For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
DJIA 18576.47 g 0.20%
What’s
News
Business & Finance
etails of the fake pay-
D ment orders in the Ban-
gladesh central-bank cyber-
heist shed more light on a
caper that has harmed the
New York Fed’s reputation. A1
 Bond investment funds
are boosting their expo-
sure to the developing
world, helping to drive an
emerging-markets rally. B1
 U.S. firms have been
slow to sign on to a data-
transfer deal with the EU
amid uncertainty it will sur-
vive legal tests in Europe. B1
 Google Fiber is rethink-
ing how to deliver internet
connections after initial
rollouts proved more ex-
pensive than anticipated. B1
 The pound has fallen
below its previous post-
Brexit low, and the con-
sensus among analysts is
for further weakness. B5
 The Mexican peso has
strengthened as a spate of
recent surveys show Clin-
ton ahead of Trump in the
U.S. presidential race. B5
 The Pentagon cleared
Boeing’s new aerial fueling
tanker for production. B4
 U.S. dairy farmers
asked the government to
buy up tens of thousands
of tons of cheese. B5
 Hollywood is experienc-
ing more flops so far this
year, although box-office
receipts are up slightly. B1
World-Wide
 Democrats in the U.S.
Congress scrambled to as-
sess a leak that revealed
personal contact details of
nearly 200 current and
former House members. A1
 A woman died from Sat-
urday’s attack on a train in
Switzerland, which also
wounded five others. A4
 French prosecutors filed
preliminary charges of ter-
rorism against a third man
linked to last month’s mur-
der of a French priest. A4
 French officials, worried
about another terror at-
tack, are canceling numer-
ous public gatherings. A4
 U.S.-backed forces but-
tressed defenses in the
Syrian city of Manbij after
driving out Islamic State. A3
 The militant group’s
fighters fleeing its Libyan
stronghold are seeking to
cross the border or possibly
regroup to fight again. A3
 The head of Islamic State’s
network for Afghanistan
and Pakistan was killed in
a drone strike last month,
the Pentagon said. A3
 Ryan Lochte and three
other members of the U.S.
swim team were robbed at
gunpoint in Rio. A14
 Pence is taking on a con-
ciliatory role, trying to per-
suade Republican stalwarts
to rally behind the U.S.
party’s presidential ticket. A7
CONTENTS
Business & Fin.. B1-4
Crossword.............. A14
Finance & Markets B5-8
Heard on Street.... B8
Intelligent Investor B1
Markets Digest..... B6
€3.20; CHF5.50; £2.00;
U.S. Military (Eur.) $2.20
s Copyright 2016 Dow Jones &
Company. All Rights Reserved
MONDAY, AUGUST 15, 2016 ~ VOL. XXXIV NO. 137
NASDAQ 5232.89 À 0.09% NIKKEI 16919.92 À 1.10%
Orders to Fed Got Little Scrutiny
Details show how
New York Fed handled
fake cyber requests
from Bangladesh
BY KATY BURNE
Fake payment orders sub-
mitted by cyberthieves who
stole $81 million from Ban-
gladesh’s account at the New
York Fed gave a lot of un-
Triumph Amid New Trouble at Rio Games
BUDA MENDES/GETTY IMAGES
GLORY: Kenya’s Jemima Sumgong won the women’s marathon on Sunday. Earlier, four U.S. swim team members were robbed at gunpoint. A14
U.K. Current-Account Gap to Thin
BY JASON DOUGLAS
LONDON—The long-cher-
ished goal of successive Brit-
ish governments to reduce the
nation’s decadeslong habit of
spending more
ANALYSIS than it earns
may be coming
within reach, but
not necessarily in the way
they would have liked.
The U.K.’s decision to leave
A Utility Pole Is Music
To These Audiophiles’ Ears
i i
Japan’s stereo-gear fanatics buy private lines
to the power grid; ‘electricity is like blood’
BY JURO OSAWA
it is tainted, the whole body
TOKYO—Takeo Morita will get sick,” says Mr.
wanted absolutely the best Morita. “No matter how ex-
fidelity possible from his au- pensive the audio equipment
dio system, so he bought a
utility pole.
The 82-year-old lawyer
already had a $60,000
American-made amplifier,
1960s German loudspeak-
ers that once belonged to a
theater, Japanese audio
The Numbers......... A2
cables threaded with gold
and silver, and other pricey
equipment.
Opinion.............. A12-13
Review................. A8-10 Normal electricity just
Sports....................... A14 wouldn’t do anymore. To
U.S. News.................. A7 tap into what Mr. Morita
Weather................... A14
World News........ A2-5 calls “pure” power, he paid
$10,000 to plant a 40-
foot-tall concrete
pole in his
front yard. On
it perches his
own personal
transformer— Mr. Morita’s private nese stereo fanatics.
that thing utility pole
shaped like a
cylindrical metal garbage and speakers, but also insist
can—which feeds power more an exclusive power supply is a
directly from the grid.
STOXX 600 346.09 g 0.16%
likely reasons for needing to
pay a handful of individuals
large sums of money.
Among them were requests
to pay men in the Philippines
tens of millions of dollars
apiece for things like tuition,
forest conservation, subscrip-
tions and entry-level military
training.
Details of the payment or-
ders, copies of which were re-
viewed by The Wall Street
Journal, shed more light on a
the European Union could
make it harder for the country
to sustain its large and persis-
tent current-account deficit,
which means it brings in less
from overseas trade, invest-
ment income and remittances
each year than it shells out to
foreigners.
Financing the shortfall re-
quires the U.K. to borrow from
abroad or sell U.K. assets to
overseas buyers, a tendency
i
“Electricity is like blood. If
is, it will be no good
if the blood is bad.”
Demonstrating
his power’s purity,
he mounts a turnta-
ble with a vinyl re-
cord of Queen’s “I’m
in Love With My
Car,” settles into his
sofa and beams. Pre-
pole, he says, the
vocals didn’t sound
as lively as this.
“Now, it feels like
Queen is in this
room, just for me.”
Audiophiles ev-
erywhere are an ob-
sessive breed, but
few exhibit such per-
fectionism as Japa-
They not only spend
fortunes on amps
Please see SOUND page A6
WSJ.com EUROPE EDITION
BRENT 46.97 À 2.02% GOLD 1335.80 g 0.50% EURO 1.1169 À 0.27%
caper that has harmed the
Federal Reserve Bank of New
York’s reputation as a stew-
system Swift. But when they
put those codes to work, the
results were more like com-
Christopher M. Lagrosas of
Makati City, Philippines, for
“ineligible expenses” relating
ard of the global financial edy than technological wiz- to a mass transit project in
system and exposed gaps in ardry, a blizzard of bad for- Dhaka.
the process of moving money matting and multimillion- $30 million to Alfred S.
around the world. dollar payments to Vergara, also of Makati City,
The still-unknown hackers
showed their technical so-
individuals.
The requests, many of
for “annual subsription for
Commonwealth of Learning”
phistication by penetrating which were rejected for for- and another $30 million to
the Bangladesh central bank’s matting errors, included mis- “purchase spare parts for the
computer systems in Dhaka spellings and some odd contingent.”
and stealing its codes for the phrasings: $30 million to Michael F.
international bank-messaging $30 million for Jessie Please see THEFT page A2
Data Leak
Sends
Democrats
Scrambling
BY DAMIAN PALETTA
WASHINGTON—Congressio-
nal Democrats scrambled to
assess the scope of an unprec-
edented leak that revealed the
personal cellphone numbers
and some email addresses of
nearly 200 current and former
Democrats in the House of
Representatives.
Following the posting online
of a spreadsheet containing the
personal information of law-
makers and senior staff mem-
bers, House Minority Leader
Nancy Pelosi (D., Calif.) told
House Democrats in an email
that she “received scores of
mostly obscene and sick calls,
voice mails and text messages.”
Other people whose infor-
mation was leaked as part of
the breach also reported re-
ceiving dozens of emails and
text messages, many of them
with a harassing tone.
Mrs. Pelosi said she was
changing her phone number
and urged her colleagues to do
the same.
A hacker or group of hack-
ers called “Guccifer 2.0”
Bank of England Gov. Mark Rob Wood, chief U.K. econo- posted the spreadsheet, but by
Carney has said makes the U.K. mist at Bank of America Mer- Saturday afternoon, all of the
dependent on “the kindness of rill Lynch. personal information, which
strangers.” The question now How this current-account was allegedly stolen from the
facing the U.K. is whether for- drama plays out will have re- Democratic Congressional
eigners will continue to be as percussions for British house- Campaign Committee in recent
willing to keep plugging the holds and businesses. Funding weeks or months, had been
gap, particularly as the U.K.’s the deficit may require a taken off Guccifer 2.0’s site.
future access to the EU’s vast Please see U.K. page A5 WordPress, the web service
single market is unclear. Please see HACK page A7
“If strangers were to be-  Opinion: Britain is Europe’s
come less kind, funding the reverse domino....................... A13  Pence tries to get Trump
deficit becomes harder,” said  More sterling losses seen... B5 skeptics on board.................... A7
MACKENZIE KNOWLES-COURSIN FOR THE WALL STREET JOURNAL
Abubakar said he was abducted by Boko Haram, then escaped down a forest trail one year later.
THE 10,000 BOYS
BOKO HARAM KIDNAPPED
Islamist group waging war in Nigeria adds jihadist twist to child soldiering
BY DREW HINSHAW an interview. He said he was kidnapped by the
AND JOE PARKINSON militants in 2014 but has since escaped.
While the world focused on Boko Haram’s
MAIDUGURI, Nigeria—In a forest of thorn mass kidnappings of women and girls, the Isla-
trees somewhere far outside this city, the Boko mist group was stealing an even greater num-
Haram insurgency ran a boot camp for about ber of boys. Over the past three years, Boko
100 boys. Children as young as 5 years old Haram has kidnapped more than 10,000 boys
learned to handle assault rifles and march and trained them in boot camps in abandoned
through the woods in flip-flops. Their teacher Please see BOYS page A6
was only 15.
“I was terrified if I didn’t do it, they would  Boko Haram says some abducted girls killed in
kill me,” said Idriss, the teenage instructor, in Nigerian airstrikes.......................................................... A6
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A2 | Monday, August 15, 2016
For Forecasts, Bet on Monte Carlo Methods
W
hen Hurricane
Sandy began swirl-
ing off the coast of
Florida in 2012, the earliest
forecasts suggested the gi-
gantic storm was unlikely to
hit land.
If it wasn’t headed for the
coast, everyone could relax.
But if landfall was imminent,
emergency workers would
want as much time as possi-
ble to prepare.
Sandy, as
we know, pum-
meled the U.S.’s
Eastern Sea-
board—espe-
THE cially New York
NUMBERS and New Jer-
JO CRAVEN sey—with dam-
MCGINTY age reaching
west all the
way to Wiscon-
sin. But thanks to computer-
ized probability simulations,
like the ones used for some
financial forecasts, meteorol-
ogists tracking the storm
weren’t caught off guard.
“We probably knew about
72 hours ahead,” said Altug
Aksoy, a scientist at the At-
lantic Oceanographic and Me-
teorological Laboratory, not-
ing that European models
detected the storm’s true
path about a day ahead of
U.S. models.
Storm trackers don’t rely
on a single forecast, or even
a handful of predictions. In-
stead, they plot numerous
potential scenarios and re-
view all of the results to de-
termine the probability a
storm will take one path ver-
sus another or predict how
intense it’s likely to be. The
approach is called ensemble
forecasting, and it’s a kind of
Monte Carlo simulation.
The concept was inspired
THEFT
Continued from Page One
Cruz, also in Makati City, for
the “principal of tropicalfor-
est co servation act” and $30
million for “Repairing N
Maintenance” expenses.
$30 million to Mr. Lagro-
sas for “payment against App.
No. U-021 // U-022 ” for a
mass transit project in Dhaka.
$20 million to Mr. Verg-
ara for “engineering consult-
ing fees” related to a power-
plant project.
The first three sets of these
payment orders were among
those that were rejected for
formatting errors or suspected
sanctions violations. But the
documents show the Fed later
paid out $81 million via four
orders, including the final two
above.
The Fed also approved a
fifth payment of $20 million
to a charity in Sri Lanka that
was eventually returned when
a banker raised questions
about the beneficiary.
The payment requests
were among a total of 70
transmitted over a few hours
on Feb. 4 New York time.
Roughly half were duplicates
re-sent after an initial batch
was rejected by the Fed due
to formatting errors.
Sixty-nine asked to send
money to individuals in and
around Manila. The Philip-
pines senate held hearings on
the theft and concluded the
people don’t exist.
It isn’t unusual for central-
bank payment orders to con-
tain typos, name individuals
as beneficiaries or cover pe-
destrian purposes. One of
Bangladesh’s 18 legitimate
transfers on Feb. 4 before the
thieves struck, for instance,
was a $723.20 payment to a
Bank Robbery
Earlier this year, thieves hacked into Bangladesh Bank and sent fraudulent
instructions to the New York Fed trying to steal nearly $1 billion. The
Fed blocked most of the transfers but paid five before they could be
flagged as suspicious, of which four reached their destination.
$81 million in fraudulent transfers
$20M
Stolen $6M
funds
Fake Michael F. Alfred S.
beneficiary Cruz Vergara
names Makati City, Makati City,
Philippines Philippines
Project cited Unspecified Power plant
by bogus infrastructure development
order project Bheramara
Note: Dollar amounts were rounded to the nearest million.
Source: payment orders reviewed by WSJ
Sandy’s actual path, Oct. 25-30
Source: TIGGE Tropical Cyclone Track Data
by a game of solitaire when
mathematician Stanislaw
Ulam, a key figure in the
Manhattan Project, wondered
about his chances of laying
out a winning round. Unable
to come up with a mathemat-
ical solution to the problem,
he hit upon the idea of hav-
ing a computer simulate
games to arrive at the an-
swer. He named the ap-
lieutenant colonel in the
Ivory Coast to cover a tele-
phone bill for a Bangladeshi
army unit with a United Na-
tions mission in the country,
according to payment orders
reviewed by the Journal.
What was unique is that
monetary requests for mil-
lions of dollars were made for
individuals in the Philippines
for infrastructure projects in
Bangladesh. The orders also
asked to pay those sums to
the same beneficiaries multi-
ple times.
Subhankar Saha, a spokes-
man for Bangladesh Bank,
wouldn’t address specifics of
the payment instructions, but
said, “The transactions in
question were unusual when
compared to the usual trans-
action profile.”
A New York Fed spokes-
woman declined to comment
on transactions involving a
client. The bank has said re-
peatedly that the orders it
approved had been authenti-
cated by Swift.
Payment orders that come
via Swift go through com-
puter screens for formatting
errors and sanctions or
money-laundering violations,
but the New York Fed doesn’t
typically examine them man-
ually as they come in unless
an account is deemed a high
risk.
The bank’s account-agree-
ment template, obtained by
the Journal under a Freedom
of Information Act request,
makes clear its systems don’t
detect “errors in the trans-
mission or content of pay-
ment or other instructions.”
The New York Fed has
since tightened up its han-
dling of Bangladesh’s account
and is reviewing payment or-
ders more closely.
Craig Pirrong, a professor
at the University of Houston
$25M $30M
Enrico T. Jessie
Vazquez Christopher M.
Makati City, Lagrosas
Philippines Makati City,
Philippines
Bridges Mass
construction transit
Bangladesh Dhaka
THE WALL STREET JOURNAL.
WORLD NEWS
Simulating Reality
Different Monte Carlo simulations
projecting the next 120 hours of
Superstorm Sandy in October 2012
gave various likelihoods of the storm
hitting the Eastern Seaboard.
PREDICTED PATH, Oct. 25-30
European simulation
American simulation
Sandy’s full path
Note: On average, European models perform better in part because they run
more simulations with more data points on more powerful computers.
proach—which helped guide
the development of the
atomic bomb—after the fa-
mous casino in Monaco.
There are different kinds
of Monte Carlo simulations,
but in general, the computer-
ized models involve randomly
selecting data points for a
given situation from a range
of possible numbers and cal-
culating the outcome.
Transfers from Bangladesh’s account at the New York Fed exposed gaps in how money moves.
who has researched financial-
market infrastructure, said
the Fed’s reliance on Swift is
problematic as the volume of
senders and receivers has in-
creased, especially from
emerging markets.
“The Fed is implicitly as-
suming the participants in
the system are trustworthy,
and as a result they were
only looking at the specific
legal obligations they had
when screening these pay-
ments,” he said. “Someone
has identified this as a vul-
nerability.”
A spokeswoman for the So-
ciety for Worldwide Inter-
bank Financial Telecommuni-
cation, as Swift is formally
known, wasn’t available to
comment.
Swift has said previously
that its network wasn’t pene-
trated, and it is stepping up
efforts to help users secure
their sites.
Swift links more than
11,000 institutions around the
world, providing crucial sup-
port for millions of daily pay-
ments. But cyberthieves have
managed to steal Swift codes
and send fraudulent messages
at least three other times, in-
cluding a theft of about $9
million last year from a com-
mercial bank in Ecuador.
In the theft of the Bangla-
desh Bank funds, hackers
asked for nearly $1 billion in
all. Bangladesh Bank’s ac-
count at the New York Fed
held about $1.4 billion at the
time, statements reviewed by
the Journal show.
Bangladeshi investigators
have said the thieves timed
their attack to exploit the
weekend, which falls on Fri-
day and Saturday in Bangla-
desh. Efforts by officials on
both sides to contact each
other failed.
THE WALL STREET JOURNAL.
As with polling, a ran-
domly chosen sample tends
to exhibit the same proper-
ties as the population from
which it is drawn.
Instead of running a sin-
gle simulation, the computer
repeats the process many
times with different ran-
domly chosen variables. Us-
ing a range of possible values
provides a better idea of
Bangladesh’s central bank
is still trying to recover the
funds with the help of the
Fed and authorities in the
Philippines. Officials from
both sides are scheduled to
meet this week at the New
York Fed’s lower Manhattan
headquarters.
On average, the New York
Fed processes 2,000 such
payments a day, a person fa-
miliar with the matter said.
Some 200 foreign official in-
stitutions, including central
banks, keep accounts at the
New York Fed to make and
receive payments in U.S. dol-
lars.
The New York Fed has
since instituted tougher secu-
CORRECTIONS  AMPLIFICATIONS
Australia has moved to
block companies from China
and Hong Kong from taking a
controlling stake in Ausgrid,
its largest electricity network.
A Page One What’s News sum-
mary in the Friday-Sunday
edition incorrectly described
the business as Australia’s
power grid.
During Jordan Roth’s ten-
ure at Jujamcyn Theaters,
shows mounted in theaters
owned by the company have
won 51 Tony awards. An arti-
cle about Mr. Roth in the Sep-
tember Women’s Style issue of
WSJ Magazine incorrectly
said Jujamcyn itself has won
51 Tonys.
A report by Gartner Inc. on
cloud computing cited in a
Technology article Tuesday
about assessments of Interna-
Readers can alert The Wall Street Journal to any errors in news articles by
emailing wsjcontact@wsj.com.
THE WALL STREET JOURNAL.
what might happen in the fu- some sort of target,” said
ture, and depending on the Sam Savage, author of “The
simulation, it could run doz- Flaw of Averages” and execu-
ens, hundreds, thousands or tive director of Probability
millions of scenarios. Management, a nonprofit
Monte Carlo simulations that promotes using proba-
are a way of addressing any bility distributions to make
number of complex problems business decisions and pro-
that can’t be easily solved vides free tools. “A restau-
with an equation. In Ulam’s rant could do it to model
solitaire example, a computer how much fish to buy for to-
would simply play game after morrow’s menu.”
T
game, compiling the results, he simulations do have
until the chance of dealing a limits. The randomly
winning hand becomes ap- sampled variables
parent. might be based on historical
“You can brute-force it data or expert assumptions.
with Monte Carlo,” said Art It’s possible past behavior
B. Owen, a statistics profes- may not be a good predictor
sor at Stanford University of future behavior, and expert
who researches Monte Carlo assumptions may be flawed.
methods. “The problem is too “The result is not valid if
complicated to solve with an the underlying data used to
algebraic formula. So you re- run the simulation is wrong,”
peat random outcomes mil- said John Guttag, a professor
lions of times and look at of Electrical Engineering and
what happens.” Computer Science at MIT
The Environmental Pro- who has lectured on Monte
tection Agency uses Monte Carlo simulation.
Carlo simulations to estimate In the case of Hurricane
the likely severity of adverse Sandy, meteorologists ran 50
health effects from exposure different scenarios with more
to hazardous material. than 10 million randomized
The Maryland Transporta- variables at six-hour intervals
tion Department has used the as the storm progressed,
simulations to estimate how with each scenario redefining
long it will take freeway traf- the temperature, wind, mois-
fic to return to normal after ture, air pressure and other
an accident, information the variables.
department uses to figure As with any forecasting
out whether it detects and tool, the results of a Monte
clears accidents in a cost-ef- Carlo simulation can’t guar-
fective manner. antee the future. But viewing
Pharmaceutical companies myriad potential outcomes
use the simulations to help through the lens of probabil-
guide the expensive task of ity statistics can help lift the
researching and developing cloud of uncertainty.
new drugs. Monte Carlo sim-
ulations have also been used
to predict the outcome of the
Notice to Readers
Super Bowl and to forecast Simon Nixon’s Europe File
elections. column will return next week.
“Every business plan has
Fed wrote in a message re-
viewed by the Journal. It was
signed “Account Control.”
The checks appear to be
creating some friction. In a
June 9 letter reviewed by the
Journal, the New York Fed
complained to two officials in
Bangladesh that the new se-
curity arrangement “is not
sustainable.”
The bank asked that Ban-
gladesh arrange for an inde-
pendent assessment of its se-
curity so procedures could
return to normal.
The Fed more broadly has
offered some foreign central
MARK LENNIHAN/ASSOCIATED PRESS
banks the ability to disallow
payments to individuals and
nonbanks, which some ac-
cepted, a person familiar with
the changes said. The New
York Fed has also installed a
hotline that operates 24
hours a day every day in the
unit that handles payments.
The fraudulent orders in-
volving Bangladesh’s account
rity procedures for Bangla- eventually were questioned
desh’s account, including ver- by the New York Fed itself,
ification of instructions by after some of the orders were
phone if necessary, according caught in the screen and were
to messages between the two examined by staffers.
parties reviewed by the Jour- In a message to Bangla-
nal. desh Bank at 3:50 p.m. New
The scrutiny has delayed York time on Feb. 5, the Fed
some legitimate transfers. On asked for more information
April 11, the Fed canceled an about the beneficiaries and
$8.7 million payment from purposes of payments it had
Bangladesh to China Geo-En- put through the day before.
gineering Corp. for a water “Why are the payments
supply project, saying it that represent repayment of
wanted more information institutional loans and inter-
about when the project got est being made to these indi-
under way. vidual beneficiaries?” the
“Thank you in advance for New York Fed asked.
your cooperation as we fulfill —Syed Zain Al-Mahmood
our risk management and due contributed to this article.
diligence requirements,” the
THE WALL STREET JOURNAL.
Europe Edition ISSN 0921-99
The News Building, 1 London Bridge Street,
London, SE1 9GF
Thorold Barker, Editor, Europe
Bruce Orwall, Senior Editor, Europe
tional Business Machines Cicely K. Dyson, News Editor, Europe
Corp.’s cloud business in- Margaret de Streel, International Editions Editor
Darren Everson, Deputy International Editor
cluded some private-cloud
services but not all of the ser- Joseph C. Sternberg, Editorial Page Editor
vices that IBM includes in the Anna Foot, Advertising Sales
category. The article incor- Jacky Lo, Circulation Sales
Andrew Robinson, Communications
rectly said Gartner didn’t in- Stuart Wood, Operations
clude any private-cloud ser- Jonathan Wright, Commercial Partnerships
vices in its report. Katie Vanneck-Smith,
Global Managing Director & Publisher
Privinvest approached
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THE WALL STREET JOURNAL.
Liberated Syrian City Bolsters Defenses
Residentscelebrateas
KurdishandArabtroops
girdforcounterattacks
byIslamicState
BY NOAM RAYDAN
BEIRUT—U.S.-backed Arab
and Kurdish force buttressed
defenses in the outlying
neighborhoods of the Syrian
city of Manbij after driving
out Islamic State fighters and
cutting one of its key supply
routes, as residents took to
the streets over the weekend
to celebrate their freedom.
The Syrian Democratic
Forces are preparing to defend
the city against Islamic State
counterattacks, Ahmad Hisso
Araj, a spokesman for the
force, said Sunday, two days
after capturing Manbij. The
extremist group’s most likely
mode of attack, he added,
would be suicide car bombs
carried out in acts of despera-
tion and revenge.
“Their spirits have been
broken,” he said. “They can
only target us from a dis-
tance.”
People were seen singing,
dancing and playing loud mu-
sic on the streets of Manbij,
according to social-media
posts and local reports, acts
for which they would likely
have faced harsh punishments
under the Sunni extremist
Leaving Militant Group
Proves Difficult, Deadly
BY ALEXIS FLYNN
LONDON—The purported
death of a British schoolgirl
who ran away to marry an Is-
lamic State fighter is refocus-
ing attention on Western
women who go to Syria to join
the militants and the difficul-
ties in leaving for those who
have second thoughts.
British police say more than
50 women and girls are
thought to have left the U.K.
for Syria since that country’s
war began, according to their
latest data.
Seventeen-year-old Kadiza
Sultana’s family believes she
was killed in a Russian air-
strike and she regretted her
decision, and they wanted her
to come home, family lawyer
Tasnime Akunjee said.
But the teenager was killed
before she was able to flee the
extremists, said Mr. Akunjee.
Ms. Sultana’s family learned of
her death weeks ago from
sources in Syria, he said.
The February 2015 flight to
Turkey and ensuing journey to
Syria by Ms. Sultana and two
school friends from Bethnal
Green, East London, spawned
weeks of headlines and sparked
controversy when it emerged
that police had failed to warn
the parents that a close friend
of the girls had previously gone
to the war-torn country.
The U.K. Foreign Office and
Drone Kills Islamic State’s Afghanistan-Pakistan Leader
The head of Islamic State’s
network for Afghanistan and
Pakistan was killed in a drone
strike last month, the Penta-
gon said, a blow to the ex-
tremist group as it tries to
spread its franchise into South
Asia from its base in the Mid-
dle East.
By Alan Cullison
in Washington
and Jessica Donati
in Kabul
Hafiz Sayed Khan was killed
in July in Afghanistan in the
province of Nangarhar, Islamic
State’s main stronghold, near
the Pakistan border, a Penta-
gon spokesman said Friday.
U.S. and Afghan forces
called in the airstrike during a
monthlong operation against
the Islamic State branch in the
area, where the group first es-
tablished a presence as most
foreign forces were withdraw-
ing from Afghanistan in 2014.
Pentagon deputy press sec-
retary Gordon Trowbridge said
Mr. Khan’s death should dis-
rupt Islamic State’s operations
in other parts of Afghanistan
and the region. Islamic State
“uses the area to train, equip,
disseminate and control
fighter pipelines,” he said.
A man and child were evacuated by Syrian Democratic Forces from a Manbij neighborhood Friday.
group’s rule. Some men were
seen performing the “dabke”—
a popular folk dance in some
parts of the Arab world.
A few men were seen shav-
ing their beards, while some
women removed their veils.
People were also seen smok-
ing on the streets, another act
that Islamic State banned and
the Metropolitan Police both
declined to comment on Ms.
Sultana’s case.
Police data show the pace of
women leaving the U.K. for ter-
ritory controlled by Islamic
State in Syria had been acceler-
ating through last year. Figures
show the number of
women held on terrorism
charges more than dou-
bled during 2015. Many of those
were suspected of planning to
travel to join the extremists.
But authorities also say that
this year, the number of Brit-
ish women traveling to Syria
has declined, in part because
of tougher border controls and
pictures of intensified bomb-
ing that have helped puncture
the rosy image of life within
Islamic State painted by the
militant group’s propagandists.
For Westerners in Syria
who have come to regret being
among the extremists, though,
the extraction process is diffi-
cult, dangerous and sometimes
expensive, said Mr. Akunjee,
who has helped a number of
people get out of Syria.
Even if they can flee Islamic
State, there is the challenge
for authorities in their home
country about whether to
treat the women who join the
hard-line Islamist group as
victims or terrorists.
In some cases, returning fe-
males have been charged with
terrorism.
The joint operation against
Islamic State has marked an-
other uptick in U.S. military
efforts in Afghanistan, where
security has worsened
steadily since most foreign
forces withdrew in 2014, un-
dermining efforts to disen-
gage from the long-running
war.
Since the start of the year,
the U.S. has increased air sup-
port to Afghan forces and sent
additional forces to Nangarhar
to help fight Islamic State.
“This is a big blow to Daesh
[another name for Islamic
State] and to the antistate ele-
ments following the death of
Mullah Mansour,” leader of
the Taliban, said Sediq
Sediqqi, Afghanistan’s interior
ministry spokesman. “The re-
cent airstrikes and the U.S. air
support against Daesh have
been very helpful.”
The U.S. military says hun-
dreds of Islamic State fighters
have been killed in the opera-
tion and the group has lost
much of its territory there.
Five U.S. Special Operations
troops have been wounded.
Several Afghan officials
said Islamic State has already
appointed a new leader,
named Haseeb Logari. “He is
from Logar province [south of
WORLD NEWS
punished severely.
“There is movement in the
market, and the celebrations
are taking place in the public
squares,” Mr. Araj said. The
celebrations increase in the
evening with songs, music,
dabke and dancing. People are
driving their cars in the
streets, hailing the SDF.”
ExtremistFightersRegroupinLibya
BY MARIA ABI-HABIB
AND HASSAN MORAJEA
TUNIS, Tunisia—Islamic
State fighters fleeing their
Libyan stronghold of Sirte are
seeking to cross the border
into neighboring countries or
possibly regroup in southern
towns to fight again, Western
and local officials say.
The extremists have headed
to the long, porous border
that Libya shares with Algeria
and Niger. The countries bor-
dering Libya have been on
high alert, officials say, as part
of efforts to block foreign
fighters who may be looking
to return home to other parts
of Africa. But the vast desert
expanse of the Sahel region of-
fers a refuge to militant fight-
ers that has long vexed U.S.
counterterrorism forces.
“These borders are so huge
and they require a degree of
professionalism that these
countries do not have in order
to monitor them,” said a West-
ern official who is monitoring
the offensive in Sirte.
Although the offensive to
clear Islamic State from the
coastal region around Sirte be-
gan in May, recent U.S. air-
strikes have played a pivotal
role in the battle for the city,
which is the hometown of late
Libyan strongman Moammar
Gadhafi. The U.S. airstrikes
have helped an alliance of rag-
tag Libyan militias dislodge a
cornerstone of Islamic State’s
Kabul] but doesn’t seem to
have been a very well-known
person,” one of the officials
said.
They couldn’t provide more
details about Mr. Logari, who
is believed to be an Afghan na-
tional. His predecessor was
from Pakistan and most of the
group’s members are former
members of the Pakistani Tali-
ban.
Much of the Pakistani Tali-
ban, along with the defectors
Soldiers seeking out Islamic State fighters in Afghanistan’s Nangarhar province in late July.
RODI SAID/REUTERS
After months of fighting,
the Syrian Democratic Forces
captured Manbij, an Islamic
State stronghold since 2014
and a critical supply line to
the nearby Turkish border
that the extremist group had
used to smuggle goods and
fighters.
Islamic State’s loss in Man-
Troops loyal to the U.N.-backed Libyan government fight in Sirte.
caliphate and now surround
the remaining fighters in a
handful of neighborhoods.
Sirte was the only city Is-
lamic State fully controlled in
Libya and was considered the
militants’ beachhead in North
Africa. But Sirte’s loss is the
latest setback for the extrem-
ist group, which is also under
pressure in Syria and Iraq af-
ter losing key cities and seeing
its resources and supply lines
pinched.
U.S. officials once consid-
ered the Libyan branch as the
extremist group’s fallback op-
tion as it suffered territorial
losses in Syria and Iraq. That
option has crumbled as the of-
fensive gained intensity.
Western officials assess
to Islamic State, have shifted
to eastern Afghanistan to es-
cape military operations
against them in Pakistan.
Islamic State’s presence in
Afghanistan is still nascent.
Even in its stronghold of Nan-
garhar, Afghan officials esti-
mate the group remains a
fraction the size of the Tali-
ban. The two groups fought
bloody battles over territory
and fighters through last year,
but in recent months have es-
Monday, August 15, 2016 | A3
bij comes as the extremist Middle East.
group has suffered a string of Supported with airstrikes
defeats across the region to carried out by the coalition,
local forces and an U.S.-led in- the Arab and Kurdish forces
ternational coalition. entered Manbij in late June
The capture of the northern and have been slowly pushing
Syrian city is expected to Islamic State out since then.
serve as a steppingstone to- For Islamic State, losing
ward an offensive on Islamic Manbij marks a major setback
State’s self-declared capital of as it anchored the extremist
Raqqa in Syria. This comes af- group’s last remaining stretch
ter Syrian regime forces re- of territory it still controlled
gained control of the ancient along the Syria-Turkey border.
city of Palmyra from the mili- In June, U.S. Secretary of
tants in March. Defense Ash Carter said Is-
In Iraq, Islamic State lost lamic State had used its base
Fallujah in June and Ramadi a in Manbij to hatch plots
few months earlier. And Iraqi against Europe, Turkey and
forces are planning for a ma- the U.S.
jor offensive expected by the As they fled the city on Fri-
end of this year to try to re- day, Islamic State fighters
take Islamic State’s stronghold took scores of civilians with
of Mosul. The extremist group them, possibly to be used as
has also been pushed back in human shields, Mr. Araj said.
Libya, where its fighters are But the militants released
fleeing to the south of the them later, he said, as they
country as their stronghold in headed toward the Islamic
Sirte crumbles. State-held town of Jarablus on
As Islamic State loses sig- Syria’s northern border with
nificant territory in its self- Turkey. These civilians were
proclaimed caliphate in Syria among the most jubilant after
and Iraq, the extremist group returning to the city, Mr. Araj
is likely to morph into a more said.
conventional terrorist organi- Shirfan Darwesh, a spokes-
zation like al Qaeda, some an- man for the Manbij Military
alysts say. Council, said the city was
Already, there has been a gradually returning to nor-
surge in attacks—either malcy. “Our mission [now] is
claimed or inspired by Islamic to remove the land mines and
State—in several countries secure the areas, the liberated
that are part of the U.S.-led ones,” he said.
international coalition fighting —Raja Abdulrahim
the extremist group in the contributed to this article.
Libya.
Libya’s neighbors are
adopting other methods to
slow the flow of extremists
back home. Tunisia last year
MAHMUD TURKIA/AGENCE FRANCE-PRESSE/GETTY IMAGES
began building a wall and wa-
ter trenches along its Libyan
border. Meanwhile, Algeria is
reportedly building a fence to
stanch the flow of militants
and their supplies, in addition
to beefing up border security.
A Libyan military intelli-
gence officer in Misrata, a
neighboring coastal city whose
forces are leading the fight in
Sirte, said there was little that
local forces could do to pre-
vent the exodus as the offen-
sive began.
“There was almost 100
miles between us and Islamic
that hundreds of fighters fled State [in Sirte],” the officer
Sirte weeks ago before the city said. “All that space was open
was fully surrounded, fleeing desert for them to escape.”
south. About half of Islamic Militants who aren’t seek-
State fighters in Sirte are con- ing to flee across borders may
sidered foreign, according to also exploit Libya’s insecurity
Western officials monitoring and longstanding tribal rival-
the offensive. The majority are ries by taking refuge in the
Tunisian but include an array country’s southern towns,
of sub-Saharan nationalities, where locals oppose the gov-
notably Sudanese and Nigeri- ernment in Tripoli and the
ans, these officials say. powerful militia of Misrata
A Tunisian military officer city.
said his country’s air force has The extremist fighters also
been on high alert for the pos- have a robust presence in the
sibility of these fighters flee- east, in Derna and Benghazi,
ing back home. That has in- the country’s second-largest
volved increasing overhead city. Those pockets raise the
surveillance flights, with the possibility that the militants
support of the U.S. military, to will regroup to launch coun-
monitor any cross-border teroffensives, Western officials
movements by the militants in in Tunis said.
tablished a patchwork cease- province, which briefly fell to
fire that has helped both in- the militant group last year,
surgencies regroup and are also under threat.
counter U.S.-backed efforts to Meanwhile, the fragile Af-
dislodge them. ghan coalition in power
The Taliban have advanced lurched toward a fresh crisis
in recent weeks, overrunning this week, after the country’s
districts in Helmand province, chief executive, Abdullah Ab-
where they have cut off the dullah, who occupies a posi-
main roads to the provincial tion similar to that of prime
capital of Lashkar Gah. Despite minister, accused President
heavy U.S. airstrikes, officials Ashraf Ghani of incompetence.
believe Lashkar Gah could fall. Mr. Ghani’s office re-
Other areas, including Kunduz sponded saying “soon serious
and efficient discussions will
take place about his remarks”.
The two were expected to
meet on Saturday to resolve
their differences.
Meanwhile, it emerged Sun-
day that top members of the
main Taliban splinter group
that broke away last year have
reversed course and pledged
allegiance to the main group,
despite the efforts of the Af-
ghan government to exploit di-
visions in the insurgency.
RAHMAN SAFI/XINHUA/ZUMA PRESS
The move by the splinter
group’s top political deputy
and a battlefield commander
is another sign the insurgency
is consolidating under the new
leader, Maulavi Haibatullah
Akhundzada.
—Ehsanullah Amiri
and Habib Khan Totakhil
contributed to this article.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A4 | Monday, August 15, 2016
Terror Threat Cancels
Events in France
BY MATTHEW DALTON
PARIS—Ali Kalou, an Afri-
can crafts merchant, usually
looks forward to doing brisk
business on the first weekend
of September, when he heads
north from here to Europe’s
largest flea market in the
French city of Lille.
Not this year: French au-
thorities canceled it, conclud-
ing that the market’s densely
packed streets and miles of
stalls amounted to a terror tar-
get that couldn’t be adequately
protected. An estimated two
million to three million people,
many from across Europe and
the world, would no longer
show up in Lille to sell, search
for hidden treasures or spend
their money.
“When they canceled, it re-
ally screwed us over,” Mr. Ka-
lou said, displaying an assort-
ment of African statues and
masks at a sparsely attended
Paris flea market. “I hope that
next year they give us the
chance to work.”
The string of terror attacks
by Islamist radicals targeting
France is casting a pall over
the country. Stalked by fear of
another rampage and with po-
lice forces stretched thin, offi-
cials are canceling numerous
public gatherings, including
the annual flea market known
as La Grande Braderie de Lille.
Authorities have decided
France doesn’t have the man-
power to protect the dozens of
festivals and other events that
Putin Dismisses His Chief of Staff
BY LAURA MILLS
MOSCOW—Russian President
Vladimir Putin dismissed his top
aide, a surprise move for a
leader who rarely parts with
such longtime allies.
Mr. Putin said in televised
remarks Friday that Sergei
Ivanov, a former intelligence
official who has been a key
lieutenant of the president for
almost two decades, was re-
signing as his chief of staff
and would be succeeded by his
deputy.
The president issued an or-
der to relieve Mr. Ivanov of his
duties and held a televised
meeting with him and his suc-
cessor. Mr. Putin praised Mr.
Ivanov’s work and recalled
that Mr. Ivanov had requested
not to work as chief of staff
SPUTNIK/ZUMA PRESS
for more than four years.
“I respect your desire to
move to another line of work,”
Mr. Putin said. The president
appointed Mr. Ivanov a special
representative for transport
and environmental issues.
The move is the most high-
profile dismissal in years. Mr.
Putin has refreshed the top
ranks of officials in recent
months, from governors to the
head of customs. But the pres-
ident has rarely cast aside
anyone as close as Mr.
Ivanov, a 63-year-old former
defense minister once viewed
as a potential successor.
Like Mr. Putin, the urbane,
English-speaking Mr. Ivanov
studied at Leningrad State
University and began his ca-
reer in the security services in
the 1980s. In the late 1990s, he
served as Mr. Putin’s deputy in
the Federal Security Service
and later held several key gov-
Plan for Gas Pipeline From Russia to Germany Hits Snag
A plan for multiple large
European energy companies to
team up to build a second nat-
ural-gas pipeline from Russia
to Germany has collapsed, but
the impact on the overall proj-
ect was unclear.
By Sarah Kent,
Gabriele Steinhauser
and James Marson
An application with Po-
land’s competition authority to
form a joint venture to build a
pipeline called Nord Stream 2
was withdrawn in the face of
opposition from Warsaw,
where the deal was seen as
giving Russia greater sway
over Polish energy supplies.
That leaves Russia’s state-
owned PAO Gazprom as the
project’s sole operator, poten-
tially robbing it of the political
support that big European
help draw tens of millions of
tourists to the country each
year.
“It’s an extremely sad deci-
sion for me to take,” said Lille
Mayor Martine Aubry when
announcing the cancellation
this month along with the re-
gional police chief. “It’s my re-
sponsibility, a moral responsi-
Residents greeted the
cancellation in Lille
with a mix of
resignation and anger.
bility, to avoid the possibility
of injuries and deaths at the
flea market.”
While France has been on
high alert for more than a
year, last month’s truck attack
in Nice fundamentally changed
the authorities’ calculus. A
Prosecutors Charge a Third Man Linked to Killing of French Priest
PARIS—French prosecutors
filed preliminary charges of
terrorism against a third man
detained on suspicion of collab-
orating in last month’s murder
of a French priest, suggesting
the slaying was the work of a
broader group of Islamic State
followers.
The 21-year-old was de-
