DJIA 13104.14 À 1.28% Nasdaq 3019.51 À 2.00% Stoxx Eur 600 279.68 À 0.32% FTSE 100 5897.81 g 0.
600 279.68 À 0.32% FTSE 100 5897.81 g 0.47%
The Risky Chase for Higher Yield
YEAR-END REVIEW & OUTLOOK 17-24
EUROPE EDITION
House Grapples With Cliff Pact
BY JANET HOOK
AND SIOBHAN HUGHES
WASHINGTON—The fiscal-
cliff deal is now in the hands
of the House of Representa-
tives, which convened New
Year’s Day with an uncertain
timetable to consider a bud-
get agreement that would
boost income-tax rates for the
first time in 20 years, main-
tain unemployment benefits
and delay spending cuts that
were part of the cliff.
Meeting with their parties
late into the afternoon as The
Wall Street Journal’s Euro-
pean edition went to press,
House members expressed the
same anguish as senators had
when their chamber approved
the package in an 89-8 vote
early Tuesday, more than two
hours after the deadline had
passed: whether their many
reservations outweigh the po-
tentially calamitous results of
allowing the tax increases and
Associated Press (Boehner); Reuters
spending cuts to remain in ef-
fect, especially with markets
reopening Wednesday.
While the large Senate
margin could give momentum
to the bill, initial GOP reac-
tion in the Republican-con-
trolled House didn’t bode well
for quick and simple action on
the compromise. Conservative
Republicans are dismayed the
compromise raises tax rates
and doesn’t include more cuts
in federal spending. House
Speaker John Boehner (R.,
Ohio) has raised the possibil-
ity the House could amend
the bill and send it back to
In Europe, Investors Confront Familiar Tale
BY CHARLES FORELLE
LONDON—Europe still is in
crisis. You’d better get used to
it.
Markets in Europe closed
2012 much as they closed
2011: with relief that the euro
zone hasn’t ruptured but con-
cern for what comes next.
The challenge for Euro-
pean investors in 2013 will be
learning to live with this
“perma crisis”: hoping to find
the right balance of risk on a
continent that always seems
close to lurching off track.
Recent history has made it
plain that it pays to tread
cautiously.
At the end of 2011, the Eu-
ropean Central Bank’s big
DAX 7612.39 Closed CAC 40 3641.07 À 0.58%
House Speaker John Boehner (R., Ohio), left, and House Minority Leader Nancy Pelosi (D., Calif.) head into the clash over the fiscal cliff.
the Senate.
“This isn’t a done deal by
any stretch,” said Rep. Steve
LaTourette (R., Ohio), a retir-
ing member considered a cen-
trist. “If this is the only
choice, I will vote for it just to
loans to banks pulled down
bond yields and gave a boost
to stocks. It lasted only a few
months, though, and by the
next spring, Greek politics
and Spanish finances had
revved the crisis back up to
full speed, clobbering mar-
kets.
At the end of 2012, an-
other ECB program has
doused the market’s panic.
Stocks have turned around
and rallied furiously.
But what will 2013 bring?
In the recent past, Europe
has been confounded by its
weak economy and the diffi-
cult politics of crisis-fighting.
Those will remain sources of
trouble and uncertainty.
Both the European Com-
Euro 1.3185 g 0.27%
VOL. XXX NO. 236
WEDNESDAY, JANUARY 2, 2013
get something done.” But he
questioned the wisdom of ac-
cepting, without change, “a
package put together by a
bunch of sleep-deprived octo-
genarians on New Year’s Eve.”
Rep. Mick Mulvaney (R.,
mission and the International
Monetary Fund project tepid
growth in the euro zone in
2013—0.1% for the commis-
sion and 0.2% for the IMF—
and much of that growth will
come from Germany, with a
modest contribution from
France. Italy, Spain, Greece
and Portugal will contract.
Unemployment will continue
to rise.
The political calendar is
full, too. Italy will have elec-
tions in February, which could
see the ascent of antiausterity
parties. Greece, which ended a
turbulent year with a success-
ful debt buyback, still may
need debt forgiveness from
other euro-zone countries to
