In other words, you pay less, in terms of what you initially pay for the investment project, than it is worth in expected discounted future after tax cash flows from the business investment project.  If it works out as predicted and you included all of the money you really need to start the business, in the first place, you will make the return on investment that you used to value the business.

In that manner, business, itself, becomes a sort of long-term arbitrage, albeit not riskless.  Consider borrowing all of the initial startup costs for interest rate, B, and having the implied annual rate of return on investment (formally, called the internal rate of return of the investment, which is analogous to the yield-to-maturity, YTM, on a bond), ROI, greater than B.  Then, with an initial capital outlay of zero dollars, you make a return, equal to ROI - B.  An analogy from bond investment is convertible arbitrage, wherein one buys convertible bonds (convertible at a certain number of shares of stock per bond after or on a given future date in the bond indenture), and short sells stock against the long bond position.  Moreover, for a broker dealer, the required capital outlay on the position is only 10% of the value of the bonds (note quite zero, but close).

In the end, whatever you invest in, invest thoughtfully and wisely.  By doing only that much, you will already be light years ahead of the pack.

Note: Discounted cash flow is a technique from finance that talks about the time value of money.  A dollar that you get a year from now is not worth the same as a dollar, now, because, if you had a dollar, now, you could invest it, in a bank account or elsewhere, and have more that a dollar, a year from now.

 

The real estate markets in China have been red hot for years, and we do not consider that to be a recommendation.  The rising prices have come from several motivations.  First, since China changed to a more market economy, several decades ago, people have been striving to own and invest.  In addition, everyone sees that some people have accumulated wealth, and they want a piece of it, too.

For the man (or woman) on the street, the most common and accessible object for ownership and investment is real assets, like housing.  In fact, by investing in housing, they also take care of another basic need: shelter, so it is a quite natural first investment for people all over the world.  In China, the novelty of business operation and wealth, combined with the ever increasing number of people who are earning enough to afford to buy a house had already set the stage for a pyramid scheme in housing prices.  The additional ingredients that have allowed the pyramid to build is envy and greed, as described in an earlier post on our redhillchinablog, entitled “Fear, Envy and Greed: the Chinese Business Model”.  In that regard, people are so envious of those who have accumulated wealth, and they believe that they can do the same just by starting a business or making an investment, that they give no forethought to the mechanics and realities of the situation.  Thus, people hear about how other people have made large returns on housing, then, later, in stocks, and they follow, blindly, into the market, expecting the same.However, as an arbitrageur.

I understand that all markets must, ultimately, be connected.  I even have experience in arbitrage, in the real estate markets.  In the late 1980’s, I bought an 18th century estate, in chic Bucks County, Pennsylvania.  A similar bubble had come into real estate markets, in the U.S., at that time, but the air was coming out of the bubble.  Indeed, the original price tag on the property had bee over $800,000, but I eventually bought it for $500,000.  My mortgage payments were over $4,000 per month, and, in the U.S., mortgage interest is tax deductible.  So, with the tax shield, my net payments were about $3,000 per month.  I had been involved in merger arbitrage, but that market, also, was having its own difficulties.  Thus, I had to find a way to make the real estate investment pay for itself.   I had a separate apartment, in an outbuilding, which I could rent out, and I had stables in the barn, which I could also rent out.  Still, my income from those rentals was only about half of my after tax mortgage payment, which was lessened slightly by depreciation deductions for the parts of the property that I could rent out.  Perhaps, I could have rented out the remainder of the property to break even.  Instead, though, I turned the property into a country inn, which had potential revenues from weekend-only rental of $8,000.  What I did, therefore, was to enhance my return by doing an arbitrage between the monthly and daily room rental markets, and I was able to, not only live on the property, but also to earn a profit from owning it.

In fact, we would always expect there to be a break even arbitrage between rental and purchase of residential or commercial real estate.  However, a simple example will reveal the state of the real estate market, in our home city, Guangzhou.  First, we must point out that there are no deductions for real estate, like those, in the U.S.  Our apartment costs Y3,000 per month for us to rent.  On the other hand, the owner of the apartment must pay mortgage payments of around Y8,000 per month on a purchase price in excess of one million Yuan.  That means that each year, the owner will make a loss of Y60,000, and without accounting for either the time value of money or increasing real estate prices, that is a loss of over half a million Yuan in ten years.  In fact, we have not had an increase in rent for over two years, and we even have a perpetual lease at the same price, if we choose to stay, and we see larger apartments, in our building, now, offered at even lower prices than we are paying for this one.Other people are also beginning to lift their heads above the frenzy to get rich, quick, in China.  The stock market bubble was partly fueled by the real estate bubble, both directly and indirectly.  Directly, because people who made money, in real estate, moved on th “play” the stock market.  Indirectly, because the envious who could not afford the buy-in price for the housing market saw an opportunity for a lower buy-in to “play” stocks.  After the bubble in stocks burst, and the stock market has come down two-thirds from its highs, real estate prices have also been backing off.  In Guangzhou, prices have declined by about ten percent in the last half year and forty percent, in parts of Shenzhen, for example.

The point is, real estate prices, in China, cannot continue with their current upward march, and even the downturn in prices over the last half year, still leave a huge gap between the rental market and the market for ownership, which must ultimately be connected, in the manner that we have described.  It is the reason that we continue to stay away from the real estate market as an area for investment, in China.