tained on Aug. 8 in the area of
Toulouse, a city 500 miles
south of the church of Saint-
Etienne-du-Rouvray where the
President Vladimir Putin, center, replaced chief of staff Sergei Ivanov, left, with Anton Vayno, right.
ernment posts.
Mr. Ivanov is one of a hand-
ful of top officials targeted by
U.S. sanctions following Russia’s
annexation of Crimea in 2014.
His successor is a little-
known 44-year-old, Anton
Vayno, who was born in Esto-
nia, then a Soviet republic, to
an elite family of Communist
Party officials. He worked as
head of protocol for the Krem-
lin and most recently was Mr.
Ivanov’s deputy.
Some analysts saw the move
as part of a gradual effort to
replace close allies with youn-
ger, more-malleable yes-men.
“Putin finds it more com-
partners like Royal Dutch
Shell PLC and Germany’s Win-
tershall AG provided.
Poland hailed the decision.
“This will stop the deal,”
Marek Niechial, the president
of Poland’s antitrust authority,
said Friday.
But in a joint statement, the
consortium of Gazprom, Shell,
Wintershall, French utility En-
gie SA, Austria’s OMV AG, and
a unit of German utility E.ON
SE said the decision wouldn’t
affect the project, which has
had strong backing from Ger-
man Chancellor Angela Merkel.
With Gazprom in the lead,
the others said they would
find “alternative ways to con-
tribute.”
“It has no impact,” said
Steffen Ebert, a spokesman for
Nord Stream 2 AG, which is
wholly owned by Gazprom.
“We are still working and we
HK JP KO ML SI
WORLD NEWS
radical Islamist lacking ma-
chine guns or explosives was
able to kill 85 people and in-
jure hundreds by plowing a
large truck through crowds
celebrating Bastille Day on the
promenade of Nice.
The government was widely
criticized for not sealing off
the promenade or providing
enough police presence to stop
the truck sooner. A police in-
vestigation of the security ar-
rangements found that the
“novelty and intensity” of the
truck attack couldn’t have
been anticipated.
To adapt to the new threat,
the French military has rede-
ployed 2,000 soldiers who
were conducting antiterror pa-
trols in Paris to bolster secu-
rity for summer events around
the country. But those addi-
tional forces weren’t enough to
save many gatherings.
Police have ordered the can-
attack took place in late July, a
spokeswoman for France’s anti-
terror prosecutor said on Sat-
urday. The prosecutor filed pre-
liminary charges on Friday and
ordered the man to remain in
detention during the investiga-
tion, she said.
Investigators are seeking
evidence that Adel Kermiche
and Abdel-Malik Nabil Pe-
titjean—the two 19-year-old
killers—were supported by a
network of Islamic State fol-
fortable to work with people
who don’t ask extra questions,
who don’t speak to him as an
equal,” said Tatiana Stanovaya,
an analyst at the Center for
Political Technologies, a think
tank in Moscow. “Gradually, he
is surrounding himself with
people who are not connected
to him in his former life.”
In the past year, Mr. Putin
has removed Russian Railways
head Vladimir Yakunin, antin-
arcotics chief Viktor Ivanov
and federal guard-service di-
rector Yevgeny Murov.
Meanwhile, tensions between
Russia and neighboring Ukraine
remained high over Cri-
are on track.”
A spokesman for Shell said
“the project is very important”
and the company is now “con-
sidering other ways we can
contribute.”
OMV, E.ON and Engie didn’t
respond to requests for further
comment. Wintershall and
Gazprom couldn’t be reached.
The decision is the latest
stumbling block for an $11 bil-
lion project that has inflamed
political tensions in Europe,
which receives about a third of
its gas supplies from Russia
but is working to diversify its
energy sources.
The European Union and
the U.S. have imposed eco-
nomic sanctions on Russia and
some of its companies and
government officials over the
Ukraine conflict.
Nord Stream 2 would ship
an extra 55 billion cubic meters
IN UK FR MN PR
Called Off
France canceled many events this summer due to a stretched police force and heightened terror risk.
U.K.
English Channel
3 La Baule
FRANCE
B a y of
Biscay
100 miles
100 km
Toulouse
SPAIN
cellation of an outdoor movie
festival in Paris, the European
bicycle road-racing champion-
ships in Nice, and a half-mara-
thon in Lille. Fireworks in Avi-
gnon on the anniversary of the
city’s liberation from the Nazis
and a French air force air show
in Marseille, among other
lowers in France.
The prosecutor had already
filed preliminary charges
against two other men with
links to Kermiche and Petitjean.
One of the two men is charged
in another case for trying to
travel to Syria to join Islamic
State with Petitjean in June.
The latest man to be
charged was in contact with
Kermiche and Petitjean though
his cellphone and through the
mobile-phone app Telegram,
mea. Ukraine put its forces on
combat alert Thursday as Mr.
Putin discussed increased secu-
rity measures in Crimea after
blaming Ukraine for the deaths
of two Russian service members.
Prime Minister Dmitry
Medvedev in televised remarks
floated the idea of cutting off
diplomatic ties with Ukraine,
saying that “if there is no
other way to influence the sit-
uation, the president can prob-
ably make such a decision.”
Russian official news agen-
cies reported Friday that the
Ministry of Defense had de-
ployed an advanced S-400 air-
defense system to Crimea.
of gas a year to northern Ger-
many through the Baltic Sea,
doubling the capacity of the
existing Nord Stream pipeline.
Germany has supported the
project, saying it is better to
work with Russia than to iso-
late it. But Poland and several
A billboard about Nord Stream at its landing point in Germany
THE WALL STREET JOURNAL.
1 Lille
Braderie de Lille, Europe’s
Lille 1 BELG. largest flea market (Sept. 3-4)
GERMANY
2 Paris
Claire de Lune film festival
LUX.
(July 29-Aug. 14)
2 Paris 3 La Baule
Fireworks show (Aug. 15)
4 Avignon
Fireworks celebrating liberation
from the Nazis (Aug. 25)
SWITZ.
5 Marseille
Patrouille de France air show
Lyon (Aug. 13)
6 Nice
I T A LY
Rihanna concert (July 15)
Promenade party (Aug. 15-28)
Avignon 4 European road cycling
Nice 6
Marseille 5
championships (Sept. 14-18)
Mediterranean Sea
THE WALL STREET JOURNAL.
events, were also called off. ganizers say.
The decision to cancel the Millions typically descend
Lille flea market was perhaps on the city to buy and sell, eat
the most significant. By some the traditional dish of mussels
accounts, the market’s origins and fries, and party. But the
trace back to the 12th century. market’s integration into the
By the 16th century, it was es- city streets—with trucks con-
tablished as a fair, drawing stantly coming and going—
people from across France, or- means establishing a security
perimeter is difficult, officials
have said.
In the city, residents
greeted the cancellation with a
the prosecutor’s spokeswoman mix of resignation and anger.
said. He traveled from Tou- “Give people from Lille and
louse to Saint-Etienne-du-Rou- others the freedom to go if
vray and was in the town on they want,” said Lorence Fort,
July 24 and 25, on the eve of a medical worker who has
the attack. been going to the flea market
Kermiche and Petitjean at- for 18 years. “We’re depriving
tacked the church during a ourselves of our liberties and
morning Mass and cut the allowing the terrorists to win.”
priest’s throat in front of two Nights spent in France by
parishioners and three elderly international visitors fell 10%
nuns. The police shot them in July compared with a year
dead as they exited the church. ago, France’s trade minister
—Inti Landauro said this month.
Woman Dies Following
Attack on Swiss Train
BY BRIAN BLACKSTONE
ZURICH—Swiss police said
Sunday that a 34-year-old
GIAN EHRENZELLER/EUROPEAN PRESSPHOTO AGENCY
woman died as a result of in-
juries from an attack a day
earlier on a train in eastern
Switzerland that also wounded
five others.
The alleged assailant, an
unidentified 27-year-old man,
also died from injuries sus-
tained in the attack, police
said Sunday.
Armed with a knife, the
man poured flammable liquids
that caught fire on the train,
police in the canton of St. Gal- The train at the station in Salez.
len said in a statement. The
wounded were taken to local two men aged 17 and 50 in
hospitals, among them a child addition to the child.
whose injuries were consid- About 90 police, fire, ambu-
ered serious, police said. lance and other emergency
Police said the assailant’s personnel were deployed to
motive was unclear and there the site. Forensic specialists
was no evidence that the at- are examining the fluid used to
tack was politically motivated ignite the fire. The train was
or related to terrorism. also damaged in the attack. Po-
The authorities searched lice estimated that the damage
the home of the man, who amounted to about 100,000
didn’t have a criminal record Swiss francs ($103,000).
in St. Gallen or his neighbor- The attack is the latest in
ing home canton, but the re- a series to have occurred on
sults weren’t made public. Europe’s rail network.
The incident, which was In July, a 17-year-old who
captured on video, happened had registered as a refugee
at 2:20 p.m. local time on Sat- traveling alone from Afghani-
urday as the train neared the stan attacked five tourists on
station in Salez, near the bor- a German train with an ax
der with Liechtenstein. Ac- and a knife before being shot
cording to police, a passenger dead by police. Islamic State
who was standing on the rail later claimed responsibility
platform dragged the alleged for that attack.
attacker from the train. The Last year, a man carried
footage indicates that the al- out an attack on a high-speed
leged perpetrator acted alone, train between Amsterdam
police said Sunday. and Paris with guns and
The wounded included two knives but was subdued by
women aged 17 and 43, and several men.
other Central and Eastern Eu- Russia has for years sought
ropean states have been vocal to circumvent Ukraine after fi-
in their opposition to the nancial disputes between it
project. The U.S. has also op- and Kiev led to supply cuts to
posed the pipeline, which it EU countries twice in the past
fears could further undermine decade.
Ukraine’s financial and politi- Analysts and Western dip-
cal stability. lomats say Russia doesn’t
need to build extra pipeline
capacity.
The additional volumes of
gas are roughly what Gazprom
has been piping to the EU
through Ukraine, raising con-
cerns that the new route
would allow Russia to strip
Kiev of much of its remaining
economic leverage and an im-
portant source of income.
DPA/ASSOCIATED PRESS
The EU has in recent years
moved to weaken Gazprom’s
power. It opened an antitrust
suit against the company and
regulators thwarted another
pipeline project known as
South Stream.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
Venezuelans Travel to Colombia to Shop
Toilet paper in strong
demand amid crisis;
some carry back a car
tire on each shoulder
BY KEJAL VYAS
CÚCUTA, Colombia—Mari-
sol Sayago’s quest for toilet
paper began just after dawn
with a 40-mile bus ride
through winding Andean roads
that lead to this Colombian
commercial hub.
As with thousands of Vene-
zuelans unable to find basic
food and hygiene products at
home because of the oil-rich
nation’s economic collapse,
Ms. Sayago, a 65-year-old re-
tiree from San Cristóbal, trav-
eled here for a modest shop-
ping spree, after the South
American neighbors agreed to
reopen their 1,400-mile border
on Saturday, a year after Vene-
zuela ordered it closed.
“This is my salvation,” Ms.
Sayago said, holding up a pack
of 15 toilet-paper rolls and a
bag of sugar. Those were all
she said she could afford on a
monthly pension of the equiv-
alent of about $15, as Venezue-
lans feel the pinch from the
free-falling Venezuelan cur-
rency, the bolivar.
“It’s not economical, but
what else can I do?” Ms.
Sayago asked. “Over there you
can’t find anything,” she said,
pointing to Venezuela.
Venezuela President Nicolás
World
Watch
THAILAND
Three Explosions Hit
Southern Province
Three explosions struck
southern Thailand, capping a
long weekend that began with a
string of bomb blasts in popular
holiday destinations days after
voters approved a new constitu-
tion giving greater powers to
the ruling military.
The latest explosions took
place in front of shops in the
southern province of Yala, a
stronghold of a Muslim separat-
ist insurgency. Chaichanna Kritti-
yanart, chief of the district
where the blasts occurred, said
there were no injuries.
The devices were small
bombs designed to cause dam-
age but not kill, Mr. Chaichanna
said, adding that it was too
early to determine whether they
were connected to the earlier at-
tacks. Police have said some of
those bombs used ball bearings
to injure and kill.
The blasts occurred as offi-
cials investigated attacks Thurs-
day and Friday in 12 sites across
seven southern provinces. Four
people were killed.
—Wilawan Watcharasakwet
CONGO
Suspected Rebels Kill
At Least 36 Civilians
Suspected rebels killed at
least 36 people in northeastern
Congo, spurring residents to
stage street protests against the
continuing violence, officials said.
Allied Democratic Forces likely
carried out the attack late Satur-
day after the army pushed the
U.K.
Continued from Page One
weaker pound or higher inter-
est rates to lure foreign inves-
tors, both of which could
squeeze domestic spending
and damp demand for imports.
A weaker pound may boost
British earnings overseas, but
would also stoke inflation. So
British policy makers could
get the smaller deficit they
have yearned for—but at the
cost of making Britons poorer.
The shock waves from the
U.K.’s June 23 vote to exit the
European Union rocked finan-
cial markets and triggered po-
litical upheaval, and have cast
doubt on the economy’s future
prospects.
That has focused attention
on the nation’s yawning cur-
rent-account deficit, a key
gauge of an economy’s health.
The U.K. had a deficit in
2015 that was equivalent to
5.4% of annual national in-
come, the widest among com-
parable advanced economies.
Venezuelans returning home after buying supplies in Colombia following the border’s reopening.
Maduro’s decision to reopen
the border with Colombia
grants his countrymen a life-
line of crossing into frontier
towns to buy what they need.
Five border crossings opened
Saturday under a plan an-
nounced by the presidents of
both countries to gradually
normalize movement. Cars
will be allowed to cross in a
month.
But for now, traffic is lim-
ited to pedestrians, meaning
for many of the 54,000 Vene-
zuelans who crossed over, how
much they take home depends
group from its bases, said Gen.
Richard Kasonga, the army’s
spokesman.
Congo’s government said the
country will observe three days
of mourning starting on Monday.
The bodies of 22 men and 14
women are in the morgue and
the toll is likely to rise, said
North Kivu’s provincial governor,
Julien Paluku.
—Associated Press
MALAYSIA
Police Arrest Nine
They Link to Terror
Police arrested nine people
with suspected links to Islamic
State, including two believed to
be involved in a bombing at a
nightclub in June that injured
eight people.
Inspector-General of Police
Khalid Abu Bakar said counter-
terrorism police arrested the
suspects, six Malaysians and
three foreigners, between July
20 and Aug. 9. Police recovered
a grenade to be used in a
planned attack on an entertain-
ment center in the southern
state of Johor, he said.
The countries of origin of the
foreigners weren’t specified, but
they were alleged to be transit-
ing Malaysia to reach the Middle
East, he said.
Mr. Khalid said two of the in-
dividuals, Jasanizam Rosni and
Md Saifuddin Muji, both Malay-
sians, were responsible for the
June nightclub bombing on the
outskirts of Kuala Lumpur.
Mr. Khalid said they had been
awaiting orders for further attacks
from Muhammad Wanndy Mo-
hamed Jedi, a Malaysian with Is-
lamic State in Syria, who has tried
to organize attacks back home.
The suspects were unavailable
for comment and it was unclear
whether they had legal representa-
tion. Malaysia allows indefinite de-
tention without trial of anyone sus-
pected of supporting terror acts.
—Yantoultra Ngui
Mind the Gap
The U.K.’s yawning current-account deficit, the largest of
its peers, could become harder to finance now that the
nation has chosen to exit the European Union.
Current-account deficit/surplus for the G-7 countries
2%
U.K. Canada
0 pound, which makes British as-
–2
–4
2015 –3.2%
–6 –5.4%
2005 ’15
Source: Organization for Economic Cooperation and Development
The U.S. ran a current-account
deficit last year of 2.6% of in-
come. Germany, China and
Japan have long run persistent
surpluses.
The U.K. shortfall reflects
patchy exports and declining
earnings on Britain’s overseas
assets. Healthy U.K. growth
before the referendum fur-
ther swelled the gap, by
boosting foreigners’ earnings
in the U.K. and increasing de-
mand for imports.
WORLD NEWS
not only on what they can af-
ford, but also how much they
can carry.
“A lot of elderly Venezue-
lans couldn’t do this,” said 34-
year-old homemaker Maria
Cardoso, who was wheeling a
hand truck of supplies for her-
self and her neighbors back
across the Simón Bolívar In-
ternational Bridge that sepa-
rates the countries.
Trade in legal and contra-
band goods has thrived for
years between the countries,
spurred often by smugglers
who have taken cheap goods
Suu Kyi Pressed Over Pace of Change
Barely six months into a
five-year term, Aung San Suu
Kyi’s government is facing crit-
icism over everything from the
slow pace of change in the
country to the democracy
icon’s handling of Myanmar’s
ethnic conflicts.
By Jake Maxwell
Watts in Singapore
and Myo Myo in
Naypyitaw, Myanmar
The fledgling government,
which Friday marked 100 days
of policy making, is respond-
ing with a renewed attempt at
engagement: a series of news
conferences to explain its
agenda. “People’s expectations
are too high,” U Kyaw Zay Ya,
a spokesman at the Ministry
of Foreign Affairs, said Friday,
though he added that he was
happy with the government’s
performance so far.
Aung Myint, a businessman
and resident of Yangon, said
he had hoped to see more in-
teraction with the public and
more economic progress. “I
am really disappointed in her,”
he said.
In late July, the government
published long-awaited eco-
nomic-policy goals, but they
lacked financial specifics and
detail on implementation.
Ms. Suu Kyi’s National
League for Democracy swept
to victory late last year in an
election that marked the end
of five decades of isolationist
military rule. The result was
welcomed as one of the great-
est examples of a peaceful
transition to democracy in
modern times.
But since then, the Nobel
laureate has been dogged by
allegations of micromanage-
ment and criticized for failing
4 acquire ARM Holdings PLC, a
U.S. France
0%
–2.6%
The Bank of England has
zeroed in on the current-ac-
count deficit as a potential
vulnerability of the economy
in the wake of the Brexit
vote. Officials worry that if
foreign financing dries up, it
could destabilize the financial
system and hurt the wider
economy.
The signs so far have been
mixed. The BOE has said in-
flows from abroad into U.K.
equities, corporate bonds and
Monday, August 15, 2016 | A5
tions in Venezuela have wors-
ened, a situation economists
say shows the root cause of
Venezuela’s woes is its own
state-led economic model. The
International Monetary Fund
says the economy is likely to
contract 10% this year while
clocking 700% inflation. Long
lines stretch from supermar-
MAURICIO DUENAS CASTANEDA/EUROPEAN PRESSPHOTO AGENCY
kets that are patrolled by sol-
diers seeking to stem near-
daily food riots.
“Closing the border was a
total error, and even Maduro
had to have seen that,” said
Carlos Chacón, a councilman
in the economically battered
Venezuelan border town of
San Antonio in Tachira state.
“The opening is a relief for
us, who, to be honest, are
most worried about how we’re
going to clean our butts,” said
Mr. Chacón, referring to dire
shortages of toilet paper that
have become a symbol of Ven-
ezuela’s problems.
subsidized by Venezuela’s So- Searching for everything
cialist government and sold from rice to car parts to heart
them for hefty profits in free- medication, Venezuelans
market Colombia. poured over the border, many
But in August last year, Mr. hauling empty luggage bags to
Maduro ordered the border stock up on goods. By early af-
closed, blaming Venezuela’s ternoon, some were heading
food scarcities, collapsing cur- back across the bridge with
rency, as well as its problems scarce car tires hanging off
with rampant crime and drug each shoulder.
trafficking on Colombians. At the Alejandria market in
“I’m just telling the truth,” Mr. central Cúcuta, Venezuelans
Maduro said. “From Colombia, carrying bricks of devalued
all of the poverty and misery bolivars lined up at currency
is coming over.” exchanges to convert them for
One year after the closure a few bills of Colombian pesos.
of the border, economic condi- Simple foreign-exchange
Aung San Suu Kyi at a meeting with ethnic groups at the end of July in the capital, Naypyitaw.
to take a strong stand on Despite the slow start on
Myanmar’s ethnic conflicts. the policy front, Myanmar’s
She has rarely appeared in economy grew 7% from 2015
public since her government to 2016, according to the
took office at the end of March. World Bank, one of the fastest
“Before they came to power rates in Asia. It is projected to
the NLD always talked about grow 7.8% from this year to
transparency and a better re- the next. Foreign direct invest-
lationship between media and ment has soared and foreign
government, but after they
took over the government’s
duties I think they failed in
Suu Kyi is facing
this issue,” said Ye Htut, who criticism for taking
was spokesman for former
President Thein Sein and is
on too much and for
now a visiting senior fellow at failing to delegate.
the Singapore-based research
organization Iseas-Yusof Ishak
Institute. companies such as Norway’s
Constitutionally barred Telenor Group and U.S. giants
from becoming president, Ms. Coca-Cola Co. and General
Suu Kyi took on the newly cre- Electric Co. have established a
ated position of state coun- presence in the country.
selor, which effectively puts Politically, Ms. Suu Kyi has
her—in her own words— faced criticism from abroad
“above the president.” related to her stance on Myan-
Her supporters acknowl- mar’s ethnic conflicts. In May,
edge that the first few months the Foreign Ministry she heads
have been tough, but they say advised embassies to stop us-
she needs more time. ing the term “Rohingya” to de-
8
10%
8.5%
quire most of London-based
payment-technology company
VocaLink Holdings Ltd. for
about $920 million, while
6 Japan’s SoftBank Group Corp.
announced a $32 billion deal to
3.3% chip maker.
2.2% One factor helping such
Italy Japan Germany deals has been the weakening
sets cheaper to overseas buy-
ers. Sterling has fallen 11%
against the currencies of its
biggest trading partners since
the referendum, and by almost
12% against the dollar.
THE WALL STREET JOURNAL. A flexible exchange rate is
one reason economists think
especially real estate ap- the U.K. should be able to
peared to be slowing, while avoid a severe crisis of the
some foreign direct invest- type that gripped parts of Asia
ment by companies—a critical in 1997, when a swift exodus
source of funding for the cur- of foreign capital caused fi-
rent-account deficit—was be- nancial havoc. The U.K., as a
ing put off. large, advanced economy, also
Yet the post-Brexit period tends to attract long-term,
has also been marked by a stable investment instead of
flurry of corporate deal mak- flighty “hot money” seeking a
ing, suggesting the U.K. still quick return.
holds plenty of attractions for A major current-account
some foreign firms. Master- crisis is “a risk that can be
Card Inc. said it agreed to ac- overstated,” said Simon Kirby,
transactions are prohibited in
Venezuela, where the govern-
ment restricts access to for-
eign currencies. Others, avoid-
ing carrying large volumes of
cash, sold gold rings and neck-
laces at Cúcuta’s pawnshops to
fund their shopping.
After crossing the bridge on
Saturday morning, Venezue-
lans were greeted by smiling
Colombian soldiers and a mili-
tary band in what appeared to
be a full-on charm offensive
from Colombian authorities.
Still, Colombian immigra-
tion officials urged Venezue-
lans not to rush over. “The
opening of the border is per-
manent, so you don’t neces-
sarily have to enter this week-
end,” said a Twitter post from
Colombia’s immigration office.
Authorities are trying to
prevent a replay of the flood
of more than 120,000 Venezu-
elan shoppers who came into
Colombia during two tempo-
rary border openings last
month.
On Saturday, Cúcuta’s mar-
kets were well-stocked in
preparation for the border’s
reopening.
“Commerce has reacti-
vated,” said Javier Acuña,
manager of the El Ideal Su-
permarket. Wiping sweat from
his brow after restocking
shelves with beans and dia-
pers all morning, Mr. Acuña
said he hoped to see a boost
to his business, which experi-
enced a 15% drop in revenue
during the border closure.
AUNG SHINE OO/ASSOCIATED PRESS
scribe the country’s stateless
Muslim minority, a position
that was seen as siding with
hard-line Buddhists. Her gov-
ernment is planning a separate
peace process to bring to-
gether Myanmar’s divided eth-
nic groups.
She has also been faulted
for taking on too much—she
holds two cabinet posts as
well as the state counselor po-
sition—and for failing to dele-
gate. Officials in Ms. Suu Kyi’s
government say she is happy
to take on the roles.
While an optimistic tone on
the street about Ms. Suu Kyi’s
government has dulled since
she took office, many citizens
acknowledge that progress
takes time. Mg Mg Aung, a
resident of Yangon, said his
expectations had been too
high. While he has been disap-
pointed in the government’s
performance so far, “I think it
can be difficult [for the gov-
ernment] to do everything in a
very short time,” he said.
head of macroeconomic model-
ing and forecasting at the Na-
tional Institute for Economic
and Social Research, a nonpar-
tisan London think tank.
But the deficit could still
cause problems. Economists
say a significant domestic cost
arises from the falling pound,
which may need to fall further
still to keep bringing in for-
eign investment. A lower ex-
change rate drives up the cost
of import prices and thus in-
flation, making consumers
poorer. A slowdown in con-
sumer spending, the engine of
domestic growth, risks further
weakening an economy al-
ready facing Brexit-induced
uncertainty. The BOE cut its
benchmark interest rate to a
new low this month in re-
sponse to a darkening eco-
nomic outlook.
“As long as the economy
keeps growing no one looks at
the current account,” said
Ilaria Maselli, senior economist
for Europe at the Conference
Board, a business-research
group. “When there’s a prob-
lem, everyone gets worried.”
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A6 | Monday, August 15, 2016
SOUND
Continued from Page One
crucial upgrade.
A private line, they say,
eliminates electrical interfer-
ence that comes from sharing
a public pole with neighbors
whose gadgets can create
“noise” that make subtle notes
inaudible and the overall
sound flatter.
Once one has a personal
tower of power, “the music
melts into the air of the room,”
says Sumio Shimamoto, presi-
dent of Izumi Denki Corp.,
which installed Mr. Morita’s
pole and has erected about 40
more across Japan over the
past decade.
A Japanese magazine,
“Power Sources & Accesso-
ries,” specializes in power
sourcing for audio equipment,
including the deployment of
private poles.
“Japanese audiophiles pur-
sue it with a great deal of dili-
BOYS
Continued from Page One
villages and forest hide-outs,
according to government offi-
cials in Nigeria and neighboring
Cameroon, and to Human
Rights Watch, a New York-
based advocacy group.
Child soldiering was a big
problem in various collapsing
states in the 1990s, including
some in Africa. What is happen-
ing here in northeastern Nigeria
is part of a disturbing rise in
child jihadism. Young boys and
at times girls are being indoc-
trinated into violent fundamen-
talism and used as fighters, sui-
cide bombers and spies.
Something similar is hap-
pening in other countries bat-
tling Islamist insurrections.
Commanders of al Qaeda’s
branches in Yemen, Somalia
and Mali have deployed
youngsters. Islamic State has
used children in combat, sui-
cide bombings and in execu-
tion videos in Iraq and Syria.
Interviews with 16 young Ni-
gerians who escaped from Boko
Haram captivity and with other
witnesses, soldiers, researchers,
officials and diplomats in Nige-
ria and Cameroon provide a pic-
ture of the harrowing life en-
dured by the children who wage
jihad. The Wall Street Journal
isn’t publishing their surnames.
Witnesses said the boys were
trained and sent into battle, at
times unarmed and often
numbed with opiates. Many of
the boys were beaten and some
died of starvation or thirst,
these people said. Their individ-
ual accounts couldn’t be inde-
pendently verified but are con-
sistent with information
gathered by researchers and
military officials, both in terms
of timing and specific details.
“They told us, ‘It’s all right
for you to kill and slaughter
even your parents,’ ” recalled
Samiyu, a former captive who
said he witnessed a beheading
on the first day of his 11
months with Boko Haram. He
said other boys helped hold
down the victim. “They said,
‘This is what you have to do to
get to heaven.’ ”
Witnesses recounted Boko
Haram using fleets of passenger
vans to move child fighters
through the forests of north-
eastern Nigeria. Some have de-
scribed camps of more than
1,000 boys and adolescents
training to fight, with very few
adults present.
“If you go there, you can see
12-year-olds talking about burn-
ing down a village,” said Fa-
tima, a 20-year-old former hos-
tage. “They have converted.”
As more such boys escape
from the group and others are
captured by government
forces, West African officials
are debating whether the boys
can be returned to their fami-
lies—and how.
In the 1990s and 2000s, Ni-
gerian peacekeepers helped
end the civil war in Liberia,
and thousands of young boys
were disarmed and returned
to society. Some of those
peacekeepers are now ranking
officers. They must confront a
new generation of child com-
NIGER Damasak
Maiduguri
N I G E R I A Chibok
Abuja
Lagos
CAMEROON
Gulf of Guinea
Yaounde
200 miles
200 km
THE WALL STREET JOURNAL.
gence,” says Joe Cohen, presi-
dent of Lotus Group, a
California-based distributor of
high-end audio equipment.
“They adopt the cause and sac-
rifice everything for it.”
There’s a debate among au-
dio enthusiasts about whether
personal poles make any mean-
ingful difference. Audiophiles,
though, “live in a kind of no-
compromises world,” says Mark
Bocko, director of the audio
and music engineering program
at the University of Rochester.
“Electromagnetic interfer-
ence from appliances being
used by neighbors could prop-
agate through a shared trans-
former and have an audible ef-
fect. That’s not an
unreasonable thing.”
Yukio Yoshihara, 62, always
thought his audio system
sounded better late at night,
concluding there was less inter-
ference when neighbors
weren’t using appliances. The
former banker asked electri-
cians to assess the quality of
power in his Tokyo home with
Idriss, above, said he was kidnapped by Boko Haram. People displaced by fighting have settled in a camp, below, outside Maiduguri.
batants raised on an ideology
more apocalyptic than any-
thing offered by the warlords
of 1990s Liberia.
Boko Haram recruited chil-
dren from the earliest days of
its insurgency. First it tapped
them as spies and couriers be-
fore shifting toward front-line
mobilization, according to Ni-
geria’s military and Human
Rights Watch.
In 2013, Abba was a 12-year-
old beggar in a Quranic school.
Boko Haram gave him a cell-
phone and asked him to call
whenever he saw soldiers pass.
“That was the only work I did
for them,” he recalled.
He was arrested by the army
several months later and ap-
peared at a press conference
with 34 other children, age 9 to
15. Several said they had been
given $30 and a keg of gasoline
to set fire to their schools.
The next year, Boko Haram
began to take big towns, and
with them, lots more boys.
The group’s mass abduction
of 276 schoolgirls from the
town of Chibok in April 2014
grabbed global attention. The
next month, it seized six vil-
lages in the nearby mountains
and rounded up children in each
location, with only scant cover-
age outside the Nigerian press.
A few months later, the
group captured the town of
Damasak, and with it, more
than 300 students, most of
them boys, age 7 to 17. The mili-
tants imprisoned them in a
school, witnesses said. Their
parents were held in separate
rooms. For months, the children
learned the Quran, according to
witnesses, Human Rights Watch
and Nigerian media accounts.
Eventually, Boko Haram left
the parents behind and drove
away with the children. There is
no public record of any of them
being rescued.
By 2014, Boko Haram was
running boot camps across its
rapidly expanding territory and
training thousands of kid-
napped children, according to
the escaped children, military
officials and researchers.
Rachel, a 13-year-old captive
who spent about a year in a
separate camp, recalled that
during her first day in Boko
Haram custody there was a be-
CHAD heading. She watched as several
dozen boys from her village tied
up a kidnapped man so he
wouldn’t resist. “They told
them they shouldn’t have feel-
ings about it,” said the girl, who
is pregnant by rape and living
in a camp for rescued girls.
In many camps, boys hardly
old enough to hold guns were
taught how to shoot. Thirteen-
year-old Modu said that in his
former camp, they practiced
firing at planks of wood. Else-
FROM PAGE ONE
an oscilloscope.
“I found out just how pol-
luted the power supply was,”
he says. Some appliances
have inverters that switch
power on and off to save en-
ergy, he says, creating inter-
ference that caused inconsis-
tencies in his audio
equipment’s performance.
Mr. Yoshihara had a pole and
transformer installed five years
ago, along with a new circuit-
breaker panel and wiring.
Makeover cost: $40,000.
A performance of a Mozart
violin sonata by violinist Arthur
Grumiaux and pianist Clara
Haskil after installing the pole
and accessories brought tears
to his eyes, he says. “It sounded
so fresh and vivid, like they
were playing in front of my
eyes.”
“It’s completely beyond my
understanding,” says his wife,
Reiko, 57. “But if I take it away
from him, he will lose the moti-
vation to live.”
A scholar of audiophile cul-
ture, professor Tsutomu Na-
where, boys shot cows or
goats. In Rachel’s camp, older
militants took young boys on
trips into the countryside to
rob herdsmen of their cattle.
For even minor infractions,
militants beat boys nearly un-
conscious, or denied them
food and sleep for days, for-
mer captives say.
Girls were kept in a separate
area and raped. Many of their
rapists were young boys, ac-
cording to rape victims and the
counselors who treat them.
One 13-year-old girl said
she was raped by a boy around
her own age. He left her preg-
nant, she said. “We want the
government to kill them all,
including the children, so we
don’t have a resurgence of
this,” she said, referring to the
Boko Haram fighters.
Ten-year-old Abubakar said
he was a sitter in an abandoned
village for infants and toddlers
kidnapped or conceived through
the rape of female captives. The
children, none older than 4,
watched jihadist propaganda
videos and rehearsed a game
Boko Haram Says Some Abducted Girls Killed in Nigerian Airstrikes
ABUJA, Nigeria—Some of
the Chibok schoolgirls kid-
napped two years ago by Boko
Haram jihadists have been
killed in airstrikes by Nigeria’s
military, according to a new
video released by the insurgent
group on Sunday.
The video, published on
Twitter, shows a camouflage-
clad Boko Haram fighter ad-
dressing Nigerian President
Muhammadu Buhari in front of
about 50 of the girls, all stony-
faced and clad in long robes
and hijabs. At one point, the
fighter interviews a girl named
Maida—identified as one of the
276 students abducted from
kano at Tokyo’s Aoyama Gakuin
University, posits that the
beauty of sound is in the ear of
the listener.
“We don’t decide whether a
wine is good based on an analy-
sis of its chemical composition.
Sound is similar,” he says. “It
involves the power of imagina-
tion, something sacred.”
Few show such
perfectionism as
Japanese stereo
fanatics.
Japanese audiophiles are
pretty much stuck with stan-
dardized poles approved by
power companies, although in
Tokyo some utility-pole makers
offer colors such as green and
brown.
Katsuhiro Hirano had only
the option of gray. The 60-year-
old construction-company pres-
ident in southern Japan had a
system including two amplifiers
called “suicide bomber” where
they ripped open sacks of sand
strapped to their torsos.
“When they play that game,
they’re smiling, having a good
time. They’re laughing,” said
Abubakar, who picked at his
toes and wore a belt embla-
zoned with the image of Bob
Marley. “They’re preparing for
war.”
Older children described
camps packed with gadgetry
stolen from military bases and
ransacked government build-
ings. Boys kidnapped from mud-
brick homes came to live amid
satellite internet terminals, flat-
screen TVs, walkie-talkies, re-
frigerators and kitchens run by
diesel generators.
“They have so many laptops
of exactly that type,” said Ass-
abe, a 15-year-old-girl who es-
caped captivity, pointing to a
reporter’s MacBook Air.
At night, in the camp where
an adolescent named Moham-
mad lived, militants encouraged
the boys to watch American
war movies: “They cheer for the
U.S. soldiers, actually,” he said.
Chibok school in northern Nige-
ria two years ago—who claims
five of her schoolmates were
killed in airstrikes and asks the
government to negotiate the
release of those still captive.
It wasn’t possible to inde-
pendently verify the video’s
claims, but the 11-minute seg-
ment ends with footage of un-
identifiable bodies lying on the
ground at another location.
“Some of the girls are crip-
pled, some are terribly sick and
some of them, as I had said,
died during bombardment by
the Nigerian military,” says the
fighter, addressing Mr. Buhari
in the Hausa language of
THE WALL STREET JOURNAL.
of roughly $40,000 each and
$40,000 speakers. “I’d already
spent so much money on audio
equipment, so why not take one
anist Keith Jarrett’s “The Köln
Concert.”
He could now hear the pi-
ano, the pianist’s breaths and
more step?” the sound from the audience—
Getting a private pole took all separately. “It feels like you
two months of negotiation with are at the concert and you
the local power company, know exactly where Keith Jar-
which initially objected because rett is.”
there was no precedent in the Mr. Morita, the Queen fan,
region. He wanted a brown pole decided to get his own pole af-
to match his house; the utility
had only the conventional con-
ter visiting a Tokyo audiophile
who had one. “We listened to
crete hue. rock and vocals sounded dra-
A truck brought his pole
last summer, and workers
matically better.”
He met a utility-company
spent three days digging a engineer who disputed the no-
hole in his yard and erecting tion that a pole would make
it. Neighbors pried, already any difference. “He was so ad-
curious about the windowless amant,” he says, “and that ac-
building he had put up earlier tually made me want to install
as his audio room. it more.”
“I told all the neighbors that Mr. Morita permanently re-
the building was a warehouse moved the gate outside his
and I needed the pole for its front yard so a truck could in-
air-conditioning system,” he stall the pole.
says. “Maybe they thought I “At first, it felt strange to
was doing something illegal.” have a concrete pole in my
The pole, he says, makes a yard,” he says. “But now it’s
big difference when listening to part of my home and I feel at-
vinyl records such as of jazz pi- tached to it.”
battle.
Felicité Tchibindat, who
runs the Unicef operation in
Cameroon, said children as
young as 6 have been trained
to carry bombs into markets
and mosques. As more young-
sters were co-opted as killers,
she said, they have became
double victims: kidnapped but
unable to go home.
MACKENZIE KNOWLES-COURSIN FOR THE WALL STREET JOURNAL (2)
“Children are now become
something to fear for these
communities,” she said.
Over the past year, the tide
of the Boko Haram conflict has
turned. Soldiers from Chad ad-
vanced on Boko Haram posi-
tions in Nigeria, forcing the
group to pull back from its
settlements.
That has helped some chil-
dren escape. Abubakar, the 10-
year-old baby-sitter, ran down
a forest trail early one morn-
ing. With him was a cousin his
age who also had been kid-
napped. “We just decided on
our own,” Abubakar said. “If
the army came by, they would
easily kill us.”
They walked for two days
until an old man guided them to
safety. He now lives in the home
of a local man who is secretly
caring for several escaped boys.
“When I first got here I
missed the children,” Abubakar
said. “But now it’s been a while
and I’m forgetting about them.”
Idriss, the teenager who
trained children to fight, made
his own getaway in the middle
of last year. He said he per-
suaded a militant to let him
take a motor scooter to fetch
water from a distant well.
Halfway there, he ditched the
scooter on the road and ran
down a forest trail to the
nearest village.
Now, he also lives in the lo-
cal man’s home, fearful of be-
ing found by the military, Boko
Haram or his neighbors. He
said he hasn’t found the cour-
“They say these are the kinds of age to tell even his parents
things they want to replicate.” where he has been and where
Military officers said many he is staying now. “I don’t like
of the children are fearless on to think about my time with
the battlefield. Boko Haram,” he said.
In Cameroon, a local com- Speaking softly, he showed
mando unit dispatched heli- no emotion when he described
copters and artillery against his former life in the camp.
waves of children who ap- “They say they will all die
peared to be drugged, some soon,” he said of Boko Haram’s
armed with no more than ma- militants. “We were bringing
chetes, said Col. Didier Bad- up the children who will keep
jeck, the army spokesman. it going.”
“It’s better to kill a boy The Nigerian authorities are
than have 1,000 victims,” he now beginning the mammoth
said. “It’s causing us problems task of reintegrating Boko
with international organiza- Haram’s children. Recently,
tions, but they’re not on the they began offering amnesty,
front lines. We are.” shelter and care for Boko
During a recent battle in the Haram defectors, particularly
north of Cameroon, more than those kidnapped into the group.
100 screaming boys ran toward Very few boys are coming
a fortified position, many of forward.
them barefoot and unarmed, “There’s almost an entire
and most were swiftly gunned generation of boys missing,”
down, Mr. Badjeck said. Sol- said Mausi Segun, Nigeria re-
diers found in many of their searcher for the advocacy group
pockets packaging from the Human Rights Watch. “My
opiate tramadol, he said. guess is that a large majority of
Most internationally agreed them will die in the conflict.”
upon laws of war don’t forbid —Isaac Abrak
firing at child soldiers during contributed to this article.
northern Nigeria. clared that she and her hus-
The militant also repeats band were outraged and heart-
the insurgency’s call for a pris- broken over the kidnapping.
oner swap: asking the govern- Sunday’s video was posted
ment to release Boko Haram on Twitter by Ahmad Salkida,
militants jailed in Lagos, Abuja a Nigerian journalist known for
and the northeastern provincial his contacts with Boko Haram.
capital of Maiduguri. “If our Mr. Salkida said he was given
members in detention are not the video by the Boko Haram
freed, let the government and wing led by Abubakar Shekau,
parents of the Chibok girls the longtime insurgency chief.
know that they will never find Nigerian officials said they
these girls again,” he said. were in touch with representa-
The teenagers were ab- tives of the insurgency, but ne-
ducted in 2014 as they were gotiations for the girls’ release
studying for their final exams, had been complicated by the
setting off a storm of anger in tussles among the group’s
Nigeria and elsewhere. U.S. leadership.
first lady Michelle Obama de- —Gbenga Akinbule
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL. Monday, August 15, 2016 | A7