survive.
Pound 1.6260 À 0.64%
BHR BD 1.50 EGY $1.75(C/V) JOR JD2 KWT KD 1 OMN OR 2 POL ZL 12 QAT QR 14 SAU SR 14 UAE 15 AED
S.C.) said, “I don’t think I
could support it as it is. The
spending part is killing me.
All we see is tax increases.”
Democrats were equally as
skeptical but shared some of
the same resignation.
Germany has elections in
the fall, and German leaders’
scope for action will be lim-
ited by politicking.
And Spain likely will be
forced to ask for a bailout to
help keep its government fi-
nanced. No one quite knows
how that will be executed, or
when, or how the market is
likely to greet it.
Much remains unsolved in
Europe. Still, to many observ-
ers, the euro zone’s chief ac-
complishment of 2012 was to
banish the paralyzing specter
of chaos that had shadowed
European financial markets
for much of 2010 and 2011.
That is largely because of a
wide shift in the ECB’s pos-
ture, from an institution only
The White House dis-
patched Vice President Joe Bi-
den to the Capitol to meet
with the House Democratic
Caucus to make a pitch for
the deal, especially in re-
sponse to liberals who
grudgingly willing to take on
a crisis-fighting role to one
whose president pledged in
July to do “whatever it takes”
to save the euro. Thus, a euro-
zone breakup seems much
less likely or at least much
less imminent.
“People feel like the Arma-
geddon scenarios are dissipat-
ing,” said Marisa Drew, co-
head of global market
solutions at Credit Suisse in
London.
Dissipating doesn’t mean
eradicated, though, and many
Please turn to page 21
 Europe in 2013 framed by
Italian, German elections.......4
 European economy will need
investment to grow...................5
£1.70 / €3.20
WSJ.com
groused that President Barack
Obama gave too much ground
in negotiations with the GOP.
“I think it’s a bad deal,”
said Rep. Peter DeFazio (D.,
Ore.) who said he is a “no”
vote. He complained that the
agreements on estate taxes
and capital gains were too fa-
vorable to Republicans. “What
do we have left to fight back
with?”
Rep. Gerald Connelly (D.,
Va.) called it a “hold-your-
nose vote.”
“It’s not a perfect package
but it is something that gets
us by,” he said. “It must be
addressed or it’s going to
have a huge drag on the econ-
omy.”
The delay in approval
meant that the U.S. techni-
cally went over the fiscal cliff
at midnight, but with U.S.
markets closed Tuesday, the
impact of missing the dead-
line could be minimal. What
damage the wrangling has
caused—to the 2013 tax-filing
season and consumer confi-
dence—is already assured.
The compromise was pre-
pared for the Senate floor af-
ter Mr. Biden, who brokered
the deal with Senate Minority
Leader Mitch McConnell (R.,
Ky.), traveled to the Capitol
for a New Year’s Eve meeting
with Senate Democrats, in-
cluding many who harbored
Please turn to page 6
 U.S. recovering slowly from
financial heart attack..............6
 New generation of veterans
heads to Congress.....................7
Inside
Putin and his Brics
allies are losing their
growth sparkle
World News ............ 9
Investors should down-
load European cable
Heard .................... 32
2 | Wednesday, January 2, 2013
i i i
Business & Finance
n Europeans have grown more
wary about the dangers of the
atom and the political consensus
that once existed in some coun-
tries around nuclear energy is
crumbling. 5
n Shell sustained another setback
in its closely watched attempt to
drill for oil in U.S. Arctic waters
when an offshore rig it had used
ran aground after breaking free
from tow ships in high seas. 10
n Diageo’s acquisition of a ma-
jority stake in India’s United Spir-
its brings into focus the chal-
lenges faced by beer makers in
the world’s second-most populous
country. 10
n Investors are making bets on
how the Crossrail public-transport
project will affect the London
real-estate market. 11
n The mixed fortunes of two
projects illustrate the crosscur-