U.S. NEWS
Pence Woos Trump Skeptics
Republican vice
presidential nominee
tries to smooth over
intraparty squabbles
CHRIS KEANE/REUTERS

BY REID J. EPSTEIN

A week after Republican

presidential nominee Donald
Trump threatened to put
money into a super PAC to end
Democratic candidate Hillary Clinton in Warren, Mich., last week. the political careers of `former

CENGIZ YAR/AGENCE FRANCE-PRESSE/GETTY IMAGES

rivals Ted Cruz and John Ka-

Clinton Not Talking sich, Mr. Trump’s running mate,

Mike Pence, called each of them
to try to make peace.

Much About Her

While Mr. Trump has exacer-
bated intraparty tensions, Mr.
Pence is taking on a concilia-
tory role, trying in phone calls

College Tuition Plan and private meetings to per-

BY LAURA MECKLER
Hillary Clinton, who prides
herself on the details of public
policy, has said little about
what is now the most ambi-
tious and expensive proposal
on her agenda: making public
college tuition free for most
Americans.
On the campaign trail, she
typically offers a sentence,
maybe two, about the plan.
Sometimes it goes unmen-
tioned altogether. Her cam-
paign has offered few specifics
about how the program would
work, hasn’t said how much
money states would have to
provide or where the program
would fall on her list of priori-
ties.
The campaign website no
longer lists a cost for the pro-
gram, though campaign aides
said they estimate it would
take $500 billion in new federal
spending over 10 years, $150
billion more than the college
plan she put out last summer.
Others estimate the costs
would be much higher.
Latest program came
after preconvention
meetings with party
rival Bernie Sanders
The sketchiness may owe
something to the way the free-
tuition plan came to be part of
Mrs. Clinton’s platform. Rather
than taking months or years to
craft, like many of her other
proposals, it was inserted as
part of negotiations in July to
win the backing of Democratic
rival Sen. Bernie Sanders.
Lanae Erickson Hatalsky,
cluding new limits on deduc-
tions. Campaign aides said that
once school is back in session
and younger voters are paying
more attention, she would talk
more about the college plan.
Clinton spokesman Jesse
Ferguson said Mrs. Clinton is
“deeply committed” to the re-
vised plan. “Hillary Clinton put
forward an ambitious proposal
in the primary and, after listen-
ing to voters on the campaign
trail, expanded it to more effec-
tively reach the goal of erasing
the barrier of debt to a college
of education,” he said.
Passing this program into
law will be a challenge, though,
particularly if Republicans con-
tinue to control at least one
house of Congress. Even some
Democrats think Mrs. Clinton’s
first proposal would have a
better chance and worry that
the revised version is too heavy
a lift.
The new Clinton policy was
described in a single paragraph
issued by the campaign in early
July amid talks with Mr. Sand-
ers, who had campaigned
against her in the primary on a
more expansive free-tuition
plan. His concept was that pub-
lic colleges should be free for
all, like public high schools.
Mrs. Clinton had already put
forth a detailed plan last sum-
mer to assure that students
could attend public colleges
without borrowing money for
tuition, but she said families
should contribute what they
could afford. To win over Mr.
Sanders, Mrs. Clinton agreed
that students in families earn-
ing $85,000 a year or less
would be assured free tuition,
with that threshold climbing to
$125,000 over four years.
The political goals were
suade GOP stalwarts, one by
one, to rally behind the party’s
presidential ticket.
The task has taken him from
the private office of former Former Indiana Gov. Mike Pence is offering a subdued pitch for his running mate, Donald Trump.
Florida Gov. Jeb Bush to a
Phoenix airport meeting with the low-key Indiana governor 2016 election doesn’t turn out whom Mr. Trump stuck the la-
embattled Arizona Sen. John has kept the New Yorker as he hopes. bel “low energy” last summer.
McCain. He has tried to charm abreast of his discussions. “Mike has longstanding rela- The former governor, along
hostile talk-radio hosts, whose The meetings and phone tionships with many of these with his father and brother,
ranks he once belonged to, and calls illuminate the difference people, and part of his role is to both former Republican presi-
even low-ranking state party between Mr. Pence’s experience unify the party,” Pence spokes- dents, have refused to endorse
officials. as a career politician and Mr. man Marc Short said. The Mr. Trump and didn’t attend
His pitch is subdued and of- Trump’s life in real estate, Trump campaign didn’t re- the Republican National Con-
ten aimed at reminding his fel- where victory often comes with spond to a request for com- vention in Cleveland.
low Republicans about what the defeat of a rival. ment. But Mr. Bush took a meeting
unites them, including old Mr. Pence, in an interview Mr. Pence’s record so far has with Mr. Pence on July 27 in
friendships and alliances, ac- Sunday on Fox News, said twice been mixed. Iowa Rep. Steve Coral Gables, Fla., at the Bilt-
cording to people with whom that Mr. Trump exemplified King, who was one of Mr. more Hotel, where the former
he has spoken. The Trump- “broad shouldered” leadership Cruz’s staunchest supporters, Florida governor keeps his per-
Pence partnership is also re- that many Americans believe is threw his support behind Mr. sonal office. Aides to Messrs.
versing the longstanding roles necessary to help the country. Trump last week after Mr. Pence, Bush, Cruz and Kasich
of nominee and running mate, He dismissed questions Pence met with him privately declined to comment on the
as Mr. Trump leads the attack about whether there was confu- during an Iowa campaign specifics of their conversations.
on Democratic rivals Hillary sion about when Mr. Trump is swing. The project is well-suited for
Clinton and her vice-presiden- being sarcastic and when he is Yet his toughest challenges Mr. Pence. During his 12 years
tial pick, Virginia Sen. Tim speaking plainly. have been Mr. Trump’s former in Congress before becoming
Kaine. Mr. Pence said he would join presidential rivals, who are still Indiana governor in 2013, Mr.
“Mending fences isn’t usu- Mr. Trump at a speech on Mon- smarting from months of in- Pence developed a reputation
ally part of a vice-presidential day that will detail his plans for sults from the party’s nominee. as someone who would talk to
nominee’s job,” said Mike Steel, combating terrorism. Mr. Pence and Mr. Cruz, a Texas anyone, always working the
who was an aide to House Fifty Republican national se- senator, spoke by phone briefly phones in search of a deal or to
Speaker Paul Ryan when he was curity veterans last week wrote this month, according to people boost his own political for-
Republican Mitt Romney’s run- a letter saying they wouldn't familiar with the call. Mr. Pence tunes.
ning mate in 2012. “But we’ve support Mr. Trump, rebuking tried calling Mr. Kasich, the Along with political foes, Mr.
never before seen a nominee his temperament and saying he Ohio governor, but got his voice Pence and his team are also in
like Donald Trump, who has would be a “dangerous presi- mail. Mr. Kasich tried returning regular communication with of-
alienated huge swaths of the dent.” the call and left a message. The ficials at the U.S. Chamber of
party.” Mr. Pence’s quiet diplomacy two haven’t connected since, Commerce, which is mired in a
Mr. Trump hasn’t given Mr. can serve dual purposes: quell- according to aides to both men. political skirmish with Mr.
Pence an explicit mandate to ing intraparty divisions and Perhaps no presidential can- Trump over trade policy.
conduct the peacemaking expe- preserving relationships he didate was damaged more by —Damian Paletta contributed
ditions, Pence aides said, but may need in the future if the Mr. Trump than Mr. Bush, on to this article.
he believes it was functioning
U.S. properly at the time.
About 100 protesters had
Watch gathered for a demonstration Sat-
urday evening when violence
broke out. Protesters set several
cars on fire and broke windows in
two police cars. Four buildings, in-
cluding a bank and a gas station,
LOUISIANA were set on fire, but firefighters
BRAD KEMP/ASSOCIATED PRESS

who tracks higher education
and other issues at the centrist
Democratic think tank Third
Way, said it was obvious that
the plan was put together to
win over Mr. Sanders.
Most of Mrs. Clinton’s policy
proposals “are five pages of
dense text with very specific
ways of how they’re going to
pay for it and how much it
would cost,” she said. “This
sounded much more like some-
thing intended to energize a
campaign rally.”
The Clinton plan still is
more detailed than most of the
ideas put forth by her oppo-
nent, Republican Donald
Trump, who doesn’t typically
give the cost of his plans and
sometimes changes significant
planks. Still, Mrs. Clinton
prides herself on her policy
chops and says candidates owe
it to voters to be clear about
their plans. Mr. Trump’s cam-
paign didn’t respond to a re-
quest for comment.
Mrs. Clinton says she would
pay for the college plan with
higher taxes on the wealthy, in-
clear. The policy was a priority
for Mr. Sanders, and after her
shift, he endorsed her. She also
put herself in position to ap-
peal to younger voters, who
overwhelmingly backed Mr.
Sanders in the primaries and
are an important part of the
coalition that twice elected
President Barack Obama.
For now, the new plan ap-
pears to cut against two points
Mrs. Clinton made during the
primaries.
First, she had long described
her plan, which she calls the
New College Compact, as a bal-
anced way of making sure all
players have “skin in the
game,” including federal and
state governments, universities,
families and students.
Under her new plan, 80% of
families would qualify for tu-
ition-free school, even if they
could afford some contribution.
A Clinton aide replied by not-
ing that students are still ex-
pected to have a job that will
help pay expenses, and said
that it is most important that
government pay its fair share.
couldn’t immediately respond to
Three Dead as Heavy the gas station blaze because of
Rains Trigger Flooding gunshots, the mayor said.
More than 7,000 people in —Shibani Mahtani
Louisiana have been rescued and Scott Calvert
amid unprecedented flooding
that has resulted in at least NEW YORK
three deaths, and officials said
Sunday that some rivers contin- A firefighter helping with evacuations Saturday in Lafayette, La.
Imam and Second
ued to rise. Man Shot and Killed
“It is not over,” Gov. John Bel WISCONSIN ternoon on the city’s north side, A Muslim imam, Maulama
Edwards said at a news confer- Mr. Barrett said. He didn’t say Akonjee, 55 years old, and a sec-
ence, adding that he was seek-
Governor Declares what prompted the stop. Two ond man, Thara Uddin, 64, were
ing a major federal disaster dec- State of Emergency men in the car ran, he said, and shot and killed Saturday as they
laration. Wisconsin Gov. Scott Walker one had a semiautomatic hand- left the Al-Furqan Jame Masjid
Rainfall amounts had dimin- declared a state of emergency in gun that police said had been sto- mosque in the borough of
ished as a slow-moving weather Milwaukee on Sunday and acti- len in a burglary earlier this year. Queens, police said. Both were
system edged west toward vated the state’s National Guard, When the man ignored an offi- shot in the head.
Texas, the governor said. The a day after violence erupted in cer’s command to drop the gun, Police said surveillance video
system dumped more than a the city following the fatal police the officer fired his weapon sev- from the scene showed a man
foot of rain in some areas of shooting of an armed man follow- eral times, hitting the man in his wearing a dark shirt and blue
Louisiana. ing a traffic stop. chest and arm, Mr. Barrett said. shorts coming up behind the
About 5,000 people spent Gov. Walker said he was re- Police didn’t identify the man, two men and shooting them.
Saturday night in shelters, sponding to a request from Mil- who they said had a lengthy ar- The shooter then is seen fleeing
though a shortage of cots re- waukee County Sheriff David rest record. with the gun still in his hand.
quired some to sleep on the Clarke and made the decision af- The 24-year-old officer who Police released a sketch early
floor. Over 1,000 cars and trucks ter talking to Milwaukee Mayor shot him wasn’t injured. He will Sunday of a dark-haired, bearded
had been stranded since Satur- Tom Barrett and Maj. Gen. Donald be put on administrative duty man wearing glasses. Members
day on parts of Interstate 12, Dunbar of the Wisconsin National during an investigation by the of the Bangladeshi Muslim com-
State Police Superintendent Mi- Guard. Wisconsin Department of Justice. munity served by the mosque
chael Edmonson said. Two police officers stopped a Mr. Barrett said the officer was worry it could be a hate crime.
—Scott Calvert “suspicious” vehicle Saturday af- wearing a body camera and said —Sophia Hollander

HACK The spreadsheet also in-

Continued from Page One
that Guccifer 2.0 used to post
the information, replaced the
data hours after it first ap-
peared online with a post say-
ing that Guccifer 2.0 had vio-
cluded many personal email
addresses and cellphone num-
bers for the lawmakers’ chiefs
accounts that you use” and to
“strongly consider changing
your non-House email ad-
dresses if possible.”
Journal, the Guccifer 2.0 Twitter
account wrote, “I won’t disclose
my whereabouts for the safety
reasons. I have a full archive of
fying itself as Guccifer 2.0, al-
though the hacker has denied
being connected to Moscow.
Mrs. Pelosi, in her note to
of staff, schedulers and legis- It also told them to “be ex- docs and emails from the dccc colleagues, said “This incident
lative directors. Many of the tremely suspicious” before server.” By Saturday, the ac- has been widely reported as
records in the spreadsheet ap- opening any emailed links or at- count had been suspended. part of a Russian cyberattack,”
pear to be accurate, but some tachments and to consider The DCCC breach was re- though she didn’t provide any
of the information is dated, changing passwords for banking ported late last month. In June, evidence to support this allega-
RON SACHS/CNP/ZUMA PRESS

lated the service’s policies
through a “privacy violation.”
The posting of the personal
information of members of
Congress has national-security
implications, as the spreadsheet
included cellphone numbers
and email addresses from mem-
bers of the House Intelligence,
Armed Services and Foreign
Relations Committees. If a for-
eign spy network obtained this
information, it could attempt to
crack into the email accounts or
try to monitor phone traffic.
according to tests conducted
by The Wall Street Journal.
Rep. Adam Schiff (D., Calif.),
whose cellphone number was
revealed in the spreadsheet,
said in a statement, “I have ev-
ery confidence that law en-
forcement will get to the bot-
tom of this, and identify the
responsible parties. And when
they do, I hope the Administra-
tion will disclose who is at-
tempting to interfere with the
American political process, and
levy strong consequences
against those responsible.”
accounts, among other things.
Late Friday, the Guccifer 2.0
Twitter account said it would
provide “the major trove” of
stolen information from the
DCCC, including emails, to
WikiLeaks, which has already
published information from a
Democratic leader Nancy Pelosi similar breach of the Demo-
is changing her phone number. cratic National Committee.
On Friday, the same Twitter
Hours after the information account sent a message to the
was posted online, the Demo- Journal that said the hacker
cratic Caucus sent a notice to had acted alone, not as part of
recipients informing them to a team.
“change passwords to all email In another message to the
Guccifer 2.0 claimed responsibil- tion. Russian officials have de-
ity for hacking the Democratic nied any involvement.
National Committee and posting Spies are constantly trying
an opposition research docu- to steal things from foreign
ment of Donald Trump online. governments, and the develop-
A number of U.S. intelligence ment of hacking tools has al-
officials believe the most likely lowed them to swipe sensitive
culprit for stealing the DCCC records from thousands of
data, as well as a large batch of miles away. But the theft of
records from the Democratic sensitive and embarrassing re-
National Committee, are hack- cords from the Democratic
ers backed by the Russian gov- Party by hackers—or a hacker—
ernment. At least one cyberse- is forcing U.S. officials to con-
curity company has said there front new questions about
appear to be links between the when cyberespionage poses a
Russians and the entity identi- national-security threat.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com

Are low doses Lab experiments

of radiation show how
truly bad sensitive genes
for your can be to the
health? environment
A10 A9

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Wild
Thing Cats are killers by nature—solitary,
antisocial hunters who bristle at being
cooped up. But training can help our feline
companions adapt to the demands we put on them.

D
BY JOHN BRADSHAW AND SARAH ELLIS
OGS ARE man’s best friend.
Cats? They’re more aloof. Even
the millions of doting cat own-
ers will often acknowledge that
their pets can be enigmatic,
hard to please and frustratingly
antisocial. They run away. They
hide. They scratch. They refuse to
get in the carrier when it’s time to go
to the vet. They kill rodents and birds and offer up
the bloody carcasses up as if they were gifts.
None of this is the fault of cats. They are just be-
ing cats, obeying the rules that nature has laid
down for them and in them. The fault is ours—both
for holding wrongheaded expectations of these nat-
ural-born, solitary hunters and for failing to train
them (yes, cats can be trained) in ways that make
sense for felines, not just humans. It is long past
time that we changed the way we relate to cats.
Unlike dogs, cats have become purely domes-
tic pets only very recently, within the past 50
years. In many ways, they are still wild animals,
and the demands of modern life cause them tre-
mendous stress. That pressure often drives cats
to act out in ways we find difficult: scratching
the drapes, dragging mangled animal corpses
through the cat door, pooping behind the couch.
The only way to help cats adapt to the demands
we put on them is for their owners to intervene—
kindly, through training. Many people will find this
suggestion strange or downright bizarre: The con-
ventional wisdom is that dogs need training and
cats don’t. But cats can benefit even more from
training than dogs, which have a much longer his-
tory of living and interacting with humans.
To understand your feline friend, you must
understand its evolutionary history. Cats are
Unlike dogs, cats have
become purely domestic
pets only very recently,
within the past 50 years.
very different from dogs, which humans trea-
sured as pets as far back as 15,000 years ago.
But cats began coexisting with mankind only
10,000 years ago—and have remained largely
wild for almost that entire time.
Cats began integrating their lives with those
of humans because it was easier than hunting
solo. Our hunter-gatherer ancestors in the Fertile
Crescent began to harvest and store food long
before they invented fired pottery, so their food-
stores were vulnerable to predators such as the
house mouse, which evolved about 11,000 years
ago to exploit this very vulnerability. The DNA of
today’s cats (as revealed by a team led by the ge-
neticist Stephen O’Brien, formerly of the Na-
tional Cancer Institute) shows that it wasn’t
long—perhaps just a few hundred years—before
some local wildcats followed, having discovered
that hunting in human villages was far more pro-
ductive than chasing prey across the steppes.
For most of their history, cats weren’t pets. Cats
lived in and around human villages for millennia,
but there is no evidence that they lived in our
homes. While they thrived on the mice that we in-
advertently provided for them, cats kept their dis-
tance from us, perhaps coming no closer than to-
Please turn to the next page
Adapted from the authors’ new book, “The
Trainable Cat: A Practical Guide to Making Life
Happier for You and Your Cat,” which Basic
Books will publish on Sept. 13. Dr. Bradshaw is
the foundation director of the Anthrozoology
Institute at the University of Bristol, and Dr.
Ellis is a feline-behavior specialist at the charity
International Cat Care and a visiting fellow at
the University of Lincoln.

ILLUSTRATION BY KEITH A. WEBB/THE WALL STREET JOURNAL; PHOTOGRAPH BY EVAN KAFKA; BLOOMBERG NEWS (RADIATION)

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THE WALL STREET JOURNAL.
MIND & MATTER:
ROBERT M. SAPOLSKY
Beyond Genes:
The Power of the
Environment
I JUST READ a wonderfully
obscure paper entitled “Fac-
tors in the Selection of Sur-
face Disinfectants for Use in
a Laboratory Animal Set-
ting,” published in the Jour-
nal of the American Association for Labora-
tory Animal Science in March, by Michael
Campagna and colleagues at the University
of California, Los Angeles. They studied,
well, disinfectants. Various kinds are used
in labs, and the scientists examined, among
other things, which ones have odors that
lab mice find aversive. Why study that? Be-
cause it’s a small piece of a big issue re-
lated to genes and behavior: the role of the
environment.
Suppose scientists want to know what a
gene—let’s call it Gene Z—has to do with
behavior. Using genetic-engineering wiz-
ardry, they generate a line of mice lacking
Gene Z (“knockout” mice), plus another
line with an extra copy of Gene Z (“trans-
genic overexpression” mice). Then they see
if there’s something different about the be-
havior of either group when compared with
unmanipulated control mice.
So a lab discovers that Gene Z is perti-
nent to, say, anxiety. Knock out the gene,
and mice don’t get anxious; overexpress
the gene, and they’re more prone to anxi-
ety. (How can you measure mouse anxiety?
Mice, being nocturnal, are afraid of light.
Researchers might put food in the middle
of a brightly lighted arena and see how
long it takes for a hungry mouse to leave a
comforting, shaded corner to get the food.)
With the results in, other labs get some
of the Gene Z mice, eager to study different
aspects of anxiety. And surprisingly often,
something disquieting occurs. Another
group confirms the link between Gene Z
and anxiety, but they don’t see as big of an
effect. Then another lab reports that the
gene has no effect on anxiety. Yet another
finds that Gene Z decreases anxiety.
Yikes. Everyone wonders if the scientists
don’t know what they’re doing, or if the
test is reliable. But research started in the
1990s by neuro-
scientist John
Food, noise Crabbe of the
Oregon Health
and even and Science Uni-
cleaning versity suggests
a different ex-
products can planation.
affect lab Genes like our
fictional Gene Z,
experiments. with “neuroge-
netic” effects on
behavior, are of-
ten sensitive to
small differences in the environment. Gene
Z’s effects on anxiety might differ between
two labs because the mice in the two are
fed different kinds of food; nutrition influ-
ences brain chemistry and thus potentially
Gene Z’s effects on the brain. Or maybe one
of the labs uses a caustic disinfectant, or
its doors bang loudly, and the mice there
secrete more stress hormones, which alter
the brain. Likewise with different tempera-
tures, producing different levels of thyroid
hormone.
People are often impressed with the de-
terministic power of genes, believing they
explain everything about our biology and
behavior. Many genes do indeed have con-
sistent, powerful effects, but far more of
them show a marked environmental depen-
dency than most scientists had previously
anticipated. Thus, what Dr. Crabbe and oth-
ers show is that in many cases, you can’t
really say what a gene generically “does”—
so perhaps be a bit skeptical about such
pronouncements. Instead, you can only
safely say what a gene does in the environ-
ment(s) in which it has been studied.
This is pertinent to mice living in differ-
ent laboratories. But just imagine how
much that would apply to a species that
can live in dramatically different environ-
ments—in deserts, tundra and rain forests,
in hunter-gatherer bands and in dense cit-
ies, in close-knit communities or as her-
mits. There is no species that matches hu-
mans in the range of ecosystems, habitats
GETTY IMAGES
EVAN KAFKA
and social system in which it lives. And
that suggests there is no species freer from
the power of genes than humans.
REVIEW
How to Train Your Cat
Continued from the prior page
day’s urban raccoons. The first evidence of humans bonding with
cats comes from about 4,000 years ago, in Egypt, where archaeolo-
gists have found evidence of cats being ceremonially buried along-
side their former owners. But until very recently, cats were valued
primarily as pest-controllers, not pets.
Throughout history, cats have had to keep two paws in the wild,
never certain from one generation to the next whether they would
be welcome by the fireside. At times, keeping a cat as a pet proved
downright dangerous. Cats’ longstanding association with pagan-
ism and witchcraft (a legacy of their having been worshiped in an-
cient Egypt) meant that they—and their owners—were sometimes
persecuted by the authorities. In the Salem witch trials of 1692-93,
owning a cat was taken as evidence of collusion with the devil. Not
until the mid-18th century did European aristocrats take to keeping
cats as pets, a habit that gradually spread to the New World and
the general population in the late 1800s.
Those early Western cat owners encouraged their pets to
hunt. Even 50 years ago, humans were happy to see cats re-
main wild predators, letting them outdoors whenever they
wished and sometimes deliberately shutting them out over-
night. In the 1950s, this role suddenly disappeared with the ad-
vent of effective chemical rodenticides.
Today, 36.1 million U.S. households own one or more cats, for
an estimated total of more than 74 million pet cats, according to
a survey by the American Veterinary Medical Association. But as
we’ve brought more cats into our homes, we’ve come to despise
their predatory habits. Accustomed to meat that comes neatly
packaged in plastic, today’s urbanites are vastly more squeamish
than their grandparents. Abruptly, many cat owners find their pets’
jugular instincts disgusting and disgraceful. Cats retain their ap-
peal as loving companions, but we insist that they switch from pri-
mal killers to domesticated darlings almost overnight.
By nature, cats are hunters. They still feel the urge to prowl be-
cause (unlike dogs) they have a host of nutritional needs that can
be satisfied only by eating flesh—regularly. Other mammals, in-
cluding humans, can manufacture substances such as taurine,
arachidonic acid and retinol (to name just three) in their own bod-
ies. Cats can’t. Pioneering nutritionists such as James Morris of
the School of Veterinary Medicine at the University of California,
Davis, discovered these peculiarities only around four decades ago.
So even though commercial cat food now gives cats everything
their diets require, their ingrained habits haven’t caught up yet.
Increasingly, cat owners keep
their pets indoors for their whole
lives to keep cats from hunting. But Cats can get
being cooped up this way can be
stressful. There is little evidence that
chronically
cats (or dogs, for that matter) have stressed if
much in the way of an imagination,
so cats that have never been allowed
they can’t
outside probably don’t miss the fresh fill the time
air they’ve never breathed. But they that would
can still become frustrated watching
the birds on the feeder in the back- have gone to
yard next door or grow chronically hunting.
stressed from having no way to oc-
cupy the time that traditionally
would have been filled by hunting.
Modern domesticity creates other problems for cats. For in-
stance, cats like to be alone—but we rarely let them. Their wild an-
cestors were solitary, territorial animals (unlike their more famous
cousin, the lion). Cats’ contact with one another was usually limited
to a few days each year during the mating season and the few weeks
in which mother cats raised their kittens.
So even today, their capacity for getting on with other cats is
limited. Given their limited social repertoire, two cats kept in the
same apartment may well not enjoy each other’s company. In gen-
eral, when two cats are forced to live in the same limited space,
they will divide it up between them. But sometimes, one cat will
try to bully the other enough to make it leave, or both will become
chronically stressed. Veterinarians have long known that cats are
prone to bladder problems; ongoing research is showing that many
of these are triggered by stress and anxiety, often caused by the
unsettling attentions of another cat.
Cats also aren’t programmed to interact with all humans. Cats
become genuinely fond of their owners (you aren’t imagining it),
but unlike dogs, they don’t feel the need to ingratiate themselves
with every human on Earth. Cats can struggle to relate to people
whom they don’t know. Many cats hide when visitors come to the
house. The arrival of a new baby is probably the greatest shock of
all—not simply because the infant smells and sounds nothing like
the adult humans that the cat has learned to trust, but also be-
cause the household routine is turned upside down.
Monday, August 15, 2016 | A9
Cats’ solitary, territorial nature means they are more strongly
bonded to the place where they live than with any of the people
with whom they share it. Cats draw confidence from being in a
place they know well. Dogs are willing to follow their owners any-
where; cats aren’t. The independence of cats can be part of their
charm, but it is no fun when their owner needs to move cities or
get a hissing, protesting feline to the vet.
Cats have another sensible reason to hate being hauled
around: Confining felines in a cat carrier is safer for them, but
it feels profoundly scary. We know it’s for their own good, but
good luck convincing the cat. Because they lived in the wild for
so long, cats remain instinctively fearful of predators, and
what looks like a harmless carrier to us often looks like a trap
to them. Their worst fears get swiftly confirmed when, after
being enclosed in that unnerving carrier, they are hauled far
away from their familiar surroundings only to be unceremoni-
ously tipped out in an odd-smelling room to be manhandled by
a strange person—the veterinarian. Small wonder that many
cats seem to vanish as soon as the carrier is brought out.
This instinctive reluctance to submit to their owners’ attempts
to care for them is costing cats dearly. A 2011 survey of about 2,200
American cat and dog owners sponsored by Bayer Healthcare
showed that dogs were 70% more likely to be taken to the vet than
cats. When the cat owners were asked what dissuaded them from
taking their cat to the veterinarian’s office, 58% said that it was be-
cause their pet hated the whole experience, and 38% said that they
felt stressed just thinking about having to make the journey. Some
cat owners described a veterinary visit as “torture.” As a result,
millions of cats aren’t getting the medical care that they need.
But all these problems are solvable—if cat owners will help
their pets adjust to domestic life.
Most people don’t even try to
What looks train their cats, assuming that fe-
like a line habits are fixed. But cats are
actually quite adaptable. Seem-
harmless ingly ingrained habits can be al-
pet carrier tered if owners adopt a systematic
training approach that reckons
to us can with their instincts. But the goal
look like a shouldn’t be to bring cats under
our control; it should be to teach
trap to them. them how to control their own be-
havior in a way that forges a bet-
ter fit between feline nature and
21st-century human life.
Here are some ways to get started.
If your cat resists every time you try to put him in a cat car-
rier, you need to change his perceptions of the carrier. Simple
behavior-modification training techniques can help your cat
forget that he ever hated the thing, then associate it with feel-
ing happy and secure rather than panicky.
The first step is to take the carrier apart and let your cat inves-
tigate its base; then give him a tasty food treat the closer he gets,
until he becomes happy to snooze there. Next, gradually reassem-
ble the carrier, repeating the rewards every time the cat goes in-
side. An object that he used to fear was a trap will become a ha-
ven, now associated in his mind with reward rather than risk.
You can also train your cat to be more accepting of its fellow fe-
lines. If a new cat moves into the apartment next door or you want
a second cat, you will have to overcome your cat’s suspicion of all
other members of its own species. You will need to make the intro-
ductions very slowly. Start by presenting each cat with the other
one’s scent—the sense that cats primarily use to recognize one an-
other. Then allow the two cats to see each other but not actually
approach, and reward any sign of relaxation with a tasty treat.
Finally, owners can reduce a cat’s stress levels by satisfying
its need to hunt. Remember, wild cats typically kill and feed
a dozen times each day. But you needn’t sacrifice your neigh-
bor’s budgies; playing hunting games will do. Our research has
shown that while owners think that their cat is playing, the cat
seems to think that she is catching prey: Not only are all of her
actions those that she would use when hunting, but she even
plays more frantically as she gets hungrier.
So try to mimic the hunt by tugging a furry or feathery toy
along the floor and occasionally allow the cat to catch and “kill”
it. You can simulate the prey’s consumption by offering the cat a
kibble-filled puzzle-feeder, which will not only allow her to use her
paws to get the food but will also make her work between each
mouthful. (An empty soda bottle with a few holes punched in it is
as effective as any off-the-shelf feeder).
In all these ways, properly informed training can help our feline
companions adapt to the strange modern world. Only when we un-
derstand that cats are still wild at heart will they be able to curl
up beside us in domestic bliss.
Proper
training can
help our
feline
companions
adapt to the
strange
modern
world.
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A10 | Monday, August 15, 2016 THE WALL STREET JOURNAL.

REVIEW
A WORKER measured
radiation in the air at Japan’s
Fukushima Daiichi nuclear
power plant, July 9, 2014.

no member of the public gets

more than an additional 100
millirems a year from the fa-
cility’s operations.
In her petition, Dr. Marcus
said that the public-exposure
level could safely be raised to
the same limit as for nuclear-
industry workers, currently
5,000 millirems a year.
Moving from the LNT
model could greatly reduce
the costs of cleaning up con-
taminated sites, said Edward
Calabrese, a toxicology pro-
fessor at the University of
Massachusetts in Amherst. He
has written that in the 1940s
and 1950s, an influential
group of scientists pushed the
LNT model using actions that
were “ideologically driven
and deliberately and decep-
tively misleading”—a position
that others dispute.
A more benign view of ra-
diation, said Dr. Marcus,
would have helped avoid what
she believes was the unneces-
sary evacuation in 2011 of
tens of thousands of people in
Japan after the Fukushima
BLOOMBERG NEWS

nuclear complex, damaged by

In a sense, LNT critics are asking the NRC
an earthquake and tsunami,
released radiation.
Jan Beyea, a physicist who
served on a National Acad-
emy of Sciences panel that studied the acci-

Is a Little Dose of to turn back the clock to a time when offi-

cials believed that below a certain level,
known as the “tolerance dose,” radiation
wasn’t harmful. By 1960, however, the Fed-
dent, defended the prudence of the evacuation
given the circumstances but added that “the
social and mental distress caused by the fear
of radiation is probably the biggest public

Radiation So Bad? eral Radiation Council wrote of “an increas-

A new campaign questions
long-held views of exposure
BY JOHN R. EMSHWILLER
AND GARY FIELDS
NUCLEAR RADIATION is dangerous. It can
cause cancer, birth defects and (in the sci-fi-
movie world) 50-foot-tall humans and man-
eating insects the size of buses.
Such a dark view of radiation has shaped
public fears, and for decades it has been part of
the foundation of nuclear policies. It has been
accepted by an alphabet soup of federal agen-
cies as well as national and international scien-
tific bodies. It has affected how old atomic-
weapons sites are cleaned up, nuclear power
plants operated and radiation used in medicine.
The scientific basis for this view is known
as the linear no-threshold model, or LNT,
which holds that any amount of radiation in-
creases someone’s cancer risk, with the dan-
ger rising along with the dose.
But Carol Marcus scoffs at the LNT model. As
science, it’s “baloney,” she said, essentially in the
same category as “the Earth is flat.” The white-
haired, 77-year-old professor of nuclear medicine
at the University of California, Los Angeles, with
both an M.D. and Ph.D., is on a campaign to
change the way America treats radiation.
In a pending petition, she is asking the Nu-
clear Regulatory Commission to abandon the
LNT model, which her filing, quoting another
critic, calls “the greatest scientific scandal of
the 20th century.” Two similar petitions,
signed by about two dozen academics and
others, are also under NRC review.
Dr. Marcus advocates an approach that
holds that low radiation doses aren’t harmful
and could even benefit people’s health—a phe-
nomenon known as “hormesis,” possibly re-
ducing cancer rates by stimulating the body’s
protective systems. Among other things, she
wants the NRC to raise by 50-fold its allowable
annual radiation dose to the public.
A typical NRC rule-making petition at-
tracts fewer than two dozen public com-
ments, said an agency spokeswoman. A few
draw up to about 200. More than 600 com-
ments have come in on the LNT matter, the
most ever. An NRC staff recommendation on
the petitions isn’t expected until next year.
One comment came from the U.S. Environ-
mental Protection Agency, an LNT adherent.
Radiation’s link to cancer is “particularly
strong,” it said, and warned against “basing
radiation protection on poorly supported and
highly speculative proposals.”
Most of the comments are against her initia-
tive, said Dr. Marcus. At least, she said, her peti-
tion is intended “to get this ball rolling” and
force regulators to deal with evidence she be-
lieves contradicts the LNT model.
ing reluctance” among scientists to embrace
exposure standards “on the basis of the exis-
tence of a threshold for radiation damage.”
By the 1970s, the LNT model was rising to
the fore.
LNT supporters and critics say that large
bodies of scientific evidence support their re-
spective positions. They debate the biologic
research regarding damage done to cells by
radiation and the body’s
ability to repair such inju-
ries. Sometimes, the two One critic
sides point to the same re- calls it
search to bolster their ar-
guments. ‘the greatest
The dispute largely in- scientific
volves annual radiation ex-
posures below 10 rem, or
scandal of the
10,000 millirems. A rem is a 20th century.’
measure of radiation ab-
sorbed by a person.
The average American
gets about 300 millirems a year from back-
ground sources, such as the sun. A medical
procedure can add anywhere from a few milli-
rems for a chest X-ray to more than 1,000 for
certain CT scans or other procedures. A cross-
country airplane flight provides about 5 milli-
rems of extra solar radiation. Under the LNT
model, even one millirem would raise some-
one’s cancer risk by a small amount.
As a precaution, regulators try to limit the
amount of extra radiation the public gets from
nuclear activities. The NRC requires its licens-
ees, such as nuclear power plants, to ensure that
health effect from these releases.” Dr. Beyea,
an LNT supporter, estimated that the radiation
could cause about 500 cancer cases over the
next 50 years. However, he said, the stress and
chaotic evacuation conditions contributed to
the deaths of several hundred elderly people.
In the U.S., 36% of respondents in a 2013
Rasmussen poll felt that it was at least some-
what likely that Fukushima-related radiation
had done significant harm to this country—de-
spite federal assurances to
the contrary.
Radiation fears also crop
up in medicine. A report
earlier this year by re-
searchers from Memorial
Sloan Kettering Cancer Cen-
ter and Hofstra University
found that of some 3,500
people surveyed, nearly
two-thirds expressed some
level of concern about get-
ting radiation from medical
imaging procedures, such as CT scans.
Congress could jump into the radiation de-
bate. The House has passed a bill by Rep. Randy
Hultgren, an Illinois Republican, to push further
research into the effects of low-dose radiation.
The bill is pending in the Senate.
In a statement, Rep. Hultgren said the official
thinking on radiation “is akin to saying that
jumping down one step in a flight of stairs is
harmful to your health because we already know
the harm caused by jumping down a full flight
of stairs.” However, he added, the LNT approach
“shouldn’t be changed until we know more.”

AS ERDOGAN PURGES, A TURKISH TV STATION TILTS

2001, attacks in America. Key editors
BY DION NISSENBAUM
see Mr. Gulen as a terrorist on par with
the leader of Islamic State, Abu Bakr
TOP EDITORS and producers at Turkey’s al-Baghdadi.
government-owned, English-language “There is no difference between
television station gathered at their Istan- Baghdadi and Gulen to me,” said Fatih
bul office two weeks after the failed coup Er, the station’s head of newsgathering.
to discuss the day’s news. “I don’t think Turkey is arresting peo-
Across the country, Turkish police ple because they are journalists; they
were arresting scores of journalists, are arresting them because they think
DION NISSENBAUM/THE WALL STREET JOURNAL

and the military was purging thousands they have something to do with the
accused of taking part in the abortive coup and the Gulen movement.”
July 15 putsch. But inside the station, Some TRT World employees say they
editors were more focused on the U.S. were pressured to rejigger their coverage
presidential race and the war in Syria. to better align with the government’s
They decided to cover the military loathing of Mr. Gulen. Staff members in a
shake-up but didn’t even discuss the WhatsApp group shared talking points
roundup of Turkish journalists. provided by the president’s office, and
“There’s not much moving, really, others received private calls from super-
as far as I can see” regarding the gov- visors about the on-air tone toward Mr.
ernment crackdown, said Nick Mor- Gulen, employees said. Some coverage af-
gan, a former BBC journalist who is ter the coup was held up or re-edited to
now an executive producer at TRT NATASHA EXELBY, an anchor for TRT World, during a newscast in the station’s Istanbul studio, July 29. reflect more of the government perspec-
World, to two dozen staff members. tive, employees added.
None of them spoke up to disagree. intention of actually covering it properly, in a July 20, Mr. Erdogan has forced the closure of One disillusioned TRT World employee said
TRT World launched last fall with ambitions professional, international broadcast standard.” 131 media outlets, including 16 TV stations and the newsroom leaders are fighting for the news-
to become an internationally recognized news Resul Serdar Atas, TRT World’s managing ed- 45 newspapers. Prosecutors have issued arrest room’s independence.
leader in league with the British Broadcasting itor, denies that the Erdogan government di- warrants for 89 Turkish journalists. “It’s walking a tightrope at the moment,
Corp. But in the past four weeks, at least seven rectly influences the station’s content. The sta- On the night of the failed putsch, Turkish but hasn’t fully jumped over to the side,” the
foreigners on the 220-person editorial staff have tion—with an audience of around 40 million troops closed Istanbul’s Bosporus Bridge and employee said. “Even under the current pres-
resigned amid concerns about the station’s di- households, mostly in the Middle East and Eu- forced the nearby TRT World off the air. sure, you can’t compare it to Russia Today. It
rection. Staff members say that critical views of rope—has as much editorial freedom as other When broadcasts resumed the morning after, isn’t outright propaganda.”
the government’s post-coup crackdown have state-owned broadcasters, he says. the network ran extensive stories about the ci- Mr. Morgan said the newsroom is working
been muted, that reports have been subtly tilted “As managing editor, I have never, never vilians who helped thwart the coup. They also to retain its editorial integrity while operat-
in favor of the government and that journalists gotten a single call from Ankara trying to focused critical coverage on Fethullah Gulen, the ing within the inherent limitations of a state-
have passed around talking points provided by frame our broadcast or trying to give us talk- U.S.-based cleric whom Mr. Erdogan says mas- owned broadcaster.
President Recep Tayyip Erdogan’s office. ing points,” he said. terminded the plot. Mr. Gulen calls such allega- “The state is wounded, is hurting at the mo-
“I no longer hold out any hope that this chan- Press freedom has been under attack in Tur- tions baseless and part of a political vendetta ment,” he said. “It is a constant debate, espe-
nel will become what I wanted it to become,” key for years, but the post-coup crackdown is against him and his supporters. cially with the guys from above…I’m not going
said one of those who resigned. “After the coup, unprecedented, according to Western leaders. Turks working at TRT World say the coup to say, yes, it’s free and independent, but what
it became very apparent that the channel had no Under the state of emergency announced on was a national trauma akin to the Sept. 11, media organization is?”
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Now comes the hard bit: making sure the Senior
Managers Regime works
Speakers:

Michael Imeson Steve Girdler Christopher Robinson Simon Thompson Simon Hills Dr Evgueni Ivantsov
Associate Director Managing Director Partner, Financial Chief Executive, Executive Director, Head of Portfolio
FN Custom Studio EMEA, HireRight Institutions Disputes Chartered Banker Institute Prudential, BBA Management and Strategy,
Group, Freshfields Lloyds Banking Group

The Senior Managers Regime (SMR), the Certification Regime

(CR) and the Conduct Rules have now been implemented, but
the compliance battle has only just begun. Now, with the spotlight
shining even more brightly on bankers there is nowhere to hide.
So what happens next? What should banks be doing to ensure
that existing and new staff comply with the new regimes, and
how should banks react when their screening procedures
highlight issues? What must banks do to minimise risk in this
area, and what can they do to ensure they are reacting responsibly
and proportionately to each red flag, whilst protecting the
interests of their business?

Watch on demand at
www.efinancialnews.com/SMR

©2016 Dow Jones & Company, Inc. All Rights Reserved. 6DJ4026
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A12 | Monday, August 15, 2016 THE WALL STREET JOURNAL.

OPINION
REVIEW & OUTLOOK
Dems v. GOP
America’s Housing Non-Crisis On New Drugs
E
conomic statistics have their uses, but of the economy. Government policy heavily sub-
they can also lead to mischief when sidizes housing via the mortgage-interest tax de- By Newt Gingrich lished in HealthAffairs in 2012 estimated

A
that the use of statins between 1987 and
they’re misread or misused. The trade duction, the low down-payment rules of the Fed-
s a leader in the Republican Party 2008 generated $1.25 trillion in eco-
deficit comes to mind, and now eral Housing Administration, for the past 40 years, I’ve been nomic value from the years of life saved
so does the falling rate of home The home ownership and the taxpayer mortgage involved in the development of 10 for those taking the medicine. During
ownership in America. The lat- rate is a bad measure guarantees of Fannie Mae and party platforms. Party platforms are im- that time about $200 billion was spent
ter is causing the usual sus- Freddie Mac. portant because they are more than a on statin drugs, meaning that the use of
pects to worry about a housing of economic prosperity. When these subsidies were list of policies. Instead, they are a state- these medications resulted in a net ben-
crisis that isn’t. supercharged by the Federal ment of the very different world views efit to society of $947 billion. That is a
The Census Bureau kicked Reserve’s negative interest rate that explain those policies. roughly 4:1 benefit-to-cost ratio.
off the mini-panic when it reported two weeks policies in the early and mid-2000s, they created This year’s Democratic and Republi- The Democratic platform also chas-
ago that home ownership hit a 51-year low in the the housing bubble. Those policies misdirected can Party platforms provide a useful ex- tises drug companies for the high cost
second quarter. The last time only 62.9% of U.S. capital away from what might have been more ample of differing world views on an is- of some new, breakthrough drugs. How-
sue that will dramatically impact the ever, it fails to account for their value
households were occupied by owners, Barry productive economic uses. And in the end they
health and well-being of every U.S. citi- relative to their cost.
McGuire was topping the pop charts. But this created an unsustainable boom that ultimately zen: biomedical research. For instance, while new break-
doesn’t mean we’re on the eve of destruction. took down the entire U.S. economy. The GOP platform praises the prom- through treatments that can cure hepa-
Far from it, unless you forget that the home How quickly the housing lobby wants Ameri- ise of biomedical research, saying it is titis C in a few weeks have large price
ownership rate peaked at 69.2% in 2004. That cans to forget. Its echo chamber is busy using the “the consequence of marrying signifi- tags, they save even more money—not
was amid the late and unlamented housing bub- falling home ownership rate to lament that too cant investment, both public and pri- to mention suffering—by avoiding the
ble. Politicians had made a fetish of the owner- many Americans can’t afford a home. vate, with the world’s best talent.” The continued hospitalizations and liver
ship rate during the 1990s and 2000s as a sym- But if that’s true, it isn’t because government Democratic platform says “We recog- treatments associated with the disease.
bol of upward mobility. We even fell for it doesn’t subsidize housing enough. It is because nize the critical importance of a fully They are also dropping in cost due to
ourselves once or twice. the economy isn’t growing fast enough to raise funded National Institutes of Health to competition as more treatments be-
accelerate the pace of medical prog- come available.
But the ownership increase turned out to be middle-class incomes. In certain markets in partic-
ress.”
a mirage built on the sand of subsidized mort- ular—California—government has also imposed Notice that the Democratic platform
gage credit peddled to borrowers who couldn’t barriers to cheaper housing with zoning laws, en- fails to “recognize” the vital importance The key difference is that
afford the carrying costs. As the housing boom vironmental rules and other building restrictions. of private funding. EvaluatePharma es-
turned to bust, the ownership rate fell to 66.5% Our concern is that politicians will use the timates the private sector will invest Republicans see the vital
in late 2010, and it has kept falling. Banks aren’t falling home ownership rate to once again ease $144 billion this year in biomedical re- importance of private
making liar loans anymore and credit standards standards for credit and down payments. Hedge search. That’s more than four times as
have tightened. Isn’t that what the politicians funds and their pals in Congress are already lob- much as the National Institutes of research.
who passed Dodd-Frank wanted? bying to restore Fannie and Freddie to their for- Health’s $32.3 billion a year in grants
The home ownership rate is a largely meaning- mer grandeur as purveyors of private profit but and in-house research.
less statistic that has more to do with politics than taxpayer risk, and the clamor will grow. This blind spot in the Democratic Instead of calling for artificial price
Party’s understanding of what it takes controls that would reduce medical in-
economics. For starters, it promotes the myth that One bad sign is that Donald Trump lamented
to achieve medical breakthroughs ex- novation by choking off the resources
owning a home is the key to middle-class savings the falling ownership rate on Thursday in a plains why their platform can simulta- needed to develop new cures and treat-
and a driver of economic prosperity. speech to the National Association of Home neously call for accelerating the pace of ments, the Republican Party’s platform
A home is valuable as a form of shelter but it Builders in Florida. To his credit he also put his medical progress while proposing de- takes a different approach to lowering
is not typically a good investment. In 2014 in finger on the larger economic problem caused structive policies that would reduce the drug costs.
these pages, the great financier Michael Milken by high taxes and a growing regulatory burden amount of money available for the re- It recognizes that it is becoming
cited research going back to 1890 showing that that lead to slower growth. But we hope Mr. search and development of new cures. more expensive each year to bring life-
the annual inflation-adjusted return on houses Trump doesn’t join the parade in politically di- The Democrats’ platform calls for de saving new cures to market. This is be-
was barely above zero. “Factor in real estate’s recting more scarce investment into housing. facto price controls in the form of im- cause drug developers are unable to
heavy transaction costs and that number turns (Someone should tell him that he’d also have to porting prescription drugs from other take advantage of new technology and
negative,” Mr. Milken wrote, while stocks over let in millions of more Mexican immigrants to countries and allowing Medicare to ne- up-to-date approaches to doing their
gotiate directly with drug manufactur- research and, especially, their clinical
the same period enjoyed a real average annual fill the construction labor shortage.)
ers. Artificial price-control mechanisms trials. A recent study in the Journal of
return of about 6%. Housing is best understood Americans should buy or rent for shelter as like these try to reduce costs today at Health Economics estimated it costs an
in economic terms as a form of consumption, not they see fit. Politicians should keep their eye on the expense of continued innovation. average of $2.6 billion to bring a FDA-
investment. the biggest American problem, which as John Democrats ignore the fact that while approved medication to market.
The home ownership rate becomes destruc- Cochrane writes nearby is the historically slow new medicines and treatments may start Of the two parties’ platforms, only
tive to the larger economy when it is used to mis- rate of economic growth. The home ownership off being relatively expensive, they in- the Republican Party recognizes the vital
allocate resources to housing from other parts rate is a false prophet. variably reduce in price over time, in- role that private research plays in the
creasing their value to society. Mean- development of new drugs, and takes an
while, the higher revenue generated appropriate approach to lowering the
Posner vs. the Plaintiffs Bar from the first few years of availability is
reinvested into research for the next
cost of prescription drugs that will pre-
serve the research base necessary for

O
ne of life’s more bracing experiences is
being on the receiving end of an opinion
by federal Judge Richard Posner, and
this week it couldn’t have happened to a nicer
group of hold-up men.
In a 2-1 decision for the Seventh Circuit Court
of Appeals, Judge Posner rejected a class-action
settlement that essentially extorted money from
the merger between Walgreens and Swiss com-
pany Alliance Boots GmbH. In a so-called strike
suit, plaintiffs attorneys demanded that Wal-
greens provide additional disclosures to its volu-
minous proxy statement or face litigation. The
company quickly settled, and the lawyers took
home $370,000 in fees. Shareholders got nothing.
That’s closer to blackmail than justice, as
consideration to either appointing new class
counsel, or dismissing the suit.”
Judge Posner noted that the additional dis-
closures were somewhere between trivial and
worthless. The merger between the companies,
the judge notes, was already approved by 97%
of Walgreens shareholders.
The settlement was challenged by the Com-
petitive Enterprise Institute on behalf of a share-
holder, and kudos for them. Strikes related to
mergers have proliferated as lawyers go for a
quick and dirty payday because they know com-
panies want to settle to get on with business.
The Delaware Chancery Court reports that since
2005 “the percentage of transactions of $100
million or more that have triggered stockholder
round of breakthroughs. This is the re-
curring cycle of innovation that creates
lower-price and more-effective medica-
tions.
Consider statins, a cholesterol-lower-
ing medication. Since statins were intro-
duced in the late 1980s, prices have
dropped precipitously. One study pub-
U.S. Tax Dollars Fund
Palestinian Terror
By David Feith
medical innovation. This is an approach
that will save lives and save money.
Mr. Gingrich is a former speaker of
the House of Representatives. He is an
adviser to the Biotechnology Innovation
Organization, a Washington, D.C.-based
trade group.
from foreign governments, to the Pal-

Judge Posner suggested in a sharply worded 12-
page opinion. “The type of class action illus-
trated by this case—the class action that yields
fees for class counsel and nothing for the class—
is no better than a racket. It must end,” he wrote.
On remand, the lower court should “give serious
litigation in this country has more than doubled,
from 39.3% in 2005 to a peak of 94.9% in 2014.”
Judge Posner was joined in his opinion by
Judge Diana Sykes, and we hope more on the
federal bench follow their lead and disqualify
this kind of highway robbery.
W
ith an indictment unsealed last
week, Israeli investigators
have sounded an alarm over
the illicit use of global aid money to
fund Palestinian terrorism. Prosecutors
in the city of Beersheba allege that Mo-
hammed El-Halabi, Gaza Strip director
of the California-based charity World
estine Liberation Organization (PLO),
which doesn’t. But this was a sham, as
both bodies are run by Mahmoud Ab-
bas and his Fatah party.
In 2014 Israel estimated the terror
payments at $75 million, or a sum
equal to 16% of all aid sent to Palestine
from overseas. This year the figure is
nearly $140 million, says Yigal Carmon

China’s Economic Slowdown Vision, transferred tens of millions of

dollars to Hamas to buy weapons and
of the Middle East Media Research In-
stitute.