rents at work in the London office
market these days as the U.K.
struggles with a weak economy. 11
n Dexia gave new details of its
Associated Press
EU-backed plan for winding down
the bank, warning that its earn-
ings would be hit by high borrow-
ing costs and expenses related to
asset sales. 26
n Apple was hit New Year’s Eve
by an armed robbery at one of the
company’s Paris stores, the first
major robbery of an Apple store
in France.
n South Korean steelmaker
Posco and its partners agreed to
purchase a 15% stake in an Arce-
lorMittal-controlled iron-ore min-
ing company in Canada for $1.1
billion.
n Manufacturing activity in
China expanded at a mild pace in
December, suggesting the econ-
omy is rebounding but fighting
headwinds from weak conditions
around the world.
Most Read in Europe
1. U.S. Budget Deal Is Sealed
2. Budget Focus Moves to House
3. The Power of Negative Thinking
4. Clinton Has Blood Clot Between
Brain, Skull
5. Deal’s Likely Impact: More Slow
Growth
Most Emailed in Europe
1. Opinion: Le Tax Fairness
2. The Power of Negative Thinking
3. At Europe’s Doorstep, a Fierce
War Against TB
4. U.S. Budget Deal Is Sealed
5. Smarter Ways to Discipline
Children
What’s News—
AFTER THE BIG PARTY, THE BIG CLEANUP: A worker clears confetti from a sidewalk in New York’s Times Square after midnight on Tuesday, New Year’s Day.
i i i with the attempted murder of a
World-Wide
n Measures that legalize same-
sex marriage and loosen mari-
juana restrictions are among the
new and sometimes contentious
laws taking effect across the U.S.
this year. 7
n Tens of thousands marched in
Hong Kong to call for the city’s
leader to step down over allega-
tions he was untruthful about ille-
gal renovations at his home and
to press for full democracy. 9
n Police in Northern Ireland ar-
rested two men in connection
North Korean Speech
asia.wsj.com
‘All the people...
should dynamically
turn out in the
grand onward
march for building
a thriving country’
North Korea’s Kim Jong Eun delivers
his New Year’s message.
PAGE TWO
police officer in east Belfast on
Sunday.
n U.S. Secretary of State Hillary
Clinton was receiving blood thin-
ners to dissolve the blood clot lo-
cated between her brain and her
skull. Doctors said she was ex-
pected to make a full recovery.
n A crowd stampeded after leav-
ing a New Year’s fireworks show
in Ivory Coast, killing at least 61
people, many of them youths, and
injuring more than 200.
n Syrian troops and rebels
fought in the suburbs of Damas-
ONLINE TODAY
U.S. Politics
Follow developments on
the U.S. budget deal at
wsj.com
cus as well as near Aleppo’s air-
port, stopping all flights in and
out of the city, activists and state
media said.
n Iran said its navy issued doz-
ens of warnings to foreign planes
and warships that approached its
forces during a five-day sea ma-
neuver near the Strait of Hormuz.
n An arrest raid by undercover
Israeli soldiers ignited clashes in
the northern West Bank, leaving
at least eight Palestinians
wounded.
n Egyptian prosecutors launched
an investigation against popular
Question of the Day
What are your financial
resolutions?
Vote online today at europe.wsj.com
Previous Results
Did you keep your New
Year’s resolutions?
I didn’t make one
53%
No
22%
Yes
13%
Sort of
12%
THE WALL STREET JOURNAL.
television satirist Bassem Youssef
for allegedly insulting the coun-
try’s president in the latest case
raised by Islamist lawyers against
outspoken media personalities.
n Gunmen in northwest Pakistan
killed five female teachers and
two aid workers in an ambush on
a van carrying workers home from
their jobs at a community center.
n North Korean dictator Kim
Jong Eun returned to his grandfa-
ther’s practice of delivering a New
Year’s message in a speech, rather
than in print as his father did—
though the exhortations remained
unchanged.
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THE WALL STREET JOURNAL. Wednesday, January 2, 2013 | 3