F
build underground attack tunnels. Al- How do U.S. aid transfers square
ortunes have been lost predicting a Chinese officials have also suggested they though World Vision denies fault, the with laws against funding terrorism?
blowup in the Chinese economy, but Fri- could increase the fiscal deficit, now around 4% governments of Australia and Germany Willful blindness helps. “I think that
day’s reports on industrial output, in- of GDP, to give a short-term boost. But China has have halted donations pending investi- they plan to phase it out,” State De-
vestment and retail sales pro- already built the most-needed gations. partment official Anne Patterson said
vide new evidence for the Deleveraging could be roads, railways and ports. The This revelation should spur a in 2014 after the meaningless PA-to-
bears. China’s economy is broader reassessment of American aid PLO two-step. This year’s State De-
clearly slowing down, though
healthy if private firms key to avoiding the trap that
often hits middle-income na-
to the Palestinian government. For two partment report on terrorism praised
decades the Palestinian government Palestinian leaders for “many improve-
how much is less clear. are allowed to grow. tions is productivity growth, has used U.S. and other foreign taxpay- ments,” including making “terrorism
The slowdown would be not pouring more concrete. ers’ money to pay generous rewards to financing a criminal offense.” It said
positive if it resulted from Bei- Government spending and in- the families of terrorists. The deadlier nothing about official payments to ter-
jing’s efforts to cut back industrial overcapacity vestment by state firms crowd out private com- the crime, the larger the prize, up to rorists.
and rein in wasteful investment at state-owned panies and consumers. about $3,100 a month, or several times The U.S. also fears that limiting aid
companies. Industrial production is only up 6% There’s more room for monetary easing, as the average salary of a worker in Pales- to Palestine could destabilize the Abbas
year on year and urban fixed asset investment inflation declined for the third straight month tine’s non-terrorist economy. government, which for all its sins is
grew at 8.1% for the first seven months of the in July to 1.8%. But so far the People’s Bank of Recall that 13-year-old Hallel Yaffa preferable to Hamas. Israel shares this
year, down from 9% for the first six months. China has been hanging back. A commentary Ariel was murdered in her bed by a fear. And therein lies a basic failing of
knife-wielding Palestinian in June. She both U.S. and Israeli strategy: reliance
But a successful rebalancing requires con- from the state news agency Xinhua on Wednes-
was a dual Israeli-American citizen, on illiberal kleptocratic leaders like Mr.
sumer and private companies to drive growth, day said “China will not resort to aggressive making her the 11th American killed by Abbas whose legitimacy, such as it is,
and those figures were also bad. Retail sales monetary easing.” This would increase pressure Palestinians since 2014. Other victims derives from their association with the
grew 10.2% year on year in July, down from 10.6% to devalue the yuan and dampen efforts to include 18-year-old Ezra Schwartz, a terrorist “resistance” against Israel.
in June and below expectations. More alarming “squeeze out asset bubbles.” student from Sharon, Mass., and 28- In 2002 George W. Bush tried to re-
was a decline in private investment—growing Those are legitimate concerns, but if Beijing year-old Taylor Force, a West Point orient the strategy, calling on Palestin-
only 2.1% in the first seven months of 2016. also needs to worry about falling into a liquidity graduate and two-tour U.S. Army vet- ians to elect new leaders “not compro-
This suggests China is entering a period of trap, much like Japan and Europe. That’s when eran from Lubbock, Texas. The families mised by terror.” But he got little
corporate deleveraging. Real-estate developers falling confidence means companies don’t want of the killers now receive regular pay- traction among his own diplomats, who
in particular are paying down debt instead of to borrow even though credit is cheap. Last ments from Palestinian leaders— preferred to extend the “peace pro-
starting new projects, and the cash holdings of month the head of the statistics and analysis de- funded partly by U.S. taxpayers. cess” of the 1990s, and among Israeli
No U.S. official can plead ignorance. leaders, who scorned the notion that
Chinese firms jumped 18% last quarter. partment at the central bank, Sheng Songcheng,
Palestinian law has sanctioned these near-term Palestinian political reform
China’s growth since 2009 has been fueled by warned this is already happening. payments since at least 2004, specify- was possible.
a debt blowout, and some businesses are failing One indication that credit creation is seizing ing how much money is earned de- A bipartisan group of U.S. lawmak-
to make enough profit to repay their loans. Yu up is the recent disconnect between the growth pending on the circumstances of the ers led by Sen. Dan Coats (R., Ind.)
Xuejun, chairman of the supervisory board for rates of different measures of the money supply. attacker and the body count. A Pales- wants to cut U.S. aid to Palestine by
major state-owned financial institutions under Base money, or M1, grew 25.4% in June, while the tinian from Israel with a wife and chil- whatever amount is paid to terrorists.
the China Banking Regulatory Commission, said broader M2 only expanded by 10.2%. Chinese dren who kills many people and dies in This is well-meaning but inadequate.
last month that banks face the worst bad-loan banks lent $69.9 billion in July compared to the act, or is captured and sentenced As long as Palestinian political cul-
pressure since 2004, when the government re- $208.1 billion in June. to more than 30 years in prison, earns ture remains unchanged—as long as
capitalized the system. Bond defaults in the first Monetary easing makes more sense than an- the most. Single, childless attackers Palestine’s liberal friends excuse its ev-
from the West Bank or Gaza earn less. ery illiberal offense—expect the glorifi-
half of the year were nearly double all of 2015. other fiscal binge, but sooner or later China will
The incentives are clear. cation of terrorism to continue. This is
Before concluding that China is heading for have to confront the excesses of its post-crisis Palestinian leaders once tried to ob- a political scandal far greater than any
a crash, remember that some industries and re- stimulus. This means cleaning up bad loans and scure their payments by characterizing single charity funneling funds to
gions are still growing strongly. The government ending subsidies to state companies. This may them as “assistance” rather than “sala- Hamas.
also has the capacity to recapitalize banks, and result in slower growth in the short-term, but ries.” They also shifted nominal re-
some are already writing off loans and raising only a pivot toward more market-driven private sponsibility from the Palestinian Au- Mr. Feith is a Journal editorial
new capital. investment can create more durable prosperity. thority (PA), which takes donations writer based in Hong Kong.
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THE WALL STREET JOURNAL.
Britain Is Europe’s Reverse Domino
By Pierpaolo Barbieri
W
hen Dwight Eisen-
hower coined the
phrase “domino ef-
fect” in 1954, the
French had just been
defeated in Vietnam at Dien Bien
Phu—and the president sensed that
the fall of Indochina to communist
forces would trigger a series of simi-
lar events. “You have a row of domi-
noes set up,” said Ike. “You knock
over the first one. . . . What will hap-
pen to the last one is the certainty
that it will go over very quickly.”
Post-Brexit there is less
risk that other countries
will follow the U.K.’s
example and leave the EU.
In the immediate aftermath of the
British vote to leave the European
Union, many analysts warned of a
similar domino effect, predicting that
Brexit would soon be followed by
Nexit (a Dutch vote to leave), Frexit
(a French one) and so on. Yet the
reaction to Brexit within the remain-
ing EU states has been almost the
exact opposite of a domino effect. Far
from encouraging euroskepticism, the
victory of the British Leave campaign
appears to have boosted the EU’s
popularity in other countries. Call it
By Joseph Rago
‘F
Milwaukee
ive three two oh six. Look it
up. We are one of the most
incarcerated zip codes in
the country. We have some of the
most negative statistics here in Mil-
waukee and in Wisconsin,” says Or-
lando Owens, a community advocate
and until recently the director of Af-
rican-American outreach for the
Wisconsin Republican Party. “Crime-
stricken,” interjects Pastor Jerome
Smith, of the Greater Praise Church
of God in Christ. “Murders. Drop-out
rates. Drug addictions,” Mr. Owens
continues. “We don’t have a lot of
sunshine.”
This view of the predominantly
black 53206 zip code, on Milwau-
kee’s north side, is reflected in the
official statistics. The University of
Wisconsin’s Center for Economic De-
velopment reports that unemploy-
ment for working-age men is about
64%. Median real household income
has dived by 17% since 2000 to
$22,962, and two-thirds of local kids
live in poverty.
Mr. Owens notes these are the fa-
miliar “challenges you see in urban
America” that nonetheless stand out
“for a city and a population that’s so
small.” Across the street from the
Greater Praise sanctuary is a vacant
lot and a boarded-up building that
used to house several businesses.
The paradox, or the tragedy, is
that there are tens of thousands of
unfilled manufacturing and other en-
try-level positions in Wisconsin.
Seven of 10 state CEOs had trouble
finding enough qualified workers,
the Wisconsin Manufacturers &
Commerce trade group found in a
July survey, and demand is rising.
To try to resolve this mismatch
between potential workers and the
businesses that want to hire them,
Mr. Owens and Pastor Smith last
year started a partnership called the
Joseph Project that has already seen
some early notable successes.
They’ve also got an unlikely part-
ner—Ron Johnson, Wisconsin’s Re-
publican senator.
Pastor Smith first met Mr. Owens
when Mr. Owens was with the state
GOP, which he left to join Mr. John-
son’s staff. “I get a call, and I’m like,
OK, who’s Ron Johnson? Well, you
know, he’s a U.S. senator. I said, oh,
you mean Tammy Baldwin?” Pastor
Smith recalled, laughing, in an inter-
view this week at Greater Praise.
If humanitarianism to mitigate
concentrated poverty is unusual for
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the reverse domino effect.
News reports in mid-July noted
that soon after the Brexit referendum
the polling firm IFOP found public
support for the EU had risen in
France, Germany, Belgium, Italy and
Spain. In Denmark, Finland and the
Netherlands, recent polls also have
shown marked improvements in the
EU’s standing.
The reason Europeans are reacting
in this unexpected way is that Brexit
thus far has looked like a mess. The
deluge of political casualties that fol-
lowed (within the ruling Conserva-
tive party and the chaotic Labour op-
position) created a power vacuum in
London. Theresa May’s early victory
in the Tory leadership contest re-
GETTY IMAGES
duced some of the political uncer-
tainty, but only partially. The new
prime minister hasn’t clarified how
she intends to handle Britain’s di-
vorce from the EU, and there are re-
ports of disagreements within the
new cabinet about when the U.K.
should trigger Article 50 of the Lis-
bon Treaty, the formal and thus-far
untested exit mechanism.
Across the EU institutions and the
27 other EU governments, by con-
trast, the position remains relatively
unified: “No negotiation without
notification,” meaning there can be
no informal talks ahead of Britain’s
official leaving announcement. The
appointment of French politician
Michel Barnier—once infamous in
London as the “Scourge of the City”—
to be the European Commission’s lead
Running to Survive in the Year of Trump
a conventional Republican—at least
according to the political
caricature—then Mr. Johnson’s party
affiliation may also be a liability as he
runs for a second term in the era of
Donald Trump. The Wisconsin Senate
campaign spotlights the larger impor-
tance of 2016, and Mr. Johnson could
be caught in an anti-Trump down-
draft.
The senator and former plastics-
making executive isn’t one to put an
extra brush of varnish on a situation.
Yet in an interview at his campaign
headquarters in Waukesha, he says
the Joseph Project is far more mean-
ingful than mere politics: “It is a joy,
being able to participate in that, see-
Wisconsin’s Ron Johnson
says that, win or lose
this year, the Joseph
Project was worth six
years in the Senate.
ing people’s lives be turned around.
That’s true conservative values and
they work. You outsource compas-
sion to the federal government, that
doesn’t work so good. You show
your compassion here in your com-
munity, one person at a time.”
The Joseph Project began amid a
confluence: Mr. Johnson was travel-
ing around Wisconsin, and, he says,
“not one manufacturer could hire
enough people. But we’ve got all this
inner-city unemployment, guys, how
can you make that connection?”
Meanwhile, Pastor Smith and Mr.
Owens heard an appeal from the
Sheboygan County Economic Devel-
opment Corp., which was trying to
fill 4,000 factory jobs. They made a
tour of companies like Nemak (auto
parts), Pace (aluminum die casting),
Kohler (bathroom fixtures) and
Johnsonville (sausage).
Sheboygan County is more than
an hour’s drive north of Milwaukee,
and already on the ride back Mr. Ow-
ens and Pastor Smith were formulat-
ing a plan. They drew on the insights
of the black conservative intellectual
Bob Woodson, who in his 2007 book
“The Triumphs of Joseph” chronicled
“local people finding local solutions
to their local needs in their commu-
nities. These were not big-name or-
ganizations and big-name founda-
tions; these were small ministries,
small nonprofits started in some-
one’s church, started in someone’s
attic, and they went out and did the
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OPINION
Brexit negotiator is also inauspicious.
As in difficult divorces, negotiating
positions are moving further apart.
An Ipsos poll published Aug. 4 sug-
gested that only 30% of Europeans
want to offer Britain favorable terms.
Delays and uncertainty will hurt
the British economy most. While the
EU’s growth appears little affected by
the victory of Leave, all the data
points to what Markit economist Chris
Williamson has called a “dramatic de-
terioration” for the U.K. economy—
which is why the Bank of England cut
interest rates and returned to uncon-
ventional easing. The only question is
work,” Mr. Owens says.
The duo figured they could
connect unemployed or underem-
ployed Milwaukeeans with the She-
boygan companies and use church
vans that were unused during the
workweek for transportation. They
devised a week-long curriculum of
workshops, taught by church mem-
bers and Mr. Johnson’s Senate staff
as a constituent service. The work-
shops focused on “soft skills,” like
how to interview, the work ethic, fi-
nancial and time management, and
conflict resolution, Mr. Owens says.
“We’re not teaching them how to
weld, how to type—”
“The simple things,” says Pastor
Smith.
Admittance to the Joseph Project
is competitive, and Mr. Owens and
Pastor Smith set high expectations
and vet candidates. Those who per-
severe are promised an interview
with an HR department on Friday,
nothing more.
Fifteen people took part in the
first class in October 2015, and 13
were offered a job and began work.
Of the 130 people who have com-
pleted the program, 77 are now
working with another 28 offers
pending. Wages are well above the
minimum, running between $12.80
and $18.50 an hour, and the vans run
five shifts a day and average 12,000
miles a month.
Economically speaking, the Jo-
seph Project removes friction from
the labor market and solves a hu-
man-capital problem for employers.
Since the best type of skills training
happens on the job, for workers the
program helps break “the cycle of
poverty and despair,” as Mr. Johnson
puts it.
T
he project also has better
recruiting and retention out-
comes than the notorious
archipelago of federal job training.
Before a modest 2014 reform, there
were 47 overlapping such programs.
The Government Accountability Of-
fice found that only five could show
any positive effects, and even those
were “small, inconclusive or re-
stricted to short-term impacts.”
“Some of them go as far as giving
you a really nice certificate of com-
pletion and attached to that pretty
certificate is a piece of paper with a
bunch of companies’ names on it,”
says Pastor Smith. “You can get that
out of the Yellow Pages. That has no
value, you know what I mean?
“Relationships—that’s where the
value is, and that’s what we do, and
that’s what sets us apart,” he says.
Companies over time are coming to
trust applicants with the Joseph Proj-
ect imprimatur. Mr. Johnson’s in-
volvement includes helping to broker
these relationships—17 companies
now participate.
Mr. Johnson’s endorsement, in
Notable & Quotable: URGs
From the abstract of an Arizona
State University study, which started
Aug. 1, on “makerspaces,” community
workshops. The researchers received a
$599,905 grant from the National Sci-
ence Foundation, as reported by the
Washington Free Beacon:
Little is known about how engaging
in makerspaces impacts the identity
formation of undergraduate engineer-
ing students, specifically, women and
those from underrepresented groups
* Monday, August 15, 2016 | A13
how big the hit to investment and
consumption is going to be.
With the U.K. in the grip of so
much political and economic uncer-
tainty, no wonder even continental
Europe’s more euroskeptical parties
aren’t clamoring for referendums of
their own. In Spain, parliamentary
elections in the wake of the Brexit
vote led to better than expected
results for the center parties to the
detriment of populist Podemos. The
Dutch Party for Freedom, led by
Geert Wilders, may still lead in the
polls, but there is no obligation on
the Dutch government to hold a
turn, has encouraged companies to
show case-by-case flexibility on
criminal backgrounds. A 2007 Uni-
versity of Wisconsin study found
that by age 30-34 only 38% of men
in 53206 had not spent time in a
state correctional facility. “Are the
owners of these companies willing to
say, let’s give this guy another
shot?” Mr. Owens asks. “He said he
wants to work. He has the same pro-
bationary period like everybody else.
. . . He may have some bumps and
some bruises. But what you’ve got
are some tough-minded, gritty peo-
ple who will not give up, who will
not tap out easily. They’ve been
through challenges before, they see
the opportunity and go for it.”
“Almost all these individuals are
in a position where they’ve got to
put their pasts behind them and
move forward,” explains Mr. John-
son. “Probably for the first time in
his life not only does he have the
dignity of earning his own success,
but he has that added dignity and
joy of doing something that’s going
to benefit somebody he doesn’t even
know.”
Because success builds on suc-
cess, the faith-based program
teaches a sense of spiritual solidar-
ity. “The Joseph Project is really big-
ger than just you,” Mr. Owens says.
“It’s really about the next person be-
hind you, keeping the door open for
the next person behind you.”
Pastor Smith adds: “The Joseph
Project is making impacts on peo-
ple’s lives. Because there is a thing
called the Joseph Project, because of
all the hard work that the senator is
putting in, because of the people be-
hind the scenes, that the church
does, guess what: Somebody is going
to eat tonight.”
i i i grind, but it’s an important grind. I
“Of all the stuff I’ve done in six
years, if nothing else, this was worth
it,” Mr. Johnson says of the Joseph
Project. “I’m telling you, this [run-
ning for re-election] is such a nega-
tive process. It is: the frustration
and not being able to get stuff done
and the negative campaigning, the
way they try to destroy your charac-
ter. This was worth it.”
This election may test Mr. John-
son’s proposition, and among
Republican political analysts the
race inspires ambient dread. He’s
probably the most vulnerable GOP
senator after Illinois’s Mark Kirk.
Democrats need to retake four seats
to control the now 54-46 chamber if
Hillary Clinton wins the White
House.
Mr. Johnson was elected in the
2010 tea-party wave, defeating 18-
year incumbent Russ Feingold in
one of that year’s biggest upsets.
Now Mr. Feingold is back, and pres-
idential election years tend to bring
out Democrat-leaning voters in
Wisconsin. The last Republican to
(URGs) (e.g., Hispanics, African Ameri-
cans, Native Americans, Pacific Island-
ers, Native Hawaiians, persons with
disabilities, veterans, LGBT). URGs have
historically been isolated from the pro-
fession of engineering and despite de-
cades of commitment to such reform,
remain underrepresented in engineer-
ing. The institution of engineering has
been resistant to change, but the latest
developments of university-affiliated
makerspaces present an opportunity to
innovatively address such change. Mak-
referendum unless there are treaty
changes, which no one is seriously
contemplating.
In France, polls point to Marine Le
Pen’s defeat in any conceivable runoff
for next year’s presidential race. In
Austria, extreme right-wing leader
Norbert Hofer has a second shot at
winning the presidency when the
election is rerun on Oct. 2. But he has
disowned the idea of leaving the EU.
Even Italy’s 5 Star Movement—a fa-
vorite boogeyman of eurocritics—
fully supports the EU.
Italy’s Prime Minister Matteo
Renzi faces a referendum on his
constitutional reform—the deepest
since the post-Fascist birth of the
republic and one that promises to
bolster the stability of future Italian
governments. But even there, at
worst a referendum defeat could cost
a reformist prime minister his job,
not lead to “Italexit.”
If the continental shift away from
euroskepticism continues, it signifi-
cantly reduces the risk that other
countries will follow Britain out of
the EU. Yet the British experience
still serves as a terrible warning of
the perils of referendums: Regardless
of the question on the ballot, voters
may choose whichever option they
think will give their government the
bloodier nose.
Mr. Barbieri is the executive direc-
tor of the Greenmantle advisory firm
and the author of “Hitler’s Shadow
Empire” (Harvard, 2015).
win the state was Ronald Reagan in
1984. Then again, no ousted senator
has won a direct re-match since
1934.
Democrats are trying to wrap Mr.
Trump around Mr. Johnson like a
boa constrictor, and the New Yorker
is exceptionally unpopular in the
Badger State. In the Marquette Uni-
versity poll released this week, he’s
viewed favorably by 27% of regis-
tered voters. In the same poll, Mr.
Feingold is beating Mr. Johnson, 49%
to 43%.
But the race has narrowed in
recent months, and Mr. Johnson is
running as an independent, prag-
matic outsider keyed in on solving
problems particular to Wisconsin-
ites. He supports Mr. Trump over
Mrs. Clinton. “Some people you dis-
agree with more than others, but my
approach really throughout my life,
throughout my business career: I
concentrate on the areas of agree-
ment. It’s far more productive,” Mr.
Johnson says.
He raised $2.8 million in the most
recent quarter, which puts him in a
top-three league with the GOP fund-
raising powerhouses Rob Portman
and Pat Toomey, and he portrays Mr.
Feingold as a career politician whose
ambition to return to Washington is
a little unseemly. “This is no differ-
ent from 2010. I knew I was down.
Ended up winning by five,” Mr.
Johnson notes.
“When I get in front of people, I
can convince them. I think they see
my true intentions here, which is to
solve these problems. I’m not doing
this because I want to be a U.S. sen-
ator . . . Truth of the matter, I’d
rather go home. Who wouldn’t?
Well, Russ Feingold. What normal
person? I miss my old life. This is a
know there aren’t enough people in
Washington, D.C., who aren’t wor-
ried about their re-election.”
S
tanding in the Greater Praise
parking lot, Orlando Owens
loops his forefinger around in
the air and notes that, whatever you
say about Republicans, Ron Johnson
isn’t the author of this. The first-
term senator didn’t board up the
businesses, or cause the bad schools,
the violence or the lack of economic
opportunity. But he’s trying to work
his way to a better answer than the
liberal Milwaukee status quo of Russ
Feingold and all the Democratic al-
dermen and county executives. He
deserves more time, Mr. Owens says.
The greatest political misfortune
of 2016 may have nothing to do with
the White House. It will be if Mr.
Trump takes decent men like Mr.
Johnson down with him as collateral
damage.
Mr. Rago is a member of the
Journal’s editorial board.
erspace cultures could perpetuate the
normative cultures that have persisted
in engineering environments. By look-
ing at makerspaces while in their in-
fancy, we can potentially influence the
shaping of future makerspace infra-
structure and aspects that contribute to
the perpetuation of an exclusionary cul-
ture. This study seeks to uncover
whether investments in makerspaces
are supporting the development of an-
other institution of privilege, exclusion,
and inequity.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A14 | Monday, August 15, 2016 THE WALL STREET JOURNAL.

SPORTS

U.S. Swimmers Robbed in Rio

Four team members,
including Ryan Lochte,
were held up at gunpoint
early Sunday morning
BY WILL CONNORS
AND RACHEL BACHMAN

RIO DE JANEIRO—Four members of

Paralympics May Face the U.S. swim team, including medalist
Cuts Over Funding Woes Ryan Lochte, were robbed at gunpoint
Organizers of the Paralym- in Rio early Sunday, according to a

PATRICK B. KRAEMER/EUROPEAN PRESSPHOTO AGENCY

pics, the world’s showcase tour- USOC spokesman.
nament for disabled athletes, The four swimmers—Gunnar Bentz,
are working to plug financial Jack Conger, Jimmy Feigen and
holes that could lead to service Lochte—left a party at the France
cuts and missing teams at this House near Rio’s lagoon early Sunday
year’s event, set to be held just morning in a taxi, and were headed
after the Olympic Games. back to the Olympic Village in the
The Rio 2016 Organizing western part of the city, according to
Committee is late in paying out the spokesman.
support grants that teams use “Their taxi was stopped by individ-
to pay for travel to the Games, uals posing as armed police officers
the International Paralympic who demanded the athletes’ money
Committee said Saturday. Be- and other personal belongings,” USOC
yond that, an IPC spokesman spokesman Patrick Sandusky said. “All
said the committee was looking four athletes are safe and cooperating Ryan Lochte at the Olympic Aquatics Stadium on Wednesday for the men’s 200-meter individual medley heats.
into possible cuts to services at with authorities.”
the event to make the Paralym- The IOC had earlier Sunday denied on Saturday night. Pereira left with his gram, “where they are advised of all park near their hotel.
pics financially viable. that Lochte had been a victim. wife, and later Lochte was robbed. issues that may come up in a host city, Rio has long been plagued by vio-
—Anton Troianovski Lochte is one of the U.S. team’s Perez wasn’t sure exactly what hap- and Rio was no different.” lence, and local crime rates rose in the
most familiar faces; he surged to star- pened to Lochte, but said that Pereira Lindsay Mintenko, the U.S. swim months leading up to the Games, as a
Golf’s First Gold in Ages dom and a high media profile in the called Lochte the next morning to team’s managing director, said before recession drove widespread unemploy-
Goes to Team GB’s Rose 2012 London Olympics. The incident make sure the American swimmer was the Games that team officials told ment and chipped at police budgets.
Justin Rose delivered Great amplifies the debate over the safety of all right. married swimmers not to bring their For the Games, financially strained Rio
Britain the first gold medal in both athletes and spectators here in A spokesman for Rio’s military po- wedding rings to Rio out of concern state asked the country’s military to
golf in more than a century. Rio, a crime-ridden city that is the first lice said they weren’t aware of the in- they might be stolen. Officials also told take over local security earlier than
Rose outdueled Henrik Sten- in South America to host the Olympics. cident but would investigate. Rio’s civil athletes to bring just one credit card planned and to stay after the Olym-
son, posting a 67 to finish two There have already been several unset- police, and Brazil’s ministry of justice and to leave a copy of their passport at pics.
shots ahead. American Matt tling crime incidents involving ath- and ministry of defense, also responsi- home, Mintenko said. The Brazilian government deployed
Kuchar won bronze, tying the letes, coaches and spectators. ble for Olympics security, didn’t re- Several athletes have been robbed a combined security force of police
course record with a 63. Flávio Perez, the spokesman for spond to requests to comment. in Rio before and during the Games. and military numbering roughly
Sunday’s round concluded Brazilian swimmer Thiago Pereira, Sandusky of the USOC said all U.S. In June, two members of Australia’s 85,000 personnel.
golf’s return to the Olympics who is a friend of Lochte’s, says both athletes were required to go through Paralympic Sailing Team were robbed —Matthew Futterman
after the game was absent for Pereira and Lochte were at the party an Olympic ambassador training pro- at gunpoint while riding bikes in a contributed to this article.
112 years. The International
Olympic Committee hasn’t yet

In England, It’s the Year of the Super Manager

decided if the event will be in-
cluded after 2020 in Tokyo.
—Brad Reagan

Britons Sleep on ‘Super BY JOSHUA ROBINSON fans.) In a summer of wild spending,

Saturday’ Repeat Bid the total outlay from is now more
Only a fraction of the num- One by one, they signed contracts than £600 million ($780 million), ac-
ber of Britons who watched Mo with Premier League teams, expect- cording to Deloitte, which monitors
Farah win 10,000-meter gold at ing to take English soccer by storm. English soccer finances.
the London Olympics four years For the first time, the most sought- Between them, the class of title-
after managers in the world are all winning managers has lifted every
JON SUPER AND WANG ZHAO/AFP/GETTY IMAGES

ago did so this weekend.

In 2012, when a trio of Brit- working in the same place.
ish athletes staged a sweep of As the season began Saturday, the
golds, more than 17 million murderers’ row of title-winners with
watched, according to the BBC. Premier League clubs now includes
But the sequel early Sunday had Pep Guardiola at Manchester City,
just 2.6 million viewers on the Jose Mourinho at Manchester
BBC. Only Farah (below) was United, Antonio Conte at Chelsea
able to repeat his gold, taking and Jurgen Klopp at Liverpool along-
the 10,000. —Alexis Flynn side Premier League mainstay
Arsene Wenger at Arsenal, shaping
what Wenger called “a world cham-
pionship of managers.”
Here’s where it gets awkward:
Most of them are setting themselves
up to fail.
The top managers in the world
ALESSANDRO BIANCHI/REUTERS
Left, Manchester United’s Jose Mourinho; right, City’s Pep Guardiola.
“It’s incredible that they’re all in
this country, and they’re all manag-
major league trophy in Europe. The
managerial mountaintop is full of ri-
valries, too—or rather, full of rival-
ries involving Mourinho. The city of
Manchester will now stage the se-
quel to the battle he waged against
Guardiola in Spain, when the two
men were at Real Madrid and Barce-
lona, respectively. Mourinho also has
beef with Wenger dating back to his
time at Chelsea.
It all sets up a campaign where,
for the first time, the personalities
of the men in the dugouts could
None more so than Mourinho, overshadow the players on the field
now at Manchester United after two as the managers try to prove their

measure themselves only by how
many trophies they win. But come
May, four of the men in that group
will likely be wondering how the
fifth slipped away from them. At
least one of them is guaranteed to
miss out on qualifying for a Champi-
ons League spot. One of them could
even be fired.
ing in the Premier League,” said
Harry Redknapp, who has coached
West Ham, Tottenham and Queens
Park Rangers among others. “But at
the end of the day there can only be
one winner. They’re all going to be
expecting next year to win the
league, because they’ve all invested,
big managers, big players.”
stints at Chelsea. He has won three credentials all over again.
Premier League titles since 2005 and “There are some managers that
oversaw United’s acquisition of mid- the last time they won a title was 10
fielder Paul Pogba for a world-record years ago,” Mourinho said, taking a
fee of more than $130 million. thinly veiled shot at Wenger, whose
Manchester City, Chelsea and Liv- Arsenal side last won a champion-
erpool have also splurged. (Only Ar- ship in 2004. “Some of them have
senal has been slow to make acquisi- never won a title.…If I have a lot to
tions, much to the frustration of its prove, imagine the others.”

Weather The WSJ Daily Crossword | Edited by Mike Shenk

Shown are today’s noon positions of weather systems and precipitation. Temperature bands are highs for the day.
-15 1 2 3 4 5 6 7 8 9 10 11 12 13 Down 30 Challenging to
-10 climbers
14 15 16
1 “All Night Long”
Riga
g -5
singer Lionel 32 Land in the ocean
0
Glasgow
Glasg Moscow
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C p h g
Copenhagen 5
10 20 21 22 neighborhood 34 Gas station name
D bli
Dublin 15 3 Birthplace of of the western
Berlin
li 23 24 25 Saint Paul
A t d
Amsterdam 20 U.S.
rsa
Warsaw
25 26 27 28 29 30 31 32 4 Egyptian crosses 36 Eastern, Central,
London
Brussels 30 Mountain or
kf
Frankfurt Pra
Prague Kiev
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33 34 35 5 Body pouches
35 Pacific
Munich
i h
6 Make blunders
Paris 36 37 38 37 Matt’s “Good Will
Vienna
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d p
Budapest
39 40 symbol Hunting” co-star
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8 Namely 38 Occasional task
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Istanbul 53 54 55 56 quartet of ghosts 41 African expanse
Madrid
d id Rain 10 Apple Store buy 42 Woody and Tim
57 58 59
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b
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Tunis
60 61 62 inhabited by tiny 45 Make happy
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Al i Athens
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63 64 65 46 Under the
12 Make more weather
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b entertaining
Ice FASTENATING | By Tracey Gordimer 13 “The Guiding
47 Some electric
autos
Global Forecasts City
Today
Hi Lo W
Tomorrow
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Tomorrow
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50 Personal coach
s...sunny; pc... partly cloudy; c...cloudy; sh...showers; 1 Pro ___ 26 Asner, O’Neill and blackjack 18 “Bye!”
Geneva 29 16 t 29 16 t Ottawa 29 16 pc 25 16 r 52 Admit (to)
t...t’storms; r...rain; sf...snow flurries; sn...snow; i...ice Hanoi 31 26 t 32 27 t Paris 29 16 s 31 16 s (proportional) Harris 49 Park place? 22 CBS honcho
Havana 32 23 t 32 23 pc Philadelphia 35 26 pc 34 26 t Moonves 54 “___ go bragh!”
Today Tomorrow
5 Breakaway group 27 Nervousness 51 Pitt’s “Mr. & Mrs.
Hong Kong 31 27 c 30 27 r Phoenix 42 29 s 43 28 s 55 Grand
City Hi Lo W Hi Lo W Honolulu 30 25 pc 30 24 sh Pittsburgh 30 21 pc 30 20 t 9 Heaps that results in Smith” co-star 28 Country stopover
Amsterdam 21 12 pc 21 13 pc Houston 29 23 t 30 24 r Port-au-Prince 35 21 pc 37 21 pc missed putts 53 Frangelico 29 Footballer’s 56 Prohibition
14 Nation on the agents
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Athens 31 23 s 33 23 s Jakarta 32 24 sh 32 24 sh Rio de Janeiro 31 21 pc 29 21 pc Persian Gulf
Riyadh 44 28 s 45 28 s shooter 56 Stack in a locker protectors 59 Israeli gun
Atlanta 33 23 t 32 23 pc Johannesburg 23 8 s 22 8 pc 15 Folksinger
Baghdad 48 30 s 47 29 s Kansas City 28 18 pc 29 19 s Rome 28 18 s 28 19 pc Guthrie 33 Beethoven room
Baltimore 34 24 pc 34 25 t Las Vegas 43 29 s 42 28 s Salt Lake City 37 21 pc 36 21 s Previous Puzzle’s Solution
16 ___ acids creation 57 Find simply
Bangkok 33 27 c 33 27 t Lima 21 15 pc 21 15 s San Diego 29 21 pc 27 20 pc A H A B A S S B A A B A A
Beijing 29 20 pc 32 21 pc London 24 14 pc 24 15 s San Francisco 22 13 pc 23 13 pc (protein building 35 Center of Earth’s charming R U D E R A H I M P E L S
C L E A R S K Y C A R R O T
Berlin 20 10 pc 20 10 pc Los Angeles 33 18 s 31 17 pc San Juan 31 25 s 32 25 s blocks) orbit 58 Small computer S U N D A E S F E Z G E O
Bogota 20 9 c 20 10 r Madrid 35 20 pc 34 19 pc Santiago 23 7 pc 17 3 pc S Y N R I P E N
Boise 36 18 s 37 18 s Manila 29 26 t 29 26 t Santo Domingo 32 23 pc 32 22 pc 17 Tool for a 36 Popular name for image A L A B I K E R S A L D O
Boston 30 21 pc 29 23 t Melbourne 17 10 s 18 11 pc Sao Paulo 29 17 pc 23 16 sh sommelier a roller coaster 60 Arrested T U R Q U O I S E S MU R F
A MO U R T E A P E R O T
Brussels 23 13 pc 23 13 pc Mexico City 24 14 t 23 15 t Seattle 29 15 s 27 15 s
Buenos Aires 19 8 pc 21 8 t Miami 33 26 pc 32 25 pc Seoul 33 24 pc 33 24 s 19 Lily variety 39 “O sole ___” 61 Seep L E M O N T A N G E R I N E
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Calgary 25 13 pc 27 14 t Minneapolis 28 20 s 28 19 pc Singapore 31 27 pc 32 26 c as a group
A W L I T S S M U S H E S
Caracas 31 26 pc 31 25 pc Monterrey 31 21 pc 30 21 pc Stockholm 17 11 c 17 12 pc 21 Actor’s talk show 63 Revival meeting C H E R R Y S T O P S I G N
T I N E A R E A U A R G O
Charlotte 35 23 pc 34 23 pc Montreal 28 18 pc 27 18 pc Sydney 20 11 s 22 11 s showing 41 Native of a cries S T O O L S E R R M E OW
Chicago 27 20 pc 27 19 t Moscow 15 11 r 19 12 pc Taipei 35 26 pc 35 27 pc Polynesian
Dallas 30 22 t 32 23 t Mumbai 30 27 sh 30 26 sh Tehran 36 22 s 34 21 s 23 Like a locked 64 Completely The contest answer is BOBBY ORR. Four rows of
lavatory nation destroy the grid contain two answers each, both of which
Denver 34 15 s 32 15 pc Nashville 32 23 t 31 22 t Tel Aviv 30 24 s 30 24 s
Detroit 28 20 pc 26 19 r New Delhi 35 27 c 35 28 pc Tokyo 30 25 c 31 25 t 44 Tadpole’s home have a distinctive color (CLEAR SKY, CARROT,
24 Drink with 65 Cribbage score TURQUOISE, SMURF, LEMON, TANGERINE,
Dubai 42 34 s 41 35 s New Orleans 31 26 t 32 26 t Toronto 28 19 pc 24 19 r
Dublin 21 13 s 20 14 s New York City 33 25 pc 31 25 t Vancouver 23 15 s 23 15 s crumpets 45 Touch gently markers CHERRY, STOP SIGN). The initials of the colors
Edinburgh 22 11 pc 21 10 pc Omaha 30 19 s 30 19 s Washington, D.C. 35 26 pc 35 27 t (BLUE, ORANGE, BLUE, BLUE, YELLOW, ORANGE,
Solve this puzzle online and discuss it at WSJ.com/Puzzles.
s

Frankfurt 26 13 pc 25 13 pc Orlando 33 24 t 32 24 t Zurich 27 14 t 27 14 t RED, RED) in order spell the answer.

For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
INDIANS INCREASE SPENDING ON SMARTPHONES TECHNOLOGY | B3
Euro vs. Dollar
1.16
BUSINESS & FINANCE
1.1169 s 0.27% FTSE 100
1.13
1.10
1.07
M J J M
As of 4 p.m. ET Friday
© 2016 Dow Jones & Company. All Rights Reserved.
Bond Funds Pivot for Risk
BY CAROLYN CUI
AND MIKE BIRD
Bond investment funds that
usually have little appetite for
riskier debt are boosting their
exposure to the developing
world, a move that is helping
drive this year’s
ABREAST emerging-mar-
OF THE kets rally.
MARKET Interna-
tional bond
funds run by
BlackRock Inc., Legg Mason
Inc. and OppenheimerFunds
are among the big money man-
agers that have been increas-
ing their positions in emerg-
ing-market debt in recent
months. That shift reflects how
global bond funds are feeling
the pinch from low U.S. inter-
est rates and negative rates in
Japan and much of Europe.
Government bonds with
negative yields have grown to
Preferred
Stock Pays
A Price for
Popularity
In investing as in life,
popularity has its price.
Investors in preferred
stocks may learn that lesson
before long. With stocks hit-
ting record highs in lock step
this week and bonds provid-
ing income you can’t find
without a microscope, pre-
ferred stocks
have been
one of the
trendiest in-
vestments
around. But
THE this market
INTELLIGENT shows some
INVESTOR signs of over-
JASON heating.
ZWEIG Preferred
securities,
which are an
amalgam of stocks and
bonds, offer the stream of
regular income that inves-
tors crave. The S&P U.S. Pre-
ferred Stock Index yields
more than 5%—putting com-
mon stocks (at a 2% yield),
high-dividend stocks (3.1%),
corporate bonds (3%) and
even emerging-market bonds
from developing countries
(4.3%) to shame.
A kind of buying panic
has broken out. The iShares
U.S. Preferred Stock ex-
change-traded fund, which
seeks to track the market,
has taken in $2.2 billion in
new money so far this year.
Historically, the price of
preferred stocks almost
never rises, with virtually
all their return coming from
the fixed dividend rates
they offer; this year, how-
ever, nearly half the 7% to-
tal return of the S&P pre-
ferred index has come from
climbing prices.
To see why overheating
could be a risk, it helps to
understand more about how
preferred stocks work.
If a company goes into
bankruptcy, preferred share-
holders have a higher claim
on any remaining assets
than the common share-
holders do.
But preferred investors
also have a lower claim on a
company’s assets than
bondholders do, and there’s
no guarantee that a com-
pany won’t skip a dividend.
Preferred investors, unlike
holders of common stock,
don’t participate on the up-
side if a company grows
more profitable.
So preferred stocks tend
to offer returns similar to
those of bonds, at a level of
risk that can approximate
Please see PREFER page B2
7000
6916.02 s 0.02% Gold
6500
6000
5500
J J
$11.4 trillion, mostly in devel-
oped markets, according to
Fitch Ratings.
Many global bond managers
are also turning to emerging
markets because a number of
their clients, including some
pension funds and insurance
companies, have restrictions on
how much of their money can
be invested in debt with nega-
tive yields. These investors
need cash to meet ongoing lia-
bilities and want income-pro-
ducing investments.
Global bond funds raised
their emerging-market alloca-
tions in the first week of Au-
gust to 10.6% from 9.8% in Feb-
ruary. That is the highest level
in about a year, according to
the Institute of International
Finance. The recent high was a
14% allocation to emerging
markets in 2013.
While the uptick isn’t a big
percentage move, because
Warner’s second DC Comics movie of the year, ‘Suicide Squad,’ fell about 67% in receipts during its second weekend in theaters.
Hollywood Faces Glut of Film Flops
Despite rising receipts
at the box office, more
big-budget movies fall
short of expectations
BY BEN FRITZ
Global box-office receipts
are up slightly from a record-
setting 2015. Yet Hollywood is
having one of its glummest
summers in a long time.
So far, this year has in-
cluded roughly the same num-
ber of hits as 2015, but many
more flops and moderate dis-
appointments. Some movies
that fell short of studios’ big
expectations are “The Hunts-
Google’s High-Speed-Internet Business Hits Snags
BY JACK NICAS
Google’s high-speed-inter-
net business is slowing down.
Alphabet Inc.’s Google Fiber
unit is rethinking how to deliver
internet connections in about a
dozen metro areas, including
Los Angeles, Chicago and Dal-
las, after its initial rollouts
proved more time-consuming
and expensive than anticipated,
according to people familiar
with the company’s plans.
In San Jose, Calif., and Port-
land, Ore., Alphabet has sus-
pended projects while investi-
gating alternate technologies.
In most cases, Google Fiber
is hoping to use wireless tech-
nology to connect homes
rather than underground fi-
ber-optic cables, according to
1350
1335.80 t 0.50% WTI crude
1300
1250
1200
M J J M
THE WALL STREET JOURNAL.
global fund managers oversee
about $1 trillion in debt—ac-
cording to figures from data
tracker EPFR Global—even a
modest increase in their alloca-
tion to emerging markets can
bring tens of billions of dollars.
The big bond funds’ growing
interest—along with record in-
flows of $14.3 billion into dedi-
cated emerging-market funds
in July—has helped power
gains in the developing world,
analysts say.
Emerging-market bonds de-
nominated in dollars returned
12.3% through July, according
to J.P. Morgan Chase & Co.
The Citi World Government
Bond Index, a broad benchmark
for global bonds, was up 7.5%
over the same period.
The average bond yield on
Bank of America’s devel-
oped-market index is 0.56%,
compared with 4.44% for
emerging-market sovereign
man: Winter’s War,” “Teenage
Mutant Ninja Turtles: Out of
the Shadows,” “Independence
Day: Resurgence,” “The Leg-
end of Tarzan” and “Ghost-
busters.”
Most of these movies cost
more than $100 million and
some close to $200 million.
There have been 15 big-budget
disappointments or flops thus
far in 2016, compared with
eight at the same point in
2015.
“There are only so many
available dollars in the mar-
ketplace,” said Kevin Goetz,
president of consulting firm
Screen Engine. “These big
movies can’t all work at the
level that the studios need
Google Fiber reached just six metro areas in four years.
a person familiar with the
matter. Elsewhere, Google is
leasing existing fiber or asking
cities or power companies to
build the networks.
50
44.49 s 2.30% German Bund
45
40
35
J J
bonds. Emerging markets now
constitute nearly half the
yield income of these two in-
dexes combined. In 2008,
they made up around 20% of
the total yield.
Rick Rieder, global chief in-
vestment officer of fixed in-
come at BlackRock, the world’s
largest asset manager, said the
BlackRock Strategic Global
Bond Fund has increased its
holdings in Brazil, India, Indo-
nesia and Argentina. As of
June, the $160 million fund had
37.3% of its assets in emerging
markets, according to regula-
tory filings, up from 25% by the
end of 2015. He said the fund
recently reduced “a good deal
of exposure” in negative-yield-
ing bonds, especially in Japan.
“The only reason that you
buy a negative-rate bond is that
you think it will go more nega-
tive,” he said.
But by scaling back their ex-
them to in order to justify
their tremendous budgets.”
Searching for the next
blockbuster hit that could
stand out in a saturated, win-
ner-take all media landscape,
studios have packed this year’s
release calendar with sequels,
reboots and superhero adapta-
tions. Most have fallen short
of their backers’ big ambi-
tions.
The unimpressive perfor-
mance of so many movies
casts doubts on studios’ plans
to use them to launch sequels
and spinoffs of their own in
the years to come. In an era
when every studio is aiming to
grab attention and profit
through such franchise films,
GEORGE FREY/REUTERS
The strategy shift comes af-
ter Google Fiber reached just
six metro areas in four years,
illustrating the difficulty and
expense of digging up streets
0.40
yield -0.106% 10-Year Treasury
2.25
yield 1.515%
0.20 1.50
0.00 0.75
-0.20 0.00
M J J M J J
Sources: Tullett Prebon; SIX Financial
Monday, August 15, 2016 | B1
Emerging Inflows
Low yields on debt in advanced economies are
driving investors toward the developing world.
Cumulative percentage change in price on government debt
40% Brazil,
maturing
30 2041
Ecuador
20 2020
Russia
2042
10
0
–10
–20
2016
Source: FactSet THE WALL STREET JOURNAL.
posure to negative rates, many to slowing Chinese economic
global bond managers are tak- growth, slumping commodities
ing on other risks in volatile prices and fears of tighter U.S.
emerging-market debt. monetary policy.
Some of the same investors Please see BONDS page B2
got burned last year when
emerging-market bonds in local  China left behind as emerging
currencies lost 15% in response markets gain.............................. B8
U.S. Firms
Are Slow
To Adopt
Data Pact
BY DANA HEIDE
U.S. companies have been
slow to sign on to a new inter-
national data-transfer agree-
ment with the European
Union for reasons that include
uncertainty that the terms will
survive legal tests in the EU,
CLAY ENOS/WARNER BROS./EVERETT COLLECTION
experts said.
The agreement, called Pri-
vacy Shield, allows businesses
to transfer personal data on
European citizens to the U.S.
About 40 companies have
been certified under the new
rules since Aug. 1, when the
U.S. Department of Commerce
began accepting applications,
the agency said on Friday.
“Many American companies
are waiting to see if the Pri-
vacy Shield survives an ex-
pected challenge by privacy
advocates in the European
courts,” said Jay Cline, who
heads cybersecurity and pri-
it calls into question whether vacy at PwC, an international
the result will be more hits, or consultancy. “So we don’t ex-
simply more roadkill. pect a stampede to join it in
Eleven of the 14 weekends the next few days, but rather a
since the start of Hollywood’s steadily growing wave over
summer in May have featured the long run, especially if Eu-
at least one big-budget ropean companies begin to fa-
“branded” movie, most of vor Privacy Shield member-
which are sequels or reboots ship in competitive bids.”
of a well-known franchise such Some companies still need
as “Captain America,” “X- to implement new measures to
Men” or “Star Trek.” Last comply with the new system,
year, just seven of summer’s such as updating privacy poli-
first 14 weekends featured a cies with information about
franchise film with block- where customers can address
buster aspirations. complaints.
“In order for all these pic- Many firms waited until the
tures to reach a healthy re- EU formally published the new
turn, the box office would mechanism’s documents in
have to expand 20% to 30%,” mid-July before beginning to
Please see MOVIES page B2 Please see DATA page B2
and laying thousands of miles net connection. Google hoped
of cables. to boost the speed of U.S. in-
“If you’re in the telecom- ternet connections and in-
munications industry for 150 crease demand for its other
years, there are no surprises services, such as search.
here,” said Jonathan Reichen- Fiber costs $70 a month for
tal, chief technology officer of the fastest internet connection
Palo Alto, Calif. “But if you’re and an additional $60 a month
a software company getting for TV. Analysts estimate a
into the business for the first one-time cost for Alphabet of
time, this is a completely new more than $500 for each home
world.” the network passes, not all of
Mr. Reichental said Google which subscribe.
Fiber executives recently told Alphabet declined to dis-
him that plans to bring the close its number of subscrib-
service to Palo Alto and ers. Based on numbers re-
nearby cities are on hold for ported to the U.S. Copyright
at least six months. Office, research firm Moffett-
Google Fiber launched in Nathanson said in March the
Kansas City in 2012, offering TV service had 53,000 sub-
speeds of up to a gigabit a scribers total as of December.
second, roughly 30 times as There likely are many more
fast as the average U.S. inter- Please see FIBER page B3
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
B2 | Monday, August 15, 2016
INDEX TO BUSINESSES
These indexes cite notable references to most parent companies and businesspeople
in today’s edition. Articles on regional page inserts aren’t cited in these indexes.
A
Alibaba Group.............B3
Alphabet......................B1
Amazon.com ............... B3
Ant Financial Services
Group.........................B3
AT&T............................B3
B J
Bank of America ... B1,B2
BHP Billiton................B4
BlackRock....................B1
Boeing ......................... B4
C
Coca-Cola.....................B3
Credit Suisse Group...A2
E Unilever.......................B3
ENI...............................B4
F Communications.......B3
Facebook......................B3
Flipkart Internet.........B3
INDEX TO PEOPLE
A G
Abernethy, Jack..........B4
Acuña, Javier..............A5
Ailes, Roger ................ B4
B Porat, Ruth ................. B3
Baijal, Hemant............B2
Balakrishnan, Bhartia.B3
Berber, Benito.............B5
Bhartia, Vinay.............B3
Boué, Thomas.............B2
C Lariviere, Dorothy.......B2
Cardoso, Maria ........... A5
Cecala, Guy ................. B7
Cline, Jay.....................B1
D McIntyre, Jack ............ B2
Downing, Kate............B8
F O
Frank, John ................. B2
DATA
Continued from the prior page
implement the new require-
ments, company representa-
tives said.
Other companies are evalu-
ating whether the new agree-
ment offers advantages over
alternative approaches to
complying with European data
protection laws, experts say.
Alternatives include so-called
model clauses—standardized
data-protection language pre-
approved for addition to con-
tracts with customers—and
binding corporate policies ap-
proved by the EU.
More than 4,000 U.S. com-
panies had been certified un-
der the previous, less robust
agreement, known as Safe
Harbor, before it was invali-
dated by the European Court
of Justice last year in the
wake of Edward Snowden’s
revelation of U.S. surveillance
programs.
The rules that govern
handling of data on
European citizens
remain unsettled.
Microsoft Corp. applied for
Privacy Shield certification on
the first day applications were
accepted, the company said.
The Redmond, Wash., software
giant said it implemented both
Privacy Shield principles and
model clauses. The combina-
tion strengthened Microsoft’s
competitive position, said
John Frank, Microsoft’s vice
president for EU Government
Affairs.
“European privacy protec-
tions are important to Euro-
pean citizens and organiza-
tions. We offer EU-approved
Model Clauses and we have
signed onto the Privacy Shield
rules so that we can offer our
customers strong data protec-
tion standards,” Mr. Frank
said.
Amazon.com Inc. competes
directly with Microsoft in
cloud infrastructure services—
the reason for much of Micro-
soft’s data transfer activity—
yet it hasn’t yet applied for
Privacy Shield certification.
“The new EU-US Privacy
Shield does not impact AWS
customers” because the com-
pany maintains data centers in
DAN HIMBRECHTS/EUROPEAN PRESSPHOTO AGENCY
Microsoft said it applied for Privacy Shield certification.
G
Google ......................... B8
H
Hearst..........................B3
Hewlett-Packard.........B8
Oxford Economics.......B4
P
Paul, Weiss.................B4
PayPal..........................B8
Phocuswright..............B4
Privinvest....................A2
I to the international space sta-
Irvine...........................B3
R
Rio Tinto ..................... B4
S
JD.com.........................B3
J.P. Morgan Chase......B1 Samsung Life
Insurance .................. B5
L con 9 rocket, this time lifting a
Space Exploration
Legg Mason.................B1
Technologies.............B2
M T
Mondelez
International.............B4
21st Century Fox........B4
U ing launch from Florida’s Cape
N
Nestle..........................B3
Novartis.......................B4 V the rocket’s main stage sepa-
O Verizon
One97
Communications.......B3 W Roughly six minutes later,
OppenheimerFunds.....B1 Webpass......................B3
Ontiveros, Eduardo.....B5
Giordano, Jason..........B2 P dreds of miles offshore in the
Goetz, Kevin................B1 Papp, Zsolt..................B2
K Pirrong, Craig..............A2
Katzeff, Oren..............B3
Khajuria, Sanjay ......... B3 R fornia company is called, has
Kini, Venkatesh...........B3 Rieder, Rick.................B1
Kranz, Mark ................ B4 S
L Safa, Iskander.............A2
Salisbury, Chris...........B4
Leverenz, Justin ......... B8 Schmidt, Eric...............B3
Schneider, Peer...........B3
M legs of the first stage touching
Shiller, Robert.............B5
Ma, Jack......................B3 Shine, Bill....................B4
T on the bull’s-eye painted on
Murdoch, Rupert.........B4
Thin, Win .................... B5
Trowbridge, Gordon....A3
Odell, Amy..................B3 Tsai, Joe......................B3
several countries where its
customers can store their
data, and that it also uses
model clauses, wrote Stephen
Schmidt, vice president of se-
curity engineering and chief
information security officer of
Amazon Web Services, in a re-
cent blog post. Amazon none-
theless planned to apply for
Privacy Shield certification, he
added.
Experts say Privacy Shield
certification is likely to help
companies compete with ri-
vals.
“When Safe Harbor was
still in place, we saw that
companies who were part of it
had a competitive advantage
in competitive bids over com-
panies who used model
clauses. I think we will see the
same with Privacy Shield,” Mr.
Cline said.
BSA, a software industry
organization dedicated to in-
ternational trade, expects Pri-
vacy Shield eventually to be
adopted as widely as its pre-
decessor.
“We expect that at least the
4,000 companies who applied
for Safe Harbor will apply for
the new mechanism as well,”
said Thomas Boué, an expert
on privacy issues at BSA.
A study by the Future of
Privacy Forum, a think-tank
based in Washington, D.C.,
said the Safe Harbor agree-
ment got off to a slow start
when it launched in 2000.
Some commentators blamed
the delay on companies want-
ing to gauge the consequences
of abstaining, the report said.
Others blamed bureaucracy.
Despite the new agreement,
the rules that govern handling
of data on European citizens
remain unsettled. Both Privacy
Shield and model clauses are
likely to be examined by the
European Court of Justice, and
Christian Schefold, an expert
in data protection and compli-
ance at the international law
firm Dentons, expects model
clauses to fail the test.
As for Privacy Shield, the
European Commission has said
it was confident it would with-
stand legal challenges.
The annual fee for Privacy
Shield certification depends
on the size of the company
and can cost up to $3,250.
The application process
usually takes from several
weeks to six months, experts
said.
—Natalia Drozdiak
contributed to this article.
SpaceX Launches Satellite
BY ANDY PASZTOR
For the eighth time in 2016,
Space Exploration Technolo-
gies Corp. on Sunday executed
a successful launch of its Fal-
Japanese telecommunication
satellite into orbit.
After a flawless early morn-
Canaveral Air Force Station,
rated as planned about three
minutes into the flight.
following a series of intricate
maneuvers and engine burns
to point the first stage back
toward earth, the spent
booster settled gently on a
converted barge bobbing hun-
Atlantic Ocean.
It was the fourth time
SpaceX, as the Southern Cali-
vertically landed the same
part of a used Falcon 9 rocket
on a floating platform.
Two other landings have
occurred on land.
Scenes of the deployable
down amid a cloud of exhaust
the ships deck—with all nine
main engines seemingly un-
MOVIES
Continued from the prior page
said Adam Goodman, a pro-
ducer and former head of pro-
duction at Viacom Inc.’s Para-
mount Pictures.
Box office in the U.S. and
the top 10 foreign markets is
up 1% so far this year to just
over $18 billion, according to
comScore.
Increasingly, success in the
movie business requires being
one of the handful of most
popular movies that draw a
disproportionate amount of
attention on social media and
in the cultural zeitgeist.
This year’s five most popu-
lar films account for 30% of
the total domestic box office.
At the end of last year that
figure was 22%, a record at
PREFER
Continued from the prior page
that of stocks.
Over the five years ended
July 31, the S&P U.S. Preferred
Stock Index returned an aver-
age of 7.8% annually, beating
the 3.5% return of the overall
bond market.
But look back, and the risks
loom larger: Preferred stocks
lost 12.2% in 2007 and another
25.8% in 2008, including 32%
in the third quarter of 2008
alone. Even in the third quar-
ter of 2011, well after the fi-
nancial crisis had eased, pre-
ferred stocks lost 7.6%.
That partly is because pre-
ferred investors aren’t just
buying yield; they are making
a highly concentrated bet on a
single sector of the economy.
Four-fifths of all preferred se-
curities are issued by banks
and other financial companies.
And as interest rates fall
and investors chase yield ever
more desperately, some pre-
ferred stocks are disappear-
ing—and handing losses to
Johnny-come-lately investors.
Almost 28% of the iShares
fund’s $17.5 billion in holdings
are callable by the end of this
year, says Dorothy Lariviere,
an analyst and product consul-
BUSINESS NEWS
The Falcon 9 rocket was launched from Cape Canaveral in Florida.
damaged—no longer create an
instant sensation on social
media.
But Sunday morning’s
launch was important for an-
other reason.
It is the latest sign that
SpaceX, founded and run by
billionaire entrepreneur Elon
Musk, is accelerating its
the time. The inevitable result
is a smaller pool of moviego-
ers left to see everything else.
The results of that trend ha-
ven’t been shared equally. Walt
Disney Co., whose movie busi-
ness now focuses almost exclu-
sively on franchise pictures,
has grossed over $2 billion do-
mestically this year, 81% more
than its nearest competitor,
21st Century Fox Inc.’s Twenti-
eth Century Fox. Disney has
released 2016’s four highest-
grossing movies world-wide:
“Finding Dory,” “Captain
America: Civil War,” “The Jun-
gle Book” and “Zootopia.”
Disney’s domestic box-of-
fice receipts are up 47% from
the same time a year earlier,
according to the studio.
At Comcast Corp.’s Univer-
sal Pictures, meanwhile, box
office has plummeted 53%,
coming off a record-setting
tant at the firm.
That means the issuers
have the right—although not
the obligation—to redeem
those securities, taking them
off the market in order to refi-
nance at today’s lower rates. If
you paid around par, or re-
demption, value—typically $25
—you will get all your money
back. If you paid much more
than par value, you will lose
money.
Since the beginning of
June, a total of 23 issues val-
ued at $9.6 billion have been
called, says Jason Giordano, a
fixed-income analyst at S&P
Dow Jones indices.
Ms. Lariviere says iShares
is confident that the fund will
be able to replace any pre-
ferred holdings that get called;
companies have issued ap-
proximately $30 billion in new
supply so far this year.
Normally the market antici-
pates that an issue will be
called and gradually adjusts its
price downward. But so much
money has rushed in that
prices have gotten out of
whack. Some preferred issues
are trading at premiums that
may hand investors sudden
losses.
Consider the $950 million
in preferred securities from
Bank of America’s Merrill
Lynch Capital Trust II, whose
THE WALL STREET JOURNAL.
Falcon 9 mission to send cargo
tion in mid-July.
The latest launch manifest
on the company’s website lists
seven more launches through
the end of December, though
at least one of those might
slip at the customer’s request
due to availability of commer-
cial insurance and other is-
sues.
SpaceX officials also have
said they expect the initial
launch of the Falcon Heavy, a
more-powerful derivative of
the Falcon 9, before the end of
the fourth quarter.
CRAIG BAILEY/ASSOCIATED PRESS
That long-awaited demon-
stration launch is years late.
Such a tempo would go a
long way to assuage concerns
of some commercial customers
that SpaceX can’t be relied on
to launch its spacecraft in a
timely manner.
In recent months, a number
of major commercial satellite
launch tempo this year to get operators have sought alter-
closer to the ambitious sched- nate launch providers for
ule previously laid out by some spacecraft as a result of
management. earlier schedule slips.
Until 2016, the company Partly as a response, indus-
had never launched success- try officials have said that
fully more than six times in a SpaceX managers aim to be
calendar year. This year, the selective in seeking launches
eighth launch came less than a of U.S. spy satellites over
month after the last successful roughly the next decade.
2015 in which it released
blockbusters “Jurassic World,”
“Minions” and “Furious 7.”
This year it has released only
and many fans disliked the
movie, damaging the value of
Warner’s overall DC Comics
franchise, and the studio has
one major hit, the animated reorganized to bring more ex-
comedy “The Secret Life of ecutive scrutiny and a lighter
Pets,” and several flops, in- tone to next year’s sequel,
cluding “Warcraft.” “Justice League,” said people
Fox and Time Warner Inc.’s close to the project.
Warner Bros. are in close com- Warner’s second DC Comics
petition for second place with movie of the year, “Suicide
a little over $1.1 billion of box Squad,” also appears to be suf-
office in the U.S. and Canada fering from bad buzz, dropping
so far. Universal has close to about 67% in its second week-
$1 billion. Paramount and end in theaters. The movie has
Sony Corp.’s Sony Pictures En- grossed $222.9 million so far.
tertainment, both devoid of Some in Hollywood have
blockbusters, have grossed questioned whether this year’s
about $500 million each. box-office results signal waning
Even the hits this year come audience interest in sequels
with some asterisks. Warner’s and reboots. But seven of the
“Batman v Superman: Dawn of year’s top 10 movies are se-
Justice” grossed $873 million quels or spinoffs and two of the
world-wide—just short of the remaining three are family ani-
$1 billion that defines a major mation. Last year, eight of the
blockbuster. However, critics top 10 were sequels or remakes.
BONDS
Continued from the prior page
“The inflows have been sur-
prising,” said Zsolt Papp, a
portfolio manager for J.P. Mor-
gan Asset Management. The
backdrop for emerging mar-
kets, he added, still looks “very
clearly more negative than pos-
itive.”
Credit quality is also deteri-
orating. Nineteen corporate is-
suers have defaulted in emerg-
ing countries this year, up from
15 at the same time last year,
according to S&P Global Rat-
ings. Nearly one third of all
emerging-market issuers are at
the risk of being downgraded.
Yet even bonds from govern-
ments that have defaulted in
the past are attracting global
CHRISTOPHE VORLET
money. Ecuador paid off $650
million in bonds last year, the
first time in more than 180
years it repaid its foreign debt
on time. Ecuador issued new
debt in January that matures in
price shot up from $25.05 in
February to $26.50 in June,
far above the $25 par value.
Then, in July, the bank an-
2020 and yielded more than
22%. The rush of money into
Ecuador helped drop that yield
to 10.4%. Bond yields and prices
nounced it would call the se- move in opposite directions.
curities on Aug. 15. Their price Hemant Baijal, who runs the
fell 2% in a day. $6.2-billion Oppenheimer Inter-
There is another concern. national Bond fund, began to
As of Aug. 10, according to raise exposure to emerging
FactSet, the iShares fund owns markets in the fourth quarter
more than 10% of the out- of last year, betting the dollar
standing value of 185 of its rally would slow, which would
holdings. That is a lot of any boost emerging-market debt.
market for a single fund to Such debt accounts for 47% of
control in such a hurry. the funds’ assets, up from 30%
As of Aug. 10, according to at the end of September.
FactSet, the fund owns more Jack McIntyre, a portfolio
than 10% of the outstanding manager of the $3.2-billion
value of 185 of its holdings. (It Legg Mason BW Global Oppor-
has a total of 293 positions.) tunities Bond Fund, raised his
That’s a lot of any market for emerging-market allocation to
a single fund to control in 43% after it slashed U.S. Trea-
such a hurry. surys from 20% to 5%.
“We consistently monitor “Which is riskier, buying a
capacity within the underlying double-digit yielding sovereign
market for the securities,” bond or buying a negative-
says Ms. Lariviere. But there yielding government bond?” he
aren’t a lot of steps an ETF asked. “I’ll take the yield any
can take to prevent itself from day, knowing that there’ll be
growing too big too fast; un- some volatility but knowing
like traditional mutual funds, that over time you’re going to
it typically isn’t feasible for make a lot of money.”
ETFs to close to new investors
or impose redemption fees
that could discourage short-
term buyers.
Investors might consider See the story develop.
curbing their enthusiasm be-
fore this hot market delivers a Download on the App Store
scalding.
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
Alibaba Looks
Outside China
Alibaba Group Holding
Ltd., its business maturing at
home in China, is seeking out
growth in India and Southeast
Asia.
By Newley Purnell
in New Delhi and
Alyssa Abkowitz
in Beijing
In India, the internet com-
pany in recent months has
snapped up executives with
experience in the country’s
fast-growing, highly competi-
tive e-commerce sector, a sign
it could be planning an online-
shopping push there. In South-
east Asia, Alibaba paid $1 bil-
lion in April for a controlling
stake in Singapore-based e-
commerce startup Lazada
Group, its biggest overseas ac-
quisition to date.
“We acquired the majority
control of Lazada in an effort
to start to serve local consum-
ers in Southeast Asia, and
that’s something that’s going
to be a very important poten-
tial market for us,” Alibaba Ex-
ecutive Vice Chairman Joe
Tsai said on a conference call
Thursday after the company
reported revenue growth of
59% for its latest quarter. “It’s
a market with over 500 million
potential consumers.”
The attention to other parts
of Asia comes as Alibaba faces
competition at home from e-
commerce rivals such as
JD.com Inc. and as it attempts
to boost revenue outside of its
core commerce business.
E-commerce in India
could take off as
broadband spreads
and incomes rise.
Analysts say e-commerce in
India, the world’s second-
most-populous country, could
take off the way it did in China
as broadband internet spreads
and incomes rise. Goldman
Sachs Global Investment Re-
search projects e-commerce
sales in India will rise to $127
billion in 2025 from $11.2 bil-
lion last year—though even
with such growth the market
would be dwarfed by China,
where Alibaba alone sold
goods valued at three trillion
yuan ($452 billion) in its latest
fiscal year.
“We have decided to place
some very strategically located
assets in that market,” Mr.
Tsai said of India.
A person familiar with Ali-
baba’s strategy said it is taking
a broad-based approach in In-
dia. It has a business-to-busi-
ness website that connects
buyers and suppliers of goods
such as chemicals and miner-
als, but no stand-alone domes-
tic consumer-to-consumer of-
fering. That is an area in
which local startups are bat-
tling, the person said, and “the
first winners may not be the
ultimate winners.”
In India last year, Alibaba
led a $500 million fundraising
round for e-commerce com-
DARREN WHITESIDE/REUTERS
Alibaba paid $1 billion for a controlling stake in Singapore’s Lazada.
FIBER
Continued from page B1
subscribers for the internet
service, the firm said, but “one
can’t help but feel that all of
this has the flavor of a junior
science fair.”
In a statement, Alphabet
said, “We’re continuing to
work with city leaders to ex-
plore the possibility of bring-
ing Google Fiber to many cit-
ies. This means deploying the
latest technologies in align-
ment with our product road
pany Snapdeal.com, while its
financial-services affiliate, Ant
Financial Services Group,
paid more than $500 million
for 40% of One97 Communi-
cations, the parent company
of online-payment and market-
place startup Paytm.
The investment in Paytm,
which makes a popular mobile
wallet that can be used to pay
for services and products,
ranging from electricity to
iPhones, gives Alibaba an edge,
the person said. Nearly all In-
dian consumers coming online
for the first time are doing so
on low-cost smartphones.
Recent hires suggest Ali-
baba is looking to ramp up its
own consumer e-commerce of-
ferings in India. It has added
Vinay Bhartia, a co-founder of
Mumbai-based e-commerce lo-
gistics startup Mypacco, as a
senior executive, and recruited
former Bain & Co. consultant
Bharati Balakrishnan, who pre-
viously held a senior position
at Bangalore-based services-
booking platform LocalOye.
Alibaba, which declined to
comment on the hires or any
consumer e-commerce plans in
India, would be playing catch-
up there against the likes of
Flipkart Internet Pvt., which
analysts estimate accounts for
nearly half of India’s e-com-
merce sales, and Amazon.com
Inc., which has pledged to in-
vest $5 billion in the country.
In a quest for customer loy-
alty, Flipkart and scores of
smaller e-commerce startups
are spending heavily to offer
deep discounts. Flipkart, val-
ued at $15 billion by investors
when it raised money last
summer, doesn’t disclose its
revenue, but says it is working
to become profitable.
Rival Amazon has built up
robust warehouse and delivery
technologies in India, and like
its peers provides services to
suit the local market, such as
allowing customers—many of
whom don’t have credit
cards—to pay for goods when
they are delivered. Other India
e-commerce complications:
patchy internet connections,
poor infrastructure and uncon-
ventional addresses that make
logistics operations difficult.
In Singapore, Alibaba Chair-
man Jack Ma, on a June visit
to Lazada, told employees he
had been attracted to the com-
pany’s quick growth and abil-
ity to execute in new markets,
according to a Lazada staff
member who was in atten-
dance. He added that he sees
Lazada as “a key cog” in Ali-
baba’s international expansion,
said the person.
In another move that will
increase Alibaba’s exposure in
Southeast Asia, Ant Financial
said in June it planned to buy
a 20% stake in Thailand’s As-
cend Money, an e-payment
firm.
Alibaba said Thursday that
fiscal-first-quarter revenue for
its international commerce re-
tail business more than dou-
bled from the year-earlier pe-
riod ending in June, to $168
million, primarily because of
the integration of Lazada.
mapmap, while understanding
local considerations and chal-
lenges, which takes time.”
Google Fiber has begun
construction in five new metro
areas and announced plans to
reach another dozen cities in
the next few years. Now, those
dozen cities will be the test
bed for a push into wireless
technology.
Google Fiber last month
bought Webpass Inc., which
beams internet service from a
fiber-connected antenna to an-
other antenna mounted on an
apartment building. The com-
pany serves just 820 buildings
Monday, August 15, 2016 | B3
TECHNOLOGY
Indians Load Up Phones
Shoppers cut back on
consumer goods in
favor of buying mini-
data plans to go online
BY PREETIKA RANA
NEW DELHI—A new wave
of affordable smartphones has
brought hundreds of millions
of Indians online for the first
time, giving them access to
better education, jobs and en-
PREETIKA RANA/THE WALL STREET JOURNAL
tertainment. But there is one
sector that isn’t thrilled with
this development: consumer-
goods companies.
Nestlé SA, Coca-Cola Co.
and others selling consumer
products to India’s 1.2 billion
people say that as their poor-
est customers start spending
on smartphone data, they have
fewer pennies left over for
snacks, sodas and shampoo. Cellular companies sponsor signage on local mom-and-pop shops like this one in New Delhi.
Most Indians still struggle to
make ends meet, and increased panies, the spending shift to-
spending in one area inevitably The High Price of Data ward data is another dose of
means cutbacks elsewhere, Unilever and other consumer-goods companies are suffering a sales bad news. They were already
they say. slowdown in India they blame partly on smartphones. grappling with a two-year
“The growing consumption drought that sapped the lim-
of mobile data and impressive Hindustan Unilever sales, Indian consumer-goods ited spending power of farm-
growth in the number of mo- change from a year earlier companies’ sales, change from ers in this largely agriculture-
bile users...has resulted in con- a year earlier dependent economy.
sumers increasing their spends Making matters worse,
on phones rather than on fast- 25% 10% these companies had counted
moving consumer products,” on emerging markets such as
said Sanjay Khajuria, a spokes- 20 8 India to make up for slower
man for Nestlé in India. growth in the West.
The evidence for this trend 15 6 But while smartphones are
is largely circumstantial. Mo- one source of their troubles,
bile-data consumption is accel- 10 4 they can also be part of the so-
erating rapidly, while at the lution.
same time sales growth at 5 2 Godrej Consumer Products
some of India’s largest con- Ltd., an Indian company that
sumer companies has slipped 0 0 sells everything from mosquito
to a two-year low. FY 2012 ’13 ’14 ’15 ’16 1Q FY ’15 1Q ’16 1Q ’17 repellents to hair color, this
“We are competing for the Note: Fiscal year ends March 31
year began giving consumers
consumer’s wallet not just beauty and hair-coloring tips
with beverages and other im-
Sources: Nielsen (consumer-goods companies); the company
THE WALL STREET JOURNAL. on prerecorded mobile calls. In
pulse categories, but also with return, it said, consumers who
data services on smartphones,” mom-and-pop grocery shop in tered across racks of PepsiCo answered and listened to these
said Venkatesh Kini, the presi- New Delhi. These days, “they Inc.’s Frito-Lay chips and calls the most would stand a
dent of Coca-Cola in India and spend every last rupee on a crates of Coca-Cola’s Thumbs chance to win a free smart-
Southwest Asia. data recharge instead.” Up cola. phone.
Indians generally can’t af- Mr. Kapoor initially resisted Some shoppers outside the Unilever PLC, the maker of
ford monthly data plans, and the lure of data, even as rival store said they had cut down Ben & Jerry’s ice cream and
only get online when they grocers doubled up as re- on impulse purchases to fi- Axe deodorant, hopes to lever-
have some spare change. For a charge centers. But the busi- nance more time online. age the explosion of phones in
quick peek at Google or Face- ness became so lucrative in re- After buying her first India to market its ever-ex-
book, for example, Vodafone cent years that he eventually smartphone last year, Lakshmi panding portfolio of personal-
Group PLC offers data plans gave in. Now, data and voice Kumari stopped spending care products.
for as little as 15 cents at a plans make for some 70% of money on hair-conditioner sa- Last year, it began encour-
time, roughly the same price his daily sales. chets. aging aspirational middle-
consumers pay for a bag of The battle for limited space “It was an added expense. class Indians, who own phones
salted chips. in India’s tiny storefronts is Shampoo works just fine,” said and consume data in small
People buy these mini-data fierce. Cellular companies Ms. Kumari, who earns $100 a spurts, to sign up for a pro-
plans at the same mom-and- sponsor signage to make sure month washing kitchenware in gram that delivers free tips on
pop stores where they buy customers know their local rich homes. “I can do without topics including how to speak
their snacks. mom-and-pop offers more conditioner. But I can’t do better English and dressing for
“There was a time when than just a cola or candy. A anything without my phone. I an interview.
kids would come here and Vodafone-branded billboard can’t hear songs, I can’t surf The tips are delivered by
blow their pocket money on hangs over Mr. Kapoor’s shop, the net, and I can’t chat with the mascots for its Rin deter-
chips and chocolate,” said while posters from three other friends.” gent, and can be downloaded
Anup Kapoor, who runs a cellphone providers are plas- For consumer-product com- over a smartphone.
Media Try Out Instagram ‘Stories’
BY MIKE SHIELDS a limited list of approved me- lishers say.
dia partners. The first item Mashable
A handful of media compa- Time Inc. brands are ag- published to Instagram Stories
nies are reporting early traffic gressively testing Instagram generated about 30,000
gains after publishing content Stories. Sports Illustrated has unique viewers, more than
to Instagram’s new “Stories” posted images from various double what the site sees on
feature, which mimics some of Olympic venues. An item from an average video posted to In-
the traits of Snapchat Inc.’s People that included members stagram, a spokesman said.
messaging app. of NBC’s “Today” show gener- Publishers say that Insta-
Instagram, the photo-shar- ated more than 100,000 views, gram has provided solid ac-
ing app owned by Facebook a Time spokeswoman said. cess to data and measurement
CARL COURT/GETTY IMAGES
Inc., introduced Stories less Entertainment Weekly used early on. But unlike the aver-
than two weeks ago. Since Instagram Stories to reveal a age Instagram post, Instagram
then, publishers including magazine cover featuring Stories aren’t necessarily de-
CNN, Food Network, Comedy “Fantastic Beasts and Where signed to be shared—whereas
Central and Cosmopolitan to Find Them” star Eddie Red- Snapchat Discover content can
have regularly produced Sto- mayne. be shared within Snapchat.
ries, with some reporting solid Publishers say the new “The content is supposed to
early viewership numbers. packaging is experimental but Casual nature of ‘Stories’ takes be more transient, things that
AwesomenessTV, which ca- with intriguing possibilities. pressure off, publishers say. you may not want to save for-
ters to teens and tweens, al- “You can do an orchestrated ever,” said Peer Schneider,
ready has run one of the first story, with a definite start and Instagram Stories are de- general manager of IGN, a site
ads on the platform. finish,” said Oren Katzeff, signed to be less-polished, for games enthusiasts.
Like Snapchat’s Stories, In- head of programming at which removes some of the Of course, comparing Insta-
stagram Stories typically con- Tastemade. “That is different pressure from publishers. gram Stories with Snapchat
sist of a handful of images and than an individual piece of “Instagram Stories gives us Discover is a bit apple and or-
videos—often annotated and content in a feed.” the ability to showcase con- anges. Both apps claim huge
decorated with graphics and Tastemade, which has 2.1 tent that might not have made daily audiences: Snapchat
emoticons—stitched together million followers on Insta- it into our highly curated feed reaches 150 million people a
in a single package. gram, produced a “Breakfast before,” said Amy Odell, editor day, while Instagram says it
Both generally are produced Around the World” video seg- of Hearst Corp.’s Cosmopoli- reaches 300 million daily us-
using a smartphone and disap- ment in which staffers in Bra- tan.com. ers. Snapchat Discover, how-
pear after 24 hours. They dif- zil, Argentina, the U.K., Japan Instagram is showcasing ever, provides a unique, stand-
fer from the more profession- and the U.S. asked local digital Stories along the top of users’ alone section of its app
ally produced content in influencers to highlight local feeds, and that is helping to specifically to showcase media
Snapchat Discover created by cuisine. drive early consumption, pub- partners’ content.
in five cities.
Webpass Chief Executive
Charles Barr said wireless of-
fers an opportunity to over-
to test “experimental trans-
mitters” for wireless connec-
tions in 24 U.S. locations dur-
ing the next two years.
discussed using wireless tech-
nology for the “last-mile” con-
nection to homes, but neither
has deployed it widely.
build the fiber network. It is
working with real-estate firm
Irvine Co. to pre-install fiber
in new properties near Irvine,
come the challenging econom- Google Fiber is planning a Google Fiber has tried sev- Calif.
ics of building fiber networks system that would use fiber eral other ways to cut costs The new strategies are in
from scratch. “Everyone who for the central network and and accelerate expansion. response to the headaches of
has done fiber to the home has antennas to connect each In San Francisco and parts building a fiber network. In
given up because it costs way home wirelessly to that net- of Atlanta, the company is Kansas City, homeowners com-
too much money and takes work, according to a person leasing existing underused fi- plained about destroyed lawns
way too much time,” he said. familiar. Alphabet Chairman ber and connecting apartment and ruptured gas lines. In
In Kansas City, Alphabet Eric Schmidt said at the com- buildings rather than single- Nashville, Tenn., and Louis-
also is testing a wireless tech- pany’s shareholder meeting in family homes. It chose Hunts- ville, Ky., competing telecom
nology that delivers connec- June that wireless connections ville, Ala., in part because the firms are blocking the com-
tions from antennas on street can be “cheaper than digging city agreed to build a fiber pany from stringing fiber on
lamps. And the company re- up your garden” to lay fiber. network for Google. their utility poles.
cently applied to the Federal AT&T Inc. and Verizon In Tampa, Google Fiber is in —Shalini Ramachandran
Communications Commission Communications Inc. also have talks with a power company to contributed to this article.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
B4 | Monday, August 15, 2016
Retailers Suffer as Services Take Off
Health care and travel
keep the economy
moving, as electronics,
clothing chains suffer
BY SUZANNE KAPNER
AND JEFFREY SPARSHOTT
U.S. retail sales barely
budged in July according to
data released Friday, capping
a week of tepid earnings re-
sults from department stores
and underlining a seismic
shift in consumer spending.
Americans are still splash-
ing out, but they are splurging
less on goods such as apparel
and electronics and more on
entertainment, travel and
health care.
Demand for clothing and
household items in recent
years has been markedly
softer than during past eco-
nomic recoveries. And what
8.6%
Rise in travel expenditures last
month over a year earlier in
U.S., according to First Data.
demand there is has been
shifting online away from tra-
ditional retailers such as
Macy’s Inc., Kohl’s Corp. and
Nordstrom Inc., which each
reported lower quarterly sales
this past week.
Retail now represents only
a slice of household outlays,
with consumption of services
making up about two-thirds of
all personal expenditures. The
monthly figures are closely
watched as a gauge of con-
sumer sentiment and broader
U.S. economic health.
A fuller picture of con-
sumer demand will emerge
this week when some of the
country’s largest chains, in-
cluding Wal-Mart Stores Inc.
and Home Depot Inc., report
their latest results. Investors
expect slight sales gains at
Wal-Mart, and stronger
Boeing Tanker Gets U.S. Approval Fox Names Leaders
BY JON OSTROWER
The Pentagon on Fri-
day cleared Boeing Co.’s new
aerial fueling tanker for pro-
duction, an important mile-
stone as the plane maker
seeks to move past delays and
heavy financial losses.
The declaration by the U.S.
Defense Department clears the
way for a $2.8 billion initial
production contract.
The milestone, which was
expected in 2015, has slipped
several times as Boeing has
worked through design and
manufacturing issues with the
aircraft.
Trouble developing the
KC-46 program, which is
based on a heavily modified
767 airliner, has generated
about $2 billion in write-offs
by the plane maker.
“The KC-46 is ready to take
Business
Watch
MONDELEZ
Snack Maker Buys
License for Biscuits
Snack maker Mondelez Inter-
national Inc. agreed to buy the
global license for Cadbury-
branded biscuits from Burton’s
Biscuit Co.
The companies didn’t disclose
the terms of the transaction Fri-
day, but media reports in the
U.K. last month valued the deal
at about £200 million ($260 mil-
lion). The deal allows Mondelez
to make, market and sell Cad-
bury-branded biscuits world-
wide.
Under a co-manufacturing
agreement, Burton’s factories
will continue to make the Cad-
bury-branded biscuits.
—Brittney Laryea
ENI
Shut-Down Oil Field
Restarts in Italy
Eni SpA on Friday said it has
restarted production at an oil field
in southern Italy that a court had
forced it to shut down earlier this
year, pending an investigation into
illegal waste trafficking.
THE WALL STREET JOURNAL.
BUSINESS NEWS
growth from the big-box home Monthly figures can be vola-
improvement chain.
How those results pan out
Twenty Years of Spending tile; last month’s flatline fol-
lows a strong June and gauges
will have implications for the How U.S. spending at retail and food-service establishments has shifted since 1996. of confidence show consumers
wider economy. Consumers 1996 ’98 2000 ’02 ’04 ’06 ’08 ’10 ’12 ’14 ’16* remain fairly upbeat.
have been the main engine of Motor-vehicle and But broader conflicting eco-
tepid economic growth this parts dealers 20.3% nomic trends could leave Fed-
year as steady job gains, ris- eral Reserve officials with an
ing wages and lower energy uncertain view of the econ-
prices spur purchases. omy’s longer-term trajectory.
According to the Commerce The labor market has been
Department, sales at general adding jobs and wages are ris-
merchandise retailers, depart- Grocery and liquor ing, boosting household bal-
ment stores and electronics stores 12.9% ance sheets. But higher wages
chains all fell in July, helping haven’t spurred inflation pres-
to depress overall retail sales, sures, leaving room for con-
which were unchanged at a Department and tinued central-bank support.
seasonally adjusted $457.73 general stores 12.4% Overall economic growth has
billion last month. been muted, with gross do-
That is despite a 1.1% rise mestic product advancing at a
in auto sales, and a 1.3% gain meager 1% rate in the first
from non-store retailers, a cat- Restaurants and bars half of the year.
egory that includes online 12.0% Business investment has
sellers like Amazon and cata- been one of the biggest drags
logs. Nonstore (mostly on the economy as companies,
internet) 10.1%
While July’s headline retail squeezed by narrowing prof-
sales figure was soft, “we view Gasoline stations 7.3% its, have curtailed spending on
the report as signaling a equipment and structures.
pause in a good pace of Home and garden 6.5% These economic crosscur-
spending rather than a sign of Health and personal
rents have left the Federal Re-
retreat by households,” said care 6.1% serve standing still. The Fed
Michael Moran, chief econo- raised rates in December for
mist at financial services firm Clothing and the first time since 2006, but
Daiwa Capital Markets Amer- accessories 4.7% many economists and inves-
ica. Miscellaneous 2.3% tors doubt they will repeat
Oxford Economics, a global that move before December
forecasting firm, expects a Furniture 2.0% due to the uncertain perfor-
2.6% gain in gross domestic Electronics and mance by businesses and con-
product this quarter over a appliances 1.9% sumers.
year earlier. U.S. households The stiff competition for
Sporting, hobby,
have increased spending every consumer dollars is prompting
books and music 1.7%
quarter since the end of 2009. some retailers to shrink,
Since 2000, there has been Note: All figures are seasonally adjusted; 2016 figure is as of July. moves that have been cheered
a significant rotation in U.S. Source: Commerce Department Andrew Van Dam/THE WALL STREET JOURNAL. by investors worried by over-
spending away from goods capacity. Macy’s, which closed
and toward services. Craig about 20% of total consump- “Overall leisure demand is McDonald’s Corp., Star- 41 stores earlier this year, said
Johnson, president of retail tion today, up from 5% in very strong, but business bucks Corp. and other food Thursday it would close an-
consulting firm Customer 1960, according to IHS Global travel demand is slackening,” chains reported a pullback in other 100 locations by early
Growth Partners, estimates Insight economist Chris Chris- said Douglas Quinby, vice customer visits in the latest next year. That would reduce
the shift represents about 5% topher. He expects the figure president at Phocuswright, a quarter as the cost of grocer- its footprint from last year’s
of all consumer spending, or to rise to 25% of consumption research firm. He said that ies is down sharper relative to prime shopping season by
about $600 billion annually. by 2025. shift is driving strong passen- the cost of eating out. “There 18%.
By his count, the lion’s When it comes to discre- ger volumes for U.S. airlines is tightening in disposable in- It is an acknowledgment
share is going toward non-dis- tionary spending, consumers and demand for vacation rent- come, especially on the low that some of the stores are
cretionary items such as are opening their wallets for als, but weak or declining rev- end,” said Wendy’s Co. CEO worth more as real estate,
health care, housing, student travel and leisure activities. enue for carriers. Todd Penegor said. given that the “redevelopment
debt and transportation. According to First Data Corp., More worrisome are Lower sales aren’t always a opportunity exceeds their
“Those are things that people which tracks sales at four mil- broader consumer spending reflection of a weaker econ- value to us as a retail store,”
have little control over but lion merchant locations across drops at sporting-goods omy. Retail numbers were said the chain’s chief financial
have to come out of some- the country, travel expendi- stores, food and beverage dragged down by cheaper gas- officer, Karen Hoguet.
where,” Mr. Johnson said. tures rose 8.6% last month stores, restaurants and bars in oline prices and the July pull- —Drew FitzGerald
Health care accounts for over a year earlier. July. back may be just a blip. contributed to this article.
ran into technical issues ear-
lier this year while testing its
refueling boom.
For Cable Network
That forced a redesign of
parts of the system and par- BY JOE FLINT
tially contributed to delayed
first deliveries of the tanker 21st Century Fox Inc. Exec-
by five months, pushing the utive Chairman Rupert Mur-
KEVORK DJANSEZIAN/GETTY IMAGES FOR THEWRAP
first 18 jets’ scheduled arrival doch tapped two Fox News
to the Air Force to early 2018. veterans as co-presidents of
The company completed the the cable news network fol-
JOHN D. PARKER/BOEING
initial round of testing on the lowing the departure of Roger
revised design in July, clearing Ailes, who resigned as the
the way for the green light network’s chief executive last
from the Pentagon. month amid allegations he
Despite the delays, techni- sexually harassed employees.
cal hiccups and the belated ap- Bill Shine is currently the
Boeing’s KC-46 tankers are based on modified 767 airliners. proval from the Defense De- senior executive vice presi-
partment, Boeing has dent of programming for Fox
the next step,” said Gen. Dave Boeing has been flying the continued to produce KC-46 News and Fox Business, and
Goldfein, Air Force chief of tanker with its specialized re- aircraft in Everett, Wash., that Jack Abernethy is a former ex-
staff in a written statement. fueling equipment for nearly will be fitted with refueling ecutive vice president of Fox Jack Abernethy was tapped as
The Air Force said it would 11 months, demonstrating the equipment and other military News and current chief execu- a co-president for Fox News.
award Boeing contracts over aircraft’s capability passing hardware once certification tive of Fox’s TV station group.
the next 30 days for 19 KC-46 fuel to jets flown by the Air testing is completed before The pair will report to Mr. News employees.
aircraft and their spare parts. Force, Marines and Navy. It first deliveries in August 2017. Murdoch, who assumed the In tapping Mr. Shine, 53
role of chairman and acting years old, and Mr. Abernethy,
CEO of Fox News after Mr. 60, Mr. Murdoch is sending a
A court in the Basilicata re- ing tax would have a devastating pany’s drugs. Ailes departed. signal that he isn’t looking to
gion in the most southern part
of mainland Italy ordered the Val
impact on our business at the
worst possible time in the com-
In response, the Swiss phar-
maceutical company expressed
The company on Friday
also said Fox News’s chief fi-
dramatically overhaul the for-
mula behind Fox News.
d’Agri oil field to be closed in
late March, after the arrest of
modity cycle,” Rio Tinto iron-ore
chief executive, Chris Salisbury,
regret through a statement, but
said such conduct wouldn’t have
nancial officer, Mark Kranz, is
retiring. A 21st Century Fox
Mr. Shine has overseen
much of the programming and
several Eni employees. The said in a memo to staff on Friday. been sanctioned by the “most internal inquiry into Mr. production for Fox News since
probe is continuing and Eni, It- —Rhiannon Hoyle senior management” at Novartis Ailes’s conduct, which is being its launch in 1996 and is pri-
aly’s largest company by market Korea. led by the law firm Paul, marily responsible for its
value, has said it is cooperating NOVARTIS “Novartis does not tolerate Weiss, Rifkind, Wharton & prime-time lineup of right-
with the court and isn’t guilty of misconduct and we are already Garrison LLP, found that Mr. leaning commentary shows.
any wrongdoing.
Six Are Indicted implementing a remediation plan Kranz was involved in execut- Mr. Murdoch said Mr. Shine
Restarting the oil field, Eni’s In South Korea in Korea based on the findings ing settlement payments to has “developed and produced
most productive in its home Prosecutors have indicted a from our own investigation,” the women who had complained a signature prime time that
market, is crucial for the com- former chief executive of the Basel-based company said. about harassment by Mr. dominated the cable news
pany, which reported a drop in South Korean unit of Novartis Paul Barrett, an official from Ailes, according to people fa- landscape.”
second-quarter production and AG and five other former and Novartis International, said the miliar with the situation. Mr. Abernethy, who was at
revenue, partly due to the shut- current managers over allega- company could provide no fur- Mr. Kranz couldn’t be Fox News at its start, will
down. tions they illegally paid doctors ther detail on the case before reached for comment. oversee all the business oper-
—Eric Sylvers 2.6 billion won ($2.3 million) in the trial proceedings. One former Fox News em- ations for the channel includ-
return for prescribing the com- —Associated Press ployee, Laura Luhn, received a ing finance, advertising sales
RIO TINTO settlement of $3.15 million in and distribution.
2011, people familiar with the Mr. Murdoch said Mr. Aber-
Proposed Iron-Ore Tax matter said. 21st Century Fox nethy has a “strategic vision
Is Criticized by Miner has said top Fox managers and deep knowledge of the ca-
The head of Rio Tinto PLC’s weren’t aware of that pay- ble news business.” He will
iron-ore business has railed ment until recently. also remain in charge of Fox’s
against a proposal from a West- Fox’s probe has been exam- local television stations.
ern Australia lawmaker to in- ining the role others at the While Mr. Murdoch is put-
crease taxes on its operations in company may have played ting new management in place
the state, saying such a move with regards to Mr. Ailes’s al- less than one month after Mr.
would result in further cuts to leged misconduct. It has also Ailes’s departure, the 85-year-
jobs and investment. unearthed new allegations old mogul still plans to be in-
MOLLO/FOTOGRAMMA/ROPI/ZUMA PRESS
Brendon Grylls, the new leader against Mr. Ailes. volved in the day-to-day oper-
of the Nationals party in Western The number of women who ations for now. 21st Century
Australia, said he would seek to have come forward to investi- Fox isn’t likely to name a new
raise a state tax on iron-ore min- gators reaches into the dou- permanent Fox News CEO for
ing paid by Rio Tinto and BHP Bil- ble-digits, and 21st Century the foreseeable future, one of
liton Ltd. to 5 Australian dollars Fox is anticipating paying the people familiar with the
(US$3.80) a metric ton from 25 some settlements, people fa- situation said.
cents. The Nationals party is the miliar with the matter have The Murdoch family is a
smaller party in a ruling alliance said. major shareholder in 21st Cen-
with the state’s Liberal Party. Mr. Ailes has denied all tury Fox and Wall Street Jour-
“This new discriminatory min- Restarting the Val d’Agri oil field in Italy is crucial for Eni. claims that he harassed Fox nal-owner News Corp.
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
Trump Moves Markets—in Mexico Analysts
See More
Peso climbs as
candidate declines in
polls, some traders say;
others don’t see a link
BY ANTHONY HARRUP
MEXICO CITY—Mexican-
peso traders long used to
watching out for anything
from oil prices to U.S. payrolls
now have one more thing to
consider: polls showing who is
ahead in the race for the
White House.
A spate of recent surveys
showing Democratic candidate
Hillary Clinton ahead of Re-
publican Donald Trump coin-
cided with the peso reaching
its strongest level against the
U.S. dollar since the end of
June, when the Bank of Mex-
ico raised interest rates by an
JONATHAN DRAKE/REUTERS
unexpected half-percentage
point. A number of traders
and analysts said those polls
contributed to the peso’s
gains.
“The peso is rallying and,
more importantly, it has more
room to appreciate as Hillary
Clinton continues to climb in
the polls—gaining ground on
Donald Trump, who has pro-
posed policies that could po-
tentially hurt Mexico’s econ-
omy,” Nomura Latin America
strategist Benito Berber said
in a note to clients on Tues-
day.
Although things could
change between now and No-
vember, “the fact remains that
the gap favoring Clinton has
widened recently and that
should be supportive for the
peso,” Mr. Berber added.
The peso ended trading in
Mexico City on Friday at
about 18.245 to the U.S. dollar,
compared with 18.90 a week
earlier. It remained down
nearly 6% so far this year.
Mr. Trump’s bid for the
White House has put an un-
usual spotlight on Mexico. The
Republican nominee has said
he would build a wall along
the border between the U.S.
and Mexico to keep out illegal
immigrants; kick out illegal
immigrants already in the
U.S.; and make Mexico pay for
the wall by restricting money
transfers home by Mexicans
working in the U.S., imposing
trade tariffs or raising visa
SCOTT OLSON/GETTY IMAGES
Workers make a batch of Brick cheese at Widmer’s Cheese Cellars in Theresa, Wis., in June.
Farmers Seek Cheese Bailout Stock Values Flash a Warning
BY KELSEY GEE
CHICAGO—Dairy farmers
drowning in cheap milk begged
agricultural officials on Friday
to buy up tens of thousands of
tons of cheese to help bail them
out.
Jim Mulhern, chief executive
of the National Milk Producers
Federation, asked U.S. Agricul-
ture Secretary Tom Vilsack to
buy $150 million worth of
cheese to protect struggling
dairy farmers and provide 90
million pounds of food to needy
Americans.
“Dairy producers here in the
United States need assistance,”
Mr. Mulhern wrote to Mr. Vil-
sack. A spokesman for the Agri-
culture Department said the
regulatory body “shares the
concerns for our nation’s dairy
farmers, who like many in the
farm community are facing
tight margins,” and that it
would review the letter.
Milk prices for farmers have
plunged 13% in the past year to
around $1.25 a gallon, their
lowest point since October
2009, amid a barnyard-wide
glut in agricultural commodities
from corn to cattle. Favorable
FINANCE & MARKETS
Donald Trump, at a March rally in North Carolina, holds a sign
promoting the wall he says he would build on the U.S.-Mexico border.
fees. He also has said he strategy at Brown Brothers
would renegotiate terms of Harriman. “Clients aren’t say-
the North American Free ing, ‘I’m staying out of Mexico
Trade Agreement, or abandon because Trump might win.’ ”
it. Mr. Thin sees more funda-
“Challenges to globalization mental factors behind the
and Nafta in particular would peso’s recent behavior, includ-
deal a severe blow to Mexico’s ing a recovery in oil prices,
economy, require policy mak- lower expectations for an in-
ers to deliver another round crease in U.S. interest rates
of deep structural reforms to anytime soon and monetary
sustain long-term growth, and easing by major central banks,
likely lead to a more depreci- which has been driving inves-
ated peso,” analysts at Mor- tors into emerging markets in
gan Stanley said in a recent search of higher yields.
report. As one of the world’s most-
Whether any of that is con- traded currencies, the peso is
crete enough yet to be fac- often used as a hedge for ex-
tored into foreign-exchange posure to emerging markets
dealings is a matter of debate. broadly; when investors shy
Some people in the market away from risk, the peso takes
don’t find the link between a hit. The oil-price slump of
the U.S. pre-election polls and the past two years has taken a
the peso that compelling, es- toll on the peso, as have on-
pecially when the election still again off-again expectations of
is months away. U.S. rate increases. And the
“It’s been a popular theme peso hit an all-time low of
since the nomination, and 19.52 to the dollar as global
there was a lot of noise with markets shuddered in the
the conventions, although it wake of the U.K. vote to leave
seems very nebulous to me,” the European Union.
said Win Thin, global head of For some peso traders, the
emerging-market currency possibility of a Trump presi-
weather at home and skyrocket- outbreak triggered an export
ing production globally have ban that decimated U.S. poultry
pushed down prices on staple prices. Officials often distribute
grains as well as the milk and such surpluses to U.S. school-
the meat of animals that feed lunch programs or food banks.
on them. “This type of assistance
Pressure on farmers would both help economically
mounted on Friday after the strapped farmers, and also help
USDA forecast record corn and those without ready access to
soybean harvests this fall, a nutritious dairy products,” Mr.
bounty that likely would push Mulhern wrote on Friday on be-
down prices even further. half of the Arlington, Va.-based
federation’s members.
13%
U.S. farmers expanded their
herds and flocks two years ago
while prices were high and ex-
Amount U.S. milk prices have port markets were hot. This
declined in the past year, hitting year, a strong dollar and grow-
their lowest point since 2009. ing milk production in Europe
has made U.S. dairy products
less attractive to foreign buy-
Dairy farmers have struggled ers. The surplus is filling up U.S.
to stay solvent as stockpiles of cold storage facilities just as a
cheeses from cheddar to feta global commodity glut drags
have swelled in June to a record down prices for grains and
1.25 billion pounds. Cold-storage meats as well.
warehouses across the U.S. are Brody Stapel said income at
socking away millions of pounds his dairy farm in Cedar Grove,
of cheese, some of which can be Wis., is down 20% this year, the
kept frozen for years, as dairy worst since he took over from
processors hold out for higher his father four years ago.
prices. In the past, the USDA “You keep your banker close
has made similar purchases of and make sure you’re on his
peanuts and of chicken leg quar- good side going in,” Mr. Stapel
ters after an avian influenza said. “We’re just getting by.”
Market Movers
How many Mexican pesos one U.S. dollar buys
16 pesos
Bank of Mexico raises
interest rates by 50 basis
points and sells $2 billion
17 in surprise exchange-
market intervention
18
Donald Trump becomes
presumptive Republican
nominee after last remaining
19
rival drops out of race
U.K. votes to leave the European Union
Bank of Mexico raises interest
rates by 50 basis points
20
J F M A
Note: Scale inverted
Source: WSJ Market Data Group
dency has been added to the
list of things that could go
wrong for the peso. In its
monetary-policy statement
Thursday, the Bank of Mexico
said uncertainty over the out-
come of the U.S. election is
among factors that could
cause the peso to depreciate.
“The Trump factor is a
theme, as a victory could lead
Samsung Units to Buy
German Skyscraper
BY JONATHAN CHENG
SEOUL—A consortium of
Samsung Group companies will
buy Germany’s tallest sky-
scraper in a real-estate deal val-
ued at more than $800 million.
Samsung SRA Asset Manage-
ment Co., a real-estate invest-
ment subsidiary of Samsung
Life Insurance Co., based in
Seoul, was named the preferred
bidder for the Commerzbank
Tower in Frankfurt, Samsung
Life said Friday. It said the deal
would likely close in one or two
BY STEVEN RUSSOLILLO
Lower your sights.
The U.S. stock market’s
trifecta of record index val-
ues last week, its first since
1999, comes with a glaring
warning that isn’t getting as
much attention
AHEAD as it deserves:
OF THE rising valua-
TAPE tions. This has
important im-
plications not
only for individual investors
but also public pension
funds that base their health
on investment targets. They
look absurdly optimistic.
While pricey valuations
don’t necessarily mean the
market is poised to drop,
they do suggest that the al-
ready yawning gap in public
accounts is understated to
the tune of perhaps hun-
dreds of billions of dollars.
Taxpayers and owners of
municipal bonds that could
be left on the hook should
take heed.
Price/earnings ratios are
volatile, but consider the
more stable, long-term valu-
ation indicator popularized
by Nobel Prize winning econ-
Monday, August 15, 2016 | B5
WSJ/NBC News poll shows
Clinton with bigger lead over
Trump than before the conventions
Several polls show
Trump leading Democrat
Hillary Clinton in wake of
GOP convention
M J J A
THE WALL STREET JOURNAL.
to capital outflows,” said Ed-
uardo Ontiveros, head cur-
rency trader at Grupo Finan-
ciero Interacciones in Mexico
City.
Mr. Ontiveros compared the
recent currency gains with
losses when Mr. Trump was
shown ahead in a number of
polls following the Republican
Party convention in July.
months, with Samsung paying
around 900 billion Korean won
($814 million) for the 259-meter
building, which was designed by
Norman Foster’s architectural
firm, Foster + Partners.
Samsung SRA has purchased
a number of commercial proper-
ties in South Korea and the U.S.
that it operates as real-estate
investment trusts.
Samsung SRA is leading the
deal. The consortium would also
include Samsung Securities Co.
and Samsung Fire & Marine In-
surance Co.
That’s Rich
Robert Shiller’s cyclically
adjusted price/earnings ratio
50 times
40 CAPE ratio
Average
30
20
10
0
1880s 1900s 2000s
Source: Robert Shiller
THE WALL STREET JOURNAL.
omist Robert Shiller. His
metric, the cyclically ad-
justed price/earnings ratio, is
based on the S&P 500’s cur-
rent price divided by its av-
erage earnings over the past
10 years adjusted for infla-
tion. It currently stands at
27.1, well above its long-term
average of about 16.
Today’s valuation falls
into the top tenth of histori-
cal observations, based on
data since the 1880s. When
the CAPE is in the top decile,
as it is now, the S&P 500
subsequently averages about
Losses in
Sterling
BY MIKE BIRD
The U.K. pound is plumbing
depths rarely seen in recent
years.
The pound fell below its pre-
vious post-Brexit low against a
basket of trade-weighted cur-
rencies late last week, extend-
ing a tumble that followed the
Bank of England’s latest moves
to stimulate the economy.
The sterling effective ex-
change rate index, or ERI,
dipped to its lowest level since
March 2010. The index level is
announced at the end of each
day by the Bank of England.
Over the last quarter of a
century, sterling has been lower
only on a handful of days fol-
lowing the financial crisis, in
2008, 2009 and 2010.
The pound’s plunge is mixed
news for the U.K. economy.
While a falling currency tends
to improve the national trade
balance and helps to offset eco-
nomic shocks over time, it does
that in part by reducing pur-
chasing power, leading consum-
ers and businesses to spend
less.
The consensus among ana-
lysts and investors is that ster-
ling will keep falling. It traded
at $1.295 and €1.161 on Friday.
“The easing measures an-
nounced by the BOE last week
read like textbook tools to
weaken sterling,” Morgan Stan-
ley said in a recent research
note. The bank expects sterling
to fall to $1.26 by the end of
September.
Goldman Sachs Group Inc.
reiterated its view last week
that the pound will drop to
$1.20 in the next three months,
and HSBC Holdings PLC pre-
dicts that the British currency
will reach that level by the end
of this year, before drifting to
as low as $1.10 by the end of
2017.
The currency is now 11.7%
lower than it was before Brit-
ain’s June 23 referendum on
membership of the European
Union. Most of the fall came in
the immediate 48 hours after
the referendum, when the index
dropped by 9.1%.
The ERI is the Bank of Eng-
land’s favored index for mea-
suring the strength of the
pound because its weighting is
based on the U.K’s trade in
goods and services with the
rest of the world. The eurozone
accounts for 48.2% of the index,
meaning that moves in the euro
have the most effect on the
pound’s value. The U.S., and
therefore the dollar, account for
18%.
The most recent phase in the
pound’s decline came after the
Bank of England announced on
Aug. 4 that it would cut inter-
est rates by 0.25% and restart a
bond-buying program meant to
drive debt yields lower.
Lower interest rates and
bond buying tend to hit curren-
cies as investors look elsewhere
for income.
4% annually for the next 10
years. The upshot: While not
a short-term market-timing
tool, rich stock-market valu-
ations often have led to the
worst returns a decade later.
This is the conundrum
facing pension funds, many
of which already aren’t fully
funded on existing assump-
tions. A typical 7.5% invest-
ment target is used to dis-
count liabilities, and a lower
number would mean a bigger
gap. In a traditional portfolio
of 60% stocks and 40%
bonds, though, that looks
nearly impossible to achieve,
at least over the next de-
cade.
For instance, a basket of
10-year Treasurys and corpo-
rate bonds yields roughly
1.75%. That means equities
would have to return about
11.4% annually for pensions
to meet their targets in the
next 10 years. That far ex-
ceeds the average at times
like these, when valuations
are least favorable.
The power of positive
thinking can take investors
and taxpayers only so far.
Email: tape@wsj.com
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
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B6 | Monday, August 15, 2016 THE WALL STREET JOURNAL.