NEWS

On Iran’s Agenda: Compromise or Nuclear Defiance

BY FARNAZ FASSIHI
BEIRUT—Domestic politics and a
June election could make the differ-
ence in how Iran addresses its main
dilemma of the coming year:
whether to compromise on its nu-
clear program or maintain a policy
of defiance.
Iran is slated to elect a new pres-
ident amid deep political divisions
quo with the West could invite addi- regime, so Iran doesn’t look weak,
tional sanctions and a possible mili- analysts say.
tary strike by Israel to prevent Iran To that end, the regime will be
from building a nuclear weapon. focused on getting through June’s
Iran says its nuclear program is presidential elections with minimum
solely for peaceful energy purposes. turmoil, after the demonstrations
In November, Mr. Ahmadinejad that followed the 2009 election and
ruffled some feathers when he said the regional uprisings of the Arab
the nuclear impasse would only be Spring.
resolved through direct negotiations Mr. Ahmadinejad, who is ineligi-
with the U.S. Washington has said it ble to run for re-election, could be

European Pressphoto Agency

and rivalries among conservative
factions. The issues at the heart of
Iran’s standoff with the West—the
country’s economy, its isolation, and
security—will likely dominate the
campaign.
The contest for power will pit
candidates seen as loyal to Supreme
Leader Ayatollah Ali Khamenei
against those associated with Presi-
dent Mahmoud Ahmadinejad. The
main reformist parties said they
would boycott the elections.
The political discord is on daily
display in Iranian media, with prom-
inent political figures blaming one
another for an economy withering
from international sanctions and
years of mismanagement, with a
plummeting currency and skyrocket-
ing inflation.
For Iran, maintaining the status
was ready for such discussions.
The idea that talks between Iran
and the U.S. must take place parallel
to Iran’s nuclear negotiations with
the five permanent members of the
United Nations Security Council plus
Germany, is gaining momentum in
Iran, Iranian diplomats and analysts
say. Both sides in those so-called
P5+1 talks have indicated a timeta-
ble will be set to meet again in 2013,
after talks stagnated in 2012.
Iran’s goal, some analysts say, is
a grand bargain that recognizes its
right to enrich uranium, lays out
steps toward relief of sanctions, and
addresses concerns such as a possi-
ble military strike by Israel, a stake
in a post-Assad Syria and assur-
ances that the U.S. isn’t plotting for
regime change in Tehran.
“In Iran many people are realiz-
Mr. Ahmadinejad—ineligible for re-election—could
be an obstacle to progress in nuclear negotiations.
ing that nothing will move forward
until Iran and the U.S. sit down and
discuss their issues. Mr. Khamenei is
not opposed to these talks in princi-
ple but he needs reassurances that
the U.S. won’t meddle in Iran’s in-
ternal affairs,” said Seyed Hossein
Mousavian, who was a member of
Iran’s nuclear negotiating team until
2005 and is currently a visiting
scholar at Princeton University.
On the other hand, for a regime
with a legacy of anti-Western rheto-
ric, any concessions could diminish
its stature at home and among its
proxies abroad, specifically Hezbol-
lah in Lebanon and Hamas in Gaza.
Mr. Khamenei will only consider a
compromise if he feels there is suffi-
cient unity and stability inside the
another obstacle to progress in nu-
clear negotiations: The regime, ana-
lysts say, is wary of giving the credit
and legacy of a political break-
through with the West to a contro-
versial, lame duck president.
The president’s conservative de-
tractors hope to clip his wings out
of fear that he aims to overstep Mr.
Khamenei’s powers. Mr. Ahmadine-
jad’s allies have fought back with
smear campaigns.
“In some ways Ahmadinejad’s
delusions of grandeur and insubor-
dination are now an asset for U.S.
policy. If he’s not accommodated he
could sow divisions and crisis
among Iran’s senior political elite,”
making it difficult to compromise
with the West, said Karim Sadjad-
pour, Iran expert at the Carnegie
Endowment for International Peace.

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4 | Wednesday, January 2, 2013 THE WALL STREET JOURNAL.