MARKETS DIGEST Data as of Friday, August 12, 2016

Nikkei 225 Index STOXX 600 Index S&P 500 Index 4 p.m. New York time
Last Year ago
16919.92 s 184.80, or 1.10% Year-to-date t 11.11% 346.09 t 0.57, or 0.16% Year-to-date t 5.39% 2184.05 t 1.74, or 0.08% Trailing P/E ratio * 24.91 21.70
High, low, open and close for each 52-wk high/low20620.26 14952.02 High, low, open and close for each 52-wk high/low 388.13 303.58 High, low, open and close for each P/E estimate * 18.57 17.65
trading day of the past three months. All-time high 38915.87 12/29/89 trading day of the past three months. All-time high 414.06 4/15/15 trading day of the past three months. Dividend yield 2.09 2.04
All-time high: 2185.79, 08/11/16

* P/E data based on as-reported earnings from Birinyi Associates Inc.

17500 360 2200

65-day moving average 17000 65-day moving average 350 2160

16500 340 2120

16000 330 2080

65-day moving average
Session high
DOWN UP 15500 320 2040
t

Session open Close

Close Open 15000 310 2000

t

Bars measure the point change from session's open Session low
14500 300 1960
May June July Aug. May June July Aug. May June July Aug.

International Stock Indexes Data as of 4 p.m. New York time Global government bonds
Latest 52-Week Range YTD Latest, month-ago and year-ago yields and spreads over or under U.S. Treasurys on benchmark two-year
Region/Country Index Close NetChg % chg Low Close High % chg and 10-year government bonds around the world. Data as of 3 p.m. ET
World The Global Dow 2445.34 –3.73 –0.15 2047.44 • 2506.56 4.7 Country/ Spread Over Treasurys, in basis points Yield
MSCI EAFE 1710.73 2.41 0.14 1491.52 • 1840.94 –0.3 Coupon Maturity, in years Yield Latest Previous Month Ago Year ago Previous Month ago Year ago
MSCI EM USD 910.08 2.48 0.27 688.52 • 910.08 14.6 3.250 Australia 2 1.467 74.5 69.4 94.8 124.0 1.440 1.637 1.909
4.250 10 1.919 40.6 30.2 44.2 53.0 1.862 1.953 2.680
Americas DJ Americas 527.34 –0.35 –0.07 433.35 • 527.69 8.2
1.250 Belgium 2 -132.8 -134.8 -124.5 -87.6 -0.602 -0.556 -0.207
-0.606
Brazil Sao Paulo Bovespa 58298.41 –1.16 –0.002 37497.48 • 58299.57 34.5
1.000 10 0.117 -139.7 -143.6 -142.5 -120.1 0.125 0.086 0.949
Canada S&P/TSX Comp 14747.45 –48.61 –0.33 11843.11 • 14801.23 13.4
1.000 France 2 -0.575 -129.7 -130.7 -123.2 -87.4 -0.561 -0.543 -0.205
Mexico IPC All-Share 48363.89 21.94 0.05 40265.37 • 48363.89 12.5
0.500 10 0.116 -139.8 -142.7 -131.9 -123.4 0.133 0.192 0.916
Chile Santiago IPSA 3242.35 6.74 0.21 2759.77 • 3242.35 10.1
0.000 Germany 2 -0.625 -134.7 -137.8 -134.9 -94.9 -0.632 -0.660 -0.280
U.S. DJIA 18576.47 –37.05 –0.20 15660.18 • 18613.52 6.6
0.000 10 -0.106 -161.9 -165.5 -159.6 -154.5 -0.095 -0.085 0.605
Nasdaq Composite 5232.89 4.50 0.09 4266.84 • 5232.89 4.5
0.250 Italy 2 -0.086 -80.8 -81.6 -76.3 -62.1 -0.070 -0.074 0.048
S&P 500 2184.05 –1.74 –0.08 1829.08 • 2185.79 6.9
1.600 10 1.050 -46.3 -50.0 -34.8 -34.9 1.061 1.163 1.801
CBOE Volatility 11.55 –0.13 –1.11 11.39 • 40.74 –36.6
0.100 Japan 2 -0.197 -91.9 -94.7 -103.8 -66.4 -0.201 -0.349 0.006
EMEA Stoxx Europe 600 346.09 –0.57 –0.16 303.58 • 388.13 –5.4 0.100 10 -0.107 -162.1 -166.7 -179.0 -178.8 -0.107 -0.279 0.362
Stoxx Europe 50 2889.31 –8.87 –0.31 2566.26 • 3342.04 –6.8 4.000 Netherlands 2 -0.599 -132.1 -134.2 -129.3 -90.8 -0.596 -0.604 -0.239
Austria ATX 2284.53 14.06 0.62 1957.05 • 2501.60 –4.7 0.500 10 -0.002 -151.6 -155.6 -154.9 -137.2 0.005 -0.038 0.779
Belgium Bel-20 3544.82 9.43 0.27 3130.76 • 3760.89 –4.2 4.450 Portugal 2 0.354 -36.8 -39.8 -32.9 -36.5 0.348 0.360 0.304
France CAC 40 4500.19 –3.76 –0.08 3896.71 • 4984.83 –3.0 2.875 10 2.692 117.9 117.6 161.8 24.5 2.737 3.129 2.395
Germany DAX 10713.43 –29.41 –0.27 8752.87 • 11382.23 –0.3 0.250 Spain 2 -0.165 -88.7 -91.8 -82.5 -62.1 -0.172 -0.136 0.049
Greece ATG 576.12 3.79 0.66 440.88 • 727.38 –8.7 1.950 10 0.931 -58.2 -63.4 -33.9 -22.0 0.926 1.172 1.930
Hungary BUX 27812.89 288.48 1.05 20610.76 • 28014.13 16.3 4.250 Sweden 2 -0.644 -136.6 -138.5 -132.1 -122.0 -0.639 -0.632 -0.551
Israel Tel Aviv 1467.44 … Closed 1382.34 • 1720.28 –4.0 1.000 10 0.036 -147.7 -149.5 -132.3 -157.7 0.065 0.188 0.573
Italy FTSE MIB 16997.83 28.14 0.17 15103.58 • 23407.99 –20.6 1.250 U.K. 2 0.144 -57.8 -59.0 -49.7 3.8 0.156 0.193 0.707
Netherlands AEX 454.09 –1.41 –0.31 382.61 • 479.01 2.8 2.000 10 0.521 -99.3 -102.0 -68.3 -33.5 0.540 0.828 1.815
Poland WIG 48631.44 –44.52 –0.09 42152.70 • 52566.45 4.7 0.750 U.S. 2 0.722 ... ... ... ... 0.746 0.689 0.669
Russia RTS Index 954.58 1.77 0.19 628.41 • 972.44 26.1 1.500 10 1.514 ... ... ... ... 1.560 1.511 2.150
Spain IBEX 35 8716.40 –3.10 –0.04 7645.50 • 10900.30 –8.7
Sweden SX All Share 505.97 –0.75 –0.15 435.21 • 528.37 0.2 Commodities Prices of futures contracts with the most open interest 3:30 p.m. New York time
Switzerland Swiss Market 8295.04 –1.10 –0.01 7496.62 • 9390.46 –5.9 EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.; MDEX: Bursa Malaysia
South Africa Johannesburg All Share 52806.50 484.72 0.93 46282.02 • 54609.01 4.2 Derivatives Berhad; TCE: Tokyo Commodity Exchange; COMEX: Commodity Exchange; LME: London Metal Exchange;
NYMEX: New York Mercantile Exchange; ICE-EU: ICE Futures Europe. *Data as of 8/11/2016
Turkey BIST 100 78228.56 –805.01 –1.02 68567.89 • 86343.65 9.1
One-Day Change Year Year
U.K. FTSE 100 6916.02 1.31 0.02 5536.97 • 6916.02 10.8 Commodity Exchange Last price Net Percentage high low
333.50 1.75 0.53% 449.00 322.50
Asia-Pacific DJ Asia-Pacific TSM 1475.34 10.01 0.68 1190.45 • 1475.34 6.2 Corn (cents/bu.) CBOT
Soybeans (cents/bu.) 983.00 -1.00 -0.10% 1,186.25 868.00
Australia S&P/ASX 200 5530.90 22.90 0.42 4765.30 • 5587.40 4.4
Wheat (cents/bu.)
CBOT
CBOT 439.50 2.50 0.57 551.50 425.25
China Shanghai Composite 3050.67 48.03 1.60 2655.66 • 3993.67 –13.8
Live cattle (cents/lb.) CME 114.525 -0.025 -0.02 125.475 105.250
Hong Kong Hang Seng 22766.91 186.36 0.83 18319.58 • 23991.03 3.9
Cocoa ($/ton) ICE-US 2,994 1 0.03 3,216 2,728
India S&P BSE Sensex 28152.40 292.80 1.05 22951.83 • 28208.62 7.8
Coffee (cents/lb.) ICE-US 140.35 -0.80 -0.57 157.65 119.40
Japan Nikkei Stock Avg 16919.92 184.80 1.10 14952.02 • 20620.26 –11.1
Sugar (cents/lb.) ICE-US 19.70 0.10 0.51 21.22 12.92
Singapore Straits Times 2867.40 –2.42 –0.08 2532.70 • 3114.25 –0.5
Cotton (cents/lb.) ICE-US 70.99 -0.87 -1.21 77.98 54.19
South Korea Kospi 2050.47 1.67 0.08 1829.81 • 2052.77 4.5 Robusta coffee ($/ton) ICE-EU 1801.00 -7.00 -0.39 1,866.00 1,400.00
Taiwan Weighted 9150.39 18.56 0.20 7410.34 • 9200.42 9.7
Copper ($/lb.) COMEX 2.1505 -0.0495 -2.25 2.3290 1.9710
Source: SIX Financial Information;WSJ Market Data Group Gold ($/troy oz.) COMEX 1340.90 -9.10 -0.67 1,384.40 1,066.00
Silver ($/troy oz.) COMEX 19.730 -0.290 -1.45 21.225 13.930
Currencies London close on Aug. 12 Aluminum ($/mt)* LME 1,642.50 -15.00 -0.90 1,695.50 1,451.50
Tin ($/mt)* LME 18,290.00 -360.00 -1.93 18,650.00 13,225.00
Yen, euro vs. dollar; dollar vs. major U.S. trading partners US$vs,
Fri YTDchg Copper ($/mt)* LME 4,816.00 -63.00 -1.29 5,070.50 4,320.50
Country/currency in US$ per US$ (%) Lead ($/mt)* LME 1,824.00 -26.00 -1.41 1,909.00 1,598.00
20% Europe Zinc ($/mt)* LME 2,280.00 -26.50 -1.15 2,306.50 1,467.00
s
Yen Bulgaria lev 0.5710 1.7512 –2.7 Nickel ($/mt)* LME 10,750.00 -200.00 -1.83 10,950.00 7,750.00
Croatia kuna 0.1491 6.709 –4.3 Rubber (Y.01/ton) TCE 157.60 -0.60 -0.38 159.30 150.80
10
Euro zone euro 1.1169 0.8954 –2.8
WSJ Dollar index
s Euro
s Czech Rep. koruna-b 0.0413 24.196 –2.8 Palm oil (MYR/mt) MDEX 2493.00 11.00 0.44 2,669.00 2,171.00
0 Denmark krone 0.1501 6.6626 –3.1 Crude oil ($/bbl.) NYMEX 45.13 0.90 2.03 53.02 33.28
Hungary forint 0.003604 277.50 –4.5 NY Harbor ULSD ($/gal.) NYMEX 1.4268 0.0230 1.64 1.6047 1.0081
Iceland krona 0.008437 118.52 –9.0 RBOB gasoline ($/gal.) NYMEX 1.2991 0.0091 0.71 1.5121 0.9930
–10 Norway krone 0.1220 8.1973 –7.3
0.2615 3.8243 –2.5
Natural gas ($/mmBtu) NYMEX 2.627 0.020 0.77 3.0220 2.0490
2015 2016 Poland zloty
Russia ruble-d 0.01539 64.988 –9.6 Brent crude ($/bbl.) ICE-EU 47.66 0.83 1.77 54.12 33.05
US$vs, US$vs,
YTDchg YTDchg Sweden krona 0.1183 8.4503 0.1 Gas oil ($/ton) ICE-EU 412.25 9.25 2.30 474.50 291.50
Fri Fri
Country/currency in US$ per US$ (%) Country/currency in US$ per US$ (%) Switzerland franc 1.0264 0.9743 –2.8
Turkey lira 0.3379 2.9592 1.4 Sources: SIX Financial Information; WSJ Market Data Group
Americas Hong Kong dollar 0.1289 7.7565 0.1
Ukraine hryvnia 0.0402 24.8650 3.6
Argentina peso-a 0.0682 14.6640 13.3
India rupee
Indonesia rupiah
0.0150
0.0000763
66.8742 1.0
13098 –5.3
U.K. pound 1.2921 0.7739 14.0 Cross rates London close on Aug 12
Brazil real 0.3152 3.1729 –19.9 Middle East/Africa
Japan yen 0.009886 101.16 –15.9
Canada dollar 0.7719 1.2955 –6.4 USD GBP CHF JPY HKD EUR CDN AUD
Kazakhstan tenge 0.002880 347.28 2.5 Bahrain dinar 2.6525 0.3770 –0.0
Chile peso 0.001537 650.70 –8.2 Australia 1.3058 1.6872 1.3405 0.0129 0.1684 1.4583 1.0081 ...
Macau pataca 0.1252 7.9896 –0.2 Egypt pound-a 0.1126 8.8822 13.4
Colombia peso 0.0003465 2886.00 –9.1 Canada 1.2955 1.6737 1.3291 0.0128 0.1670 1.4467 ... 0.9920
Malaysia ringgit-c 0.2494 4.0104 –6.8 Israel shekel 0.2625 3.8091 –2.1
Ecuador US dollar-f 1 1 unch
New Zealand dollar 0.7203 1.3883 –5.1 Kuwait dinar 3.3141 0.3017 –0.6 Euro 0.8954 1.1568 0.9192 0.0089 0.1154 ... 0.6912 0.6857
Mexico peso-a 0.0547 18.2847 6.3
Pakistan rupee 0.0096 104.700 –0.2 Oman sul rial 2.5976 0.3850 0.003 Hong Kong 7.7565 10.0213 7.9619 0.0767 ... 8.6628 5.9875 5.9399
Peru sol 0.3024 3.3070 –3.1
Philippines peso 0.0215 46.568 –0.6 Qatar rial 0.2746 3.641 –0.04 Japan 101.1580 130.7000 103.8200 ... 13.0420 112.9700 78.0900 77.4700
Uruguay peso-e 0.0347 28.830 –3.6
Singapore dollar 0.7427 1.3465 –5.1 Saudi Arabia riyal 0.2667 3.7502 –0.1 0.9743 1.2587 ... 0.0096 0.1256 1.0879 0.7524 0.7461
Venezuela bolivar 0.100100 9.99 58.4 Switzerland
South Korea won 0.0009071 1102.46 –6.2 South Africa rand 0.0738 13.5524 –12.4
U.K. 0.7739 ... 0.7945 0.0077 0.0998 0.8645 0.5975 0.5927
Asia-Pacific Sri Lanka rupee 0.0068705 145.55 0.9 Close Net Chg % Chg YTD % Chg
0.7658 1.3058 –4.8 Taiwan dollar 0.03185 31.393 –4.6 U.S. ... 1.2921 1.0264 0.0099 0.1289 1.1169 0.7719 0.7658
Australia dollar WSJ Dollar Index 86.35 –0.09 –0.11 –4.24
China yuan 0.1506 6.6381 2.2 Thailand baht 0.02878 34.750 –3.6 Sources: Tullett Prebon, WSJ Market Data Group Source: Tullett Prebon

Key Rates Top Stock Listings 4 p.m. New York time

Latest 52 wks ago % YTD% % YTD% % YTD%
Libor Cur Stock Sym Last Chg Chg Cur Stock Sym Last Chg Chg Cur Stock Sym Last Chg Chg Asia Titans 50
One month 0.50665% 0.19960% ¥ TakedaPharm 4502 4808.00 0.92 -20.73 CHF RocheHldgctf ROG 248.50 -0.16 -10.09 Last: 141.72 s 0.53, or 0.38% YTD s 4.0%
Three month 0.81825 0.32445 Asia Titans HK$ TencentHoldings 0700 187.80 -0.48 22.99 £ RoyDtchShell A RDSA 1919.00 -0.18 25.75
140
Six month 1.20670 0.52490 49.35 0.14 5.90 78.56 High
HK$ AIAGroup 1299 ¥ TokioMarineHldg 8766 3881.00 0.91 -17.64 € SAP SAP -0.46 7.06
One year 1.52570 0.84410 1693.00 1.38 -2.22 71.70
50–day
¥ AstellasPharma 4503 ¥ ToyotaMtr 7203 6000.00 0.94 -19.87 € Sanofi SAN -0.39 -8.78 Close moving average 135
Euro Libor AU$ AustNZBk ANZ 26.56 0.30 -4.91 AU$ Wesfarmers WES 42.59 0.31 2.36 € SchneiderElectric SU 61.40 -0.31 16.82 Low 130
One month -0.37071% -0.10000% AU$ BHP BHP 20.68 2.12 15.79 AU$ WestpacBanking WBC 29.62 -1.33 -11.74 € Siemens SIE 107.45 ... 19.55 t
Three month -0.31929 -0.02714 HK$ BankofChina 3988 3.40 0.89 -1.73 AU$ Woolworths WOW 23.40 1.30 -4.49 € Telefonica TEF 9.08 ... -11.28 125
Six month -0.20129 0.05271 HK$ CKHutchison 0001 95.75 2.68 -8.29 € Total FP 43.35 -0.39 7.16 120
One year -0.07257 0.15743 HK$ CNOOC 0883 9.62 3.22 19.21 Stoxx 50 CHF UBSGroup UBSG 13.53 0.59 -30.69
115
Euribor ¥ Canon 7751 2920.00 -0.48 -20.54 CHF ABB ABBN 21.58 0.51 20.16 € Unilever UNA 41.65 -0.58 3.84
One month -0.36800% -0.08500% ¥ CentralJapanRwy 9022 17800 -0.11 -17.59 € ASMLHolding ASML 99.18 0.05 20.15 £ Unilever ULVR 3629.00 -0.34 24.00 13 20 27 3 10 17 24 1 8 15 22 29 5 12
Three month -0.29900 -0.02500 HK$ ChinaConstructnBk 0939 5.69 0.53 7.16 € AXA CS 18.52 -0.51 -26.58 € Vinci DG 68.90 -1.12 16.50 June July Aug.
Six month -0.18800 0.04600 HK$ ChinaLifeInsurance 2628 18.62 2.31 -25.82 € AirLiquide AI 97.02 -0.13 -6.40 £ VodafoneGroup VOD 238.85 0.61 8.08
One year -0.04900 0.16100 HK$ ChinaMobile 0941 99.00 2.38 13.14 € Allianz ALV 134.55 -0.77 -17.73 CHF ZurichInsurance ZURN 253.00 -0.32 -2.09
Yen Libor AU$ CmwlthBkAust CBA 76.01 0.08 -11.13 € Anheuser Busch ABI 112.75 0.99 -1.44
DJIA Stoxx 50
One month -0.05857% 0.05429% ¥ EastJapanRailway 9020 8882.00 -0.78 -22.43 £ AstraZeneca AZN 5105.00 -1.09 10.58
Last: 2889.31 t 8.87, or 0.31% YTD t 6.8%
Three month -0.02079 0.09429 ¥ Fanuc 6954 17145 -0.98 -18.67 € BASF BAS 72.97 0.29 3.18 $ AmericanExpress AXP 65.38 -0.15 -6.00
Six month 0.00343 0.13371 ¥ Hitachi 6501 488.20 0.70 -29.40 € BNP Paribas BNP 44.67 -0.72 -14.46 $ Apple AAPL 108.18 0.23 2.77 2925
One year 0.09529 0.24329 TW$ Hon Hai Precisn 2317 86.20 -3.69 6.68 £ BT Group BT.A 397.80 -0.38 -15.67 $ Boeing BA 133.10 0.08 -7.95
$ Caterpillar CAT 83.00 -0.29 22.13 2850
Offer Bid ¥ HondaMotor 7267 2955.00 -0.22 -24.42 € BancoBilVizAr BBVA 5.27 -0.62 -21.02
KRW HyundaiMtr 005380 136000 1.12 -8.72 € BancoSantander SAN 3.84 -0.23 -15.71 $ Chevron CVX 102.16 0.75 13.56 2775
Eurodollars
HK$ Ind&Comml 1398 4.79 1.05 2.35 £ Barclays BARC 163.40 0.09 -25.35 $ CiscoSystems CSCO 30.87 -0.26 13.68
One month 0.5500% 0.4500%
$ CocaCola KO 44.03 0.64 2.49
2700
Three month 0.9000 0.8000 ¥ JapanTobacco 2914 4010.00 0.35 -10.31 € Bayer BAYN 98.10 -0.23 -15.28
¥ KDDI 9433 3240.00 0.43 2.73 £ BP BP. 432.70 0.09 22.23
$ Disney DIS 96.84 -0.95 -7.84 2625
Six month 1.2500 1.1500
¥ Mitsubishi 8058 2075.00 0.85 2.32 £ BritishAmTob BATS 4971.00 -0.28 31.82
$ DuPont DD 67.66 -1.93 1.59 2550
One year 1.5500 1.4500
529.00
$ ExxonMobil XOM 87.85 1.30 12.70
Latest 52 wks ago ¥ MitsubishiUFJFin 8306 -1.32 -30.13 CHF FinRichemont CFR 60.45 1.60 -16.16 13 20 27 3 10 17 24 1 8 15 22 29 5 12
$ GenElec GE 31.24 -0.16 0.29
¥ Mitsui 8031 1295.00 -0.35 -10.41 € Daimler DAI 62.89 -0.30 -18.94 June July Aug.
Prime rates $ GoldmanSachs GS 163.25 -0.37 -9.42
¥ Mizuho Fin 8411 166.10 -0.12 -31.79 € DeutscheTelekom DTE 15.63 -0.76 -5.38
U.S. 3.50% 3.25% $ HomeDepot HD 136.57 -0.34 3.27
¥ NTTDoCoMo 9437 2719.50 0.74 9.48 £ Diageo DGE 2181.00 -0.18 17.48
Canada 2.70 2.70 $ Intel INTC 34.57 -0.32 0.35
AU$ NatAustBnk NAB 26.95 1.51 -10.76 13.70 ... -0.72
Japan
Hong Kong
1.475
5.00
1.475
5.00 ¥ NipponStl&SmtmoMtl 5401 2006.00 -0.02 -16.97
€
£
ENI
GlaxoSmithKline
ENI
GSK 1691.00 -0.06 23.16
$
$
IBM
JPMorganChase
IBM
JPM
161.95
65.32
-0.97
-0.21
17.68
-1.08
Dow Jones Industrial Average P/E: 20
¥ NipponTeleg 9432 4874.00 0.21 0.79 £ HSBC Hldgs HSBA 545.00 -0.09 1.64 $ JohnsJohns JNJ 123.22 -0.44 19.96 Last: 18576.47 t 37.05, or 0.20% YTD s 6.6%
Policy rates
ECB 0.00% 0.05%
¥ NissanMotor 7201 1004.00 -0.74 -21.53 € INGGroep INGA 10.59 -0.24 4.34 $ McDonalds MCD 119.52 0.12 1.17
Britain 0.25 0.50
¥ NomuraHldgs 8604 462.90 0.52 -31.84 £ ImperialBrands IMB 4109.00 -0.44 14.57 $ Merck MRK 63.35 -0.44 19.94 18500
Switzerland 0.50 0.50
¥ Panasonic 6752 1005.00 ... -18.98 € IntesaSanpaolo ISP 1.98 0.30 -36.01 $ Microsoft MSFT 57.94 -0.62 4.43
HK$ PetroChina 0857 5.34 1.33 4.91 € LVMHMoetHennessy MC 158.60 1.54 9.45 $ NikeClB NKE 56.45 -0.49 -9.68 18000
Australia 1.50 2.00
HK$ PingAnInsofChina 2318 39.05 2.63 -8.97 £ LloydsBankingGroup LLOY 55.40 0.33 -24.18 $ Pfizer PFE 34.98 -0.48 8.36
U.S. discount 1.00 0.75 17500
Fed-funds target 0.25 0.00
$ RelianceIndsGDR RIGD 30.70 1.32 0.33 € LOreal OR 175.75 0.09 13.17 $ Procter&Gamble PG 87.04 0.36 9.61
Call money 2.25 2.00
AU$ RioTinto RIO 49.74 0.06 11.25 £ NationalGrid NG. 1099.50 0.37 17.28 $ 3M MMM 180.27 -0.40 19.67 17000
KRW SamsungElectronics 005930 1545000 -0.90 22.62 CHF Nestle NESN 79.80 0.38 7.04 $ TravelersCos TRV 118.51 -0.08 5.01
Overnight repurchase rates 16500
U.S. 0.53% 0.26%
¥ Seven&I Hldgs 3382 4464.00 1.41 -19.57 CHF Novartis NOVN 80.05 -0.62 -7.78 $ UnitedTech UTX 108.87 -0.28 13.32
Euro zone n.a. n.a.
¥ SoftBankGroup 9984 6353.00 -0.17 3.49 DKK NovoNordiskB NOVO-B 307.00 -0.65 -23.23 $ UnitedHealthGroup UNH 142.88 0.18 21.46 13 20 27 3 10 17 24 1 8 15 22 29 5 12
¥ Sumitomo Mitsui 8316 3377.00 -0.65 -26.68 £ Prudential PRU 1426.50 0.21 -6.83 $ VISAClA V 80.02 -0.12 3.19 June July Aug.
Sources: WSJ Market Data Group, SIX HK$ SunHngKaiPrp 0016 111.30 1.74 18.72 £ ReckittBenckiser RB. 7560.00 0.05 20.36 $ Verizon VZ 53.65 -0.39 16.08 Note: Price-to-earnings ratios are for trailing 12 months
Financial Information, Tullett TW$ TaiwanSemiMfg 2330 177.50 0.57 24.13 £ RioTinto RIO 2409.00 -3.21 21.70 $ WalMart WMT 73.89 0.12 20.54 Sources: WSJ Market Data Group; Birinyi Associates
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
Cost Rises on Home-Equity Loans
As principal payments
start kicking in, Helocs
can become a strain
for some homeowners
BY ANNAMARIA ANDRIOTIS
The bill is coming due for
many U.S. homeowners on a
type of loan that was widely
popular in the run-up to the
housing bust, causing a rise in
delinquencies at banks.
More homeowners are miss-
ing payments on their home-
equity lines of credit, or Helocs,
a type of loan that allows bor-
rowers to withdraw cash from
their house to pay for renova-
tions, college tuition or almost
any other expense. These loans
typically require interest-only
payments for the first 10 years,
but then principal payments
kick in for the next 15 or 20
years.
The increased cost of the
loan can become a strain for
some borrowers. This is becom-
ing an issue now because many
borrowers signed up for Helocs
in the run-up to the housing
crisis as home values kept ris-
ing. Roughly 840,000 Helocs
taken out in 2006 are resetting
this year, with principal pay-
ments on an additional nearly
one million loans expected to
hit in 2017.
Borrowers who signed up
for Helocs in early 2006 were
at least 30 days late on $2.8
billion of balances four months
after principal payments kicked
in this year, according to Equi-
fax. That represents 4.4% of the
balances on outstanding 2006
Helocs. Delinquencies were at
2.9% before the reset.
Resets can lead to payments
jumping by hundreds, or in
some cases thousands, of dol-
lars a month. Consider a Heloc
with a $100,000 balance and a
4.5% interest rate. It would
have a $376 interest-only
monthly payment, which would
then rise to $632 when princi-
pal payments kick in, assuming
a 20-year repayment period.
Large banks, including Bank
of America Corp., J.P. Morgan
125,000
Minutes a year
STUDYING FOR YOUR
UNDERGRADUATE DEGREE
4,400
Minutes a month
ATTENDING ENTREPRENEUR
An improving U.S. housing market could let more people refinance their debts, limiting defaults.
Chase & Co. and Citigroup Inc.,
reported higher Heloc delin-
quencies in the second quarter,
according to securities filings
this month. Unlike with most
mortgages, Helocs are primar-
ily held on banks’ books, which
means lenders are generally
more exposed to losses when
the loans don’t get repaid.
Worsening Heloc perfor-
mance underscores that banks
aren’t completely past all the
problems sown in the run-up to
the housing bust. While delin-
quencies on mortgages used to
purchase or refinance homes
have dropped substantially in
recent years, Heloc delinquen-
cies are rising and some large
banks are warning of the risk of
more to come.
Despite this, banks have
been ramping up new origina-
tions, extending the largest dol-
lar amount of credit lines in
2015 since 2007. This time
around, the borrowers getting
approved have high credit
scores and at least 10% to 15%
equity in their homes in most
cases.
Some banks have taken addi-
tional steps to lessen risk.
Wells Fargo & Co. and Bank of
14,800
Minutes a month
MENTORING START-UPS
EVENTS
FINANCE & MARKETS
Cashing Out
Number of U.S. home-equity lines
of credit by origination year that
were still active as of May 2016
900,000
600,000
300,000
0 some borrowers would be able
2000 ’02 ’04 ’06 ’08 ’10
Source: Equifax
THE WALL STREET JOURNAL.
America no longer permit in-
terest-only payments on new
Helocs given to most borrow-
ers.
While delinquencies for He-
locs are rising, charge-offs also
are up. Lenders wrote off 1.4%
of defaulted balances from
2006 Helocs so far this year, up
slightly from a year prior, ac-
cording to Equifax.
850
Minutes a week
PRESENTING AT
CONFERENCES
Monday, August 15, 2016 | B7
increasing at many banks.
Bank of America, the largest
home-equity lender by volume,
reported $250 million of Helocs
that had transitioned to requir-
ing principal payments were at
least 30 days delinquent in the
second quarter, up 56% from a
year prior, according to com-
pany filings. The bank says that
accounts for just 2% of Heloc
balances that are in repayment.
At J.P. Morgan, $647 million
of Helocs that reset were be-
hind on payments in the second
quarter, up 21% from a year
prior, according to company fil-
DAVID PAUL MORRIS/BLOOMBERG NEWS
ings. A spokeswoman said the
bank gets in touch with bor-
rowers before Helocs reset to
help them prepare for the
change and offers modifications
to eligible borrowers.
At Citigroup, delinquent bal-
ances totaled $338 million in
the second quarter, up 105%
from a year prior. The bank de-
clined to comment.
Concerns around Heloc re-
Heloc delinquencies are un- payments were largely ignored
likely to spur broader banking during the peak of the financial
problems. It is generally harder crisis. Most banks focused on
to foreclose on a home, for ex- addressing defaults on primary
ample, if borrowers are paying mortgages—and most Helocs
their primary mortgage on only required minimum pay-
time. Heloc balances, while ris- ments then.
ing, are small—averaging “Home-equity loans got
$55,400 for those resetting this pushed on the back burner—
year—compared with regular we’re being forced to deal more
mortgages. with that now,” said Guy Ce-
An improving housing mar- cala, publisher of Inside Mort-
ket also could help limit de- gage Finance.
faults. As home values rise, The Office of the Comptrol-
more borrowers have the eq- ler of the Currency has been
uity to refinance their Heloc pushing banks to modify Helocs
with a new one, effectively for borrowers who have trouble
starting the interest-only pe- keeping up with payments, in
riod from the beginning. Or an attempt to avoid another
wave of home-related defaults.
to roll both their first mortgage Those modifications include ex-
and Heloc into a refinance tending repayment periods and
mortgage. lowering interest rates to re-
Still, borrowers with a mort- duce monthly required pay-
gage and a Heloc are at greater ments.
risk of owing more on their Another headwind for He-
home than it is worth. Only 6% locs could also be on the way:
of homes with one mortgage Most Helocs have variable in-
are underwater, compared with terest rates that move in tan-
17% of homes with two mort- dem with rates set by the Fed-
gages, according to mortgage- eral Reserve. A rising-rate
data firm CoreLogic Inc. environment would push up
As the bulk of precrisis He- monthly loan payments further,
locs starts to reset, the dollar a risk Citigroup warned of in a
amount of unpaid balances is company filing this month.
38,000
Minutes a year
LEARNING TO CODE
5
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READING WHAT’S NEWS
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Why not invest a little to stay there?
The What’s News app gives you the
essential information to drive your
ambition. From markets and finance to
politics and opinion, What’s News keeps
you in control in just a few minutes a day.
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© 2016 Dow Jones & Co., Inc. All rights reserved. 6DJ3754
Finance
Watch
SOROS FUND MANAGEMENT
Investment Chief
Is Leaving His Post
George Soros is looking for a
top lieutenant, again.
Ted Burdick, chief investment
officer at the $30 billion Soros
Fund Management LLC, plans to
leave his role, according to peo-
ple close to the matter.
A new investment head
would be the seventh to hold
that job since April 2000, when
investor Stanley Druckenmiller
quit to run his own firm. Mr.
Burdick is expected to remain in
his job until a new CIO is found
and then will focus on debt in-
vestments for Soros.
Bloomberg News reported
the move on Friday. A spokes-
man for Mr. Soros declined to
comment. Mr. Burdick didn’t re-
spond to a request for comment.
—Gregory Zuckerman
CITIGROUP
Fintech Team Leader
Is Going to USAA
A leader of Citigroup Inc.’s fi-
nancial-technology unit, Heather
Cox, is leaving the bank for a job
at financial-services provider
USAA.
Stephen Bird, head of Citi-
group’s consumer bank, informed
employees of the move on Fri-
day morning, according to people
familiar with the matter. Ms. Cox
will be USAA’s chief technology
and digital officer, a newly cre-
ated role that reports to Chief
Executive Officer Stuart Parker.
USAA, which caters to mili-
tary members and their families
with insurance, banking and
credit-card products, is consid-
ered a leader in some aspects of
technology and banking.
Ms. Cox had been head of cli-
ent experience, digital and mar-
keting in the consumer bank un-
til Mr. Bird tapped her last year
to run a new unit called Citi Fin-
Tech. The unit focuses on mobile
banking.
—Christina Rexrode and
Rachel Witkowski
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
B8 | Monday, August 15, 2016
Email: heard@wsj.com
Profit Beats
Aren’t the
Best Metric
It is a wonder anyone pays
any attention to whether
companies’ profits beat or
fall short of analysts’ fore-
casts. This once-useful ba-
rometer of corporate health
has succumbed to Goodhart’s
Law: the principle that
“when a measure becomes a
target, it ceases to be a good
measure.”
With most results now in,
European second-quarter
earnings have been 2.6%
ahead of forecasts, calculates
RBC. That is because expec-
tations were low. Profits fell
4% year over year, dragged
down by oil companies and
banks.
Companies have been
beating low expectations for
years. Sell-side forecasts typ-
ically start on a bullish note
but suffer routine down-
grades as reality draws
closer. If expectations remain
high even after a reporting
period has ended, many com-
panies’ investor-relations de-
partments even have a quiet
word with analysts to secure
their beat and minimize neg-
ative coverage.
In the first half, European
earnings-per-share forecasts
for 2016 were revised down
by over 12%, far more than in
previous years, according to
Barclays. This is a more
meaningful indicator of cor-
porate activity than beats.
Forecasts for this year
may now be low enough. An-
alysts expect no growth in
earnings in continental Eu-
rope, and a 5% fall in the U.K.
But hope is just over the
horizon: Next year’s analyst
consensus projects earnings
growth of 15% in the U.K. and
12% in the rest of Europe.
Unless something remarkable
happens, 2017 will be yet an-
other year of downgrades—
followed by beats and gen-
eral self-congratulation.
—Stephen Wilmot
Investors Shun Chinese Markets
BY MIA LAMAR
AND RACHEL ROSENTHAL
The rush to invest in emerg-
ing markets has bypassed the
biggest one of all: China.
A year after an equities
meltdown and surprise cur-
rency devaluation in China,
global investors say they re-
main reluctant to sink money
into the country’s markets.
The no-confidence vote has
been particularly clear on
stocks.
A Goldman Sachs Group Inc.
analysis of $1.1 trillion of mu-
tual-fund assets indicates funds
are “underweight” Chinese
stocks by 3.1 percentage
points—meaning they allocate
that much less cash to Chinese
stocks than the country’s
weighting in global bench-
marks. That is the biggest
shortfall against global stock
benchmarks in a decade, the in-
vestment bank said.
In the smaller universe of
emerging-market stock funds,
investors have pumped close to
$13 billion into such funds
overall in the past six weeks,
even as they pulled more than
$3.5 billion out of China-fo-
cused vehicles, according to
fund tracker EPFR Global. That
makes China one of the few
outliers in a rush into emerg-
ing-market assets this year
that has notched record in-
Emerging Destination
Investors have poured money into global emerging-market stock funds
while at the same time pulling money out of China-focused funds.
Net flow in 2016
$20 billion
15 Global emerging-market funds
Greater China funds
10 China funds
5 chor’ for the global economy,”
0
–5
–10
J F M A
Source: EPFR Global
HEARD ON THE STREET
Italy at Core of EU Growing Pains
The eurozone is still grow-
ing, racking up economic ex-
pansion of 0.3% in the sec-
ond quarter from the first,
helped by a stronger-than-
expected performance from
Germany. But Italy posted a
worrying development: Its
shallow expansion ground to
a halt.
Italy’s economy had been
expected to grow 0.2% in the
second quarter, but the Ital-
ian statistics office reported
zero growth, with domestic
demand weakening and only
just offset by external de-
mand. The end result is that
Italy is falling further behind
the pace in Europe.
Between 1996 and 2011,
the Italian economy grew
0.9% a year on average, ac-
cording to the European
Commission, versus 1.4% for
Germany, 1.8% for France and
2.6% for Spain. Since then it
has been hit by the lingering
effects of the eurozone sov-
ereign-debt crisis. Italy grew
just 0.7% from a year earlier
in the second quarter, again
trailing the other big three
eurozone countries.
Economic Doldrums? China Blames Weather
The Chinese economy
wasn’t just under the
weather last month. That is
the status quo.
Chinese economic-activity
data released Friday showed
lower-than-expected indus-
trial production and sharply
lower fixed-asset investment
growth compared with the
previous month.
The statistics department
blamed severe flooding and
heat waves. The reality is the
weather likely had little to
do with the economic drain.
For instance, of a set of 17
indicators ranging from in-
vestment and land sales to
business sentiment and steel
prices—tracked by Nomura
analysts who gauge China’s
economic pulse—only one-
The Shanghai index fell as much as 41% in the summer of 2015.
flows of cash in recent weeks.
Most foreigners investing in
Chinese companies do so
through exchanges in New York
and Hong Kong, where stan-
dards for listing and disclosure
to investors are generally
higher. Would-be buyers of
shares listed in mainland China
can invest only through quotas
granted by Chinese authorities
and, more recently, a trading
link with Hong Kong that lets
foreign investors freely buy
some Shanghai-listed stocks.
The wariness partly reflects
how unnerved global investors
remain by markets that have
proved exceptionally unpredict-
able, even by emerging-market
standards. After surging 60% in
M J J A
THE WALL STREET JOURNAL.
FINANCIAL ANALYSIS & COMMENTARY
Growth Gap
Second-quarter gross domestic
product, change from a year earlier
Spain
Germany 1.7
Eurozone 1.6
France 1.4
Italy 0.7
Source: Eurostat
THE WALL STREET JOURNAL.
Unemployment, too, shows
Italy struggling. Italian job-
lessness has fallen in the
past year to 11.6% from
12.2%, but eurozone unem-
ployment has fallen further,
to 10.1% from 11%. Youth un-
employment at 36.5% in Italy
is far above the eurozone
rate of 20.8%.
It is this picture that
makes Italy’s constitutional
referendum, due later this
year, especially vital—and ar-
Disappearing Growth
Investment by private companies
in China has slowed this year.
15% Change from a
year earlier
12
9 wasn’t much flood-related
Total fixed asset
6 investment
3
Private sector fixed
asset investment
0
2015 ’16
Source: CEIC
third showed improvement,
the least in at least a year.
Heavy flooding affected
much of central and south-
eastern China, and factories
in these parts as well.
So industrial production
growth directly affected by
FINANCE & MARKETS
the beginning of last year, Chi-
nese stocks tipped into a selloff
that sent Shanghai’s benchmark
index down as much as 41%
from June to August. The index
rebounded briefly last fall, then
plunged 23% in January. The
yuan, meanwhile, logged a 5%
loss against the dollar in 2015,
following an unexpected deval-
uation one year ago that helped
to spur enormous outflows of
money as panicked Chinese
sent cash abroad.
Many investors say they are
disturbed by steps China has
taken to tame market convul-
sions, from heavy-handed cur-
rency intervention and the buy-
ing of shares by state-backed
funds, to allowing widespread
trading suspensions of shares
and blaming “malicious” forces
for stock-price falls.
Others say they remain con-
cerned about China’s economic
slowdown, and suspect condi-
tions may be worse than offi-
cial figures suggest.
Chinese officials have
stressed measures by Beijing to
address the concerns of global
investors, and played down con-
cerns about growth. “The Chi-
nese economy is a ‘stability an-
Premier Li Keqiang said last
month. “Prophecy of China’s
economy heading for a hard
landing is rarely heard now.”
One of the biggest U.S. in-
vestors in China said this
month he is worried the coun-
try is shifting away from plans
for a long-term overhaul of its
economy. China maintained a
3.2%
ZUMA PRESS
Italian Prime Minister
Matteo Renzi
guably more important than
the Brexit vote. Prime Minis-
ter Matteo Renzi is trying to
overhaul a parliamentary
system that has hamstrung
lawmaking and hobbled
growth by reining in the
powers of the Italian Senate,
the upper house of parlia-
ment. Success in the referen-
dum on this issue should
lead to greater stability for
Italian governments which,
in turn, should help the in-
the weather came in on the
year just a tad lower at 6%,
down from 6.2% in June.
However, month on
month, industrial output in
fact grew slightly faster than
it did in June, when there
disruption.
The weakest indicator and
the least likely to be affected
by a heat wave or El Niño,
growth of investment in
fixed assets, slowed to 8.1%
from 9% in June, with pri-
vate-sector investment con-
tinuing to deteriorate.
In the provinces hit by
flooding, fixed-asset invest-
ment has been declining for
at least the past four years,
down on average 17 percent-
age points in that time, so
growth pace of 6.7% in the sec-
ond quarter, a feat economists
suspected was driven by
ramped-up government spend-
ing and credit growth.
“I am increasingly concerned
that China is playing a short
game, which is in conflict with a
sustainable long-term strategy
of development and further
progress,” said Justin Leverenz
of OppenheimerFunds Inc. in an
“open letter to China” published
JASON LEE/REUTERS
on the money manager’s web-
site. Mr. Leverenz manages the
$30 billion Oppenheimer Devel-
oping Markets fund, the largest
actively managed U.S. stock fund
focused on emerging markets.
Investors’ reluctance is a
setback to China’s longer-term
goal of opening its stock mar-
ket to the outside world. Chi-
nese shares listed in Hong Kong
are down 1.1% in 2016 through
Friday’s close, while Chinese
stocks listed in the U.S. are
barely positive. Mainland-listed
Chinese shares have fared
much worse, with the Shanghai
Composite down 14% in 2016.
By comparison, the broad
MSCI Emerging Market Index is
up 15% this year.
As of Aug. 12, foreign inves-
tors had used only about half of
a 300 billion yuan ($45.2 billion)
quota allotted for purchases of
Shanghai-listed stocks through
the trading link with Hong Kong
that was launched with much
fanfare in late 2014, according
to data from the Hong Kong
stock exchange. As Chinese
stocks hummed higher in early
2015, some brokers had pre-
dicted the quota would be ex-
hausted by the summer.
—Chao Deng and
Saumya Vaishampayan
contributed to this article
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THE WALL STREET JOURNAL.
troduction of reforms that
the Italian economy needs to
boost potential growth.
Markets are focused on
the potential for political
fallout from the vote, given
that Mr. Renzi has staked his
reputation on it. But the real
cost for Italy, were the par-
liamentary reform to be re-
jected, would be that the
economy would likely remain
stuck in a low-growth rut.
Higher potential growth in
Italy would be a help for any
number of problems that
now confront the country,
from the nonperforming
loans that weigh down its
banking system to the debt
burden of 135% of gross do-
mestic product that has been
accumulated.
Actions by the European
Central Bank are supporting
Italy, along with other euro-
zone members. But it is in-
creasingly clear that mone-
tary policy cannot boost
potential growth—politics
hold the key. The referendum
could yet mark a turning
point for Italy and for Eu-
rope. —Richard Barley
July’s weather-related im-
pact shouldn’t be the shock.
Notably, Beijing seems to
have lost steam last month.
With state spending on fixed-
asset investment slowing,
the state budget funding also
grew by less.
Two of Beijing’s favored
investment areas, infrastruc-
ture and property, had little
good news. Infrastructure
growth tumbled to 11.7%
from 21.7% the month before.
In the once-bubbling prop-
erty market, where signs
that it had turned down were
even stronger, investment in
property fell sharply, as did
land purchased by property
developers. Rain or shine,
China’s economy is far from
steady. —Anjani Trivedi
BOJ Rate Policy Hits
Home on Housing
BY ELEANOR WARNOCK
TOKYO—After a three-year
struggle to bolster Japan’s
economy, the Bank of Japan is
finally making headway in one
area: mortgage refinancing and
home loans.
Since the BOJ announced a
negative-interest-rate policy at
the end of January, mortgage
rates in Japan have dropped to
record lows. At the nation’s
three largest banks, the num-
ber of applications for mort-
gage refinancing have nearly
doubled in the year through
July to 32,426, according to
bank data. Home-loan applica-
tions have risen 42%.
“The current interest-rate
environment is a plus for peo-
ple who are investing for
profit using money borrowed
from the bank,” said Yukio Na-
kamura, a Tokyo office worker
who recently refinanced two
loans in investment properties
he owns in Yokohama and To-
kyo. He now pays 0.9% interest,
down from 1.9%.
It is a rare case of the cen-
tral bank getting exactly what
it expected. The negative-rate
policy forces commercial banks
to pay interest on certain de-
posits they hold at the BOJ in-
stead of receiving it. When the
policy was introduced, the
hope was to encourage lending
and stimulate growth.
Most of that hasn’t hap-
pened. Overall lending growth
hasn’t picked up and weak con-
sumer spending continues to
restrain growth. Meanwhile,
Japan’s currency, which might
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OVERHEARD
Look no further than Sili-
con Valley to see the trouble
with prosperity.
Aside from angst over
gentrification and old-fash-
ioned human envy, the rising
wealth of technology workers
has priced people with nor-
mal and often vital middle-
class jobs such as teachers,
nurses and police officers out
of the housing market.
Almost nowhere is the
problem more acute than in
Palo Alto where, according to
Zillow, the average home in
the cheapest neighborhood is
just under $1.3 million while
the toniest, Old Palo Alto, will
set buyers back a cool $4.4
million.
The city is home to Stan-
ford University, Hewlett-
Packard, and Tesla Motors,
among other tech companies,
and was the birthplace of
Google and PayPal.
Not surprisingly, it has the
highest proportion of resi-
dents with master’s or doc-
torate degrees according to
City-data. But more modestly
educated and compensated
residents are being shut out.
The local planning commis-
sion has been urged to ad-
dress the problem, except
they have a problem of their
own now.
One of the commissioners,
Kate Downing, has resigned
her post due to the high cost
of living. She and her hus-
band are moving to Santa
Cruz.
Surprisingly, neither of
them are exactly blue collar:
Her husband is a software
engineer and she is a lawyer
serving as counsel to a local
technology company.
They were sharing a house
with another couple for
monthly rent of $6,200 ac-
cording to Ms. Downing’s let-
ter of resignation.
When the hub of the tech-
nology industry becomes too
pricey for technology workers
then prices really are prohibi-
tive.
have been expected to fall on
the monetary easing, actually
strengthened, hurting export-
ers.
But, as the textbooks would
predict, the lower price of get-
ting a mortgage is generating
more demand. Outstanding
mortgages to individuals
reached ¥184.2 trillion ($1.807
trillion) at the end of March,
the highest level since 2001,
according to the Japan Hous-
ing Finance Agency. And a BOJ
loan-officer survey released in
July showed demand for
household loans at the highest
level since 2014.
$1.807
Total amount, in trillions, of
outstanding mortgages to
individuals at the end of March
The loan activity could
spread to the broader economy
if it generates a boom in new-
home construction or if con-
sumers take the savings from
refinancing mortgages and
spend it.
MFS Inc., a Tokyo mortgage-
refinancing consultancy, said a
survey of people using its mo-
bile-phone application found
many could save more than
$10,000 with a refinancing.
So far, there isn’t much evi-
dence of a spillover effect. Re-
tail sales and consumer spend-
ing fell in the three months
through June.
—Atsuko Fukase
contributed to this article.
NAV —%RETURN—
GF AT LB DATE CR NAV YTD 12-MO 2-YR
OT OT MUS 08/05 USD 304464.03 8.7 3.6 -7.3