EUROPE NEWS

Europe’s Recovery Hinges on Key Votes

BY MARY M. LANE
AND GIADA ZAMPANO
Elections this year in two of the
euro-zone’s largest countries—Ger-
many and Italy—cast a shadow over
the Continent’s politics and compli-
cate needed overhauls of the cur-
rency union.
As the euro zone this week en-
ters its fourth year of a debt crisis
and the economic woes of Greece
and Spain continue apace, much
work is needed to heal the Conti-
nent’s economy and ensure the
euro’s viability.
Italy votes first, on Feb. 24-25.
Former Premier Silvio Berlusconi’s
bid for a comeback is already mak-
ing politicians and markets anxious
around Europe, while Mario Monti,
who resigned last month, has laid
out a blueprint for his own leader-
ship of lawmakers from a slate of
like-minded parties.
In September or October, Ger-
many goes to the polls. Chancellor
Angela Merkel, seeking a third term,
is loath to take steps to help fund a
resolution to the crisis in Europe
that could cost German taxpayers
money and her conservative bloc
votes, analysts say. Germany’s long
campaign period is Europe’s biggest
headache, rather than who wins, be-
cause the country’s major parties
have similar policies in any case.
The main question in Germany
will be what wins votes, “rather than
what is the best way of not reducing
public indebtedness…and restoring
growth” to Europe, said Sony Kapoor,
head of economic-policy consultant
firm Re-Define. “We’ll be seeing deci-
sion-making put on ice.”
Many observers say that to re-
cover, Europe needs to reduce
Greece’s unpayable debt stock, build
a credible “banking union” that har-
nesses Europe’s collective financial
muscle and rethink pan-European
austerity policies that many agree
have pushed the euro zone into a
double-dip recession.
In late 2012, the euro zone man-
aged to shore up the stability of its
financial system, reducing fears that
banks or government bond markets
could collapse. But Europe’s workers
and businesses are hurting more
than ever since the financial crisis
began, and the pain facing the real
economy and the social fabric is set
to worsen this year.
The European Central Bank
hopes a strengthening global econ-
omy and more stable financial mar-
kets in Europe will lead to a recov-
ery this year. But the ECB thought
much the same for 2012, only to see
the downturn spread to the biggest
economies of Germany and France.
Euro-zone unemployment, already
at 11.7%, is projected to climb fur-
ther this year and peak in 2014, said
Jennifer McKeown, economist at
consultant Capital Economics. “The
recession is pretty clearly going to
continue into next year,” she said.
The outlook for Greece this year
is particularly grim. Economic activ-
ity, having shrunk more than 20%
since 2008, is set to fall by a further
4.5%, according to the Greek gov-
ernment; many economists say the
drop will be worse. Employment is
collapsing, putting huge pressure on
society and on the fragile coalition
government. Many Greeks fear 2013
is more likely to bring another bout
of political turmoil.
Spain’s borrowing costs remain
high and many analysts believe it
could seek help from the ECB this
year, a step that would test the euro
zone’s last financial safety net. Spain
remains in recession and unemploy-
ment is set to rise further.
Germany is another story. Em-
ployment there remains close to its
highest level since the country’s re-
unification, and most households
don’t feel the economic slowdown
yet. Germany’s rarefied state helps
explain why Ms. Merkel is as popu-
lar at home as she is demonized in
Europe’s struggling south.
Many Spaniards and Greeks
blame her for leading the calls for
the harsh cuts to public spending
they have endured; protesters some-
times portray her in Nazi garb. To
many Germans, she is a safe pair of
hands, steering Europe slowly to-
ward stability while safeguarding
German capital.
“It is crystal clear that Angela
Merkel is not going to be making any
bold, decisive decisions on [Euro-
pean] integration before the German
elections,” said Nicholas Spiro, head
of London consultant Spiro Sover-
eign Strategy. “Many people have
doubts whether any will be made af-
ter the election, either.”
Ms. Merkel’s conservative Chris-
tian Democrats have about 40% sup-
port in the opinion polls, making
Casualties of
The Crisis
Unemployment in the euro bloc is
projected to worsen over the next year,
straining a currency union that has
already weathered four years of crisis.
EURO-ZONE UNEMPLOYMENT RATE
12%
10
8
6
4
2
Projections 
0
’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14
Sources: Eurostat (monthly unemployment rate);
European Commission (annual projections)
Photo: Reuters The Wall Street Journal
Municipal workers (left) rallied in
Athens on Dec. 12 against public-sector
layoffs demanded by Greece’s
international creditors.
them favorites to lead the next gov- politicians who want to loosen the
ernment. But the weakness of Ms. purse strings again.
Merkel’s current junior partners, the Other euro-zone leaders and the
pro-business Free Democrats, makes markets are hope for continuity. “It-
it unclear who her next coalition aly should be careful not to erode
partner might be.“There’s not that the credibility capital accumulated
much that separates” German par- by Monti so far,” said Fabio Fois, an
ties’ policies on the euro-zone crisis, analyst at Barclays. “We believe his
even between the Christian Demo- commitment to assuming a central
crats and the strongly pro-European role in Italian politics would be the
Greens, Mr. Kapoor said. best way to preserve that in the
An upset victory for the center- eyes of Italy’s European partners
left Social Democrats and their al- and financial markets.”
lies the Greens is possible. But it The contenders in the election
probably wouldn’t lead to greater fi- are still unclear. Mr. Monti has sug-
nancial generosity by Germany to- gested he would head any coalition
ward the euro zone’s struggling that accepts his recipe for continued
members, analysts say. recovery.
Italy’s election stands to be The danger for Italy, and Europe,
among the most important in the is a hung Parliament that can’t pass
nation’s postwar history. After a many laws. An indecisive result
yearlong emergency government of could lead to repeat elections, pro-
technocrats led by Mr. Monti, Italy longing the uncertainty and slowing
has reduced fears that its finances the euro zone’s push for tighter eco-
could unravel. But the economy re- nomic integration.
mains in recession. Many Italian —Jonathan House and Brian
voters are tired of austerity and job Blackstone contributed to this
losses, creating opportunities for article.

 ITALY
Man Scales Scaffolding
Around St. Peter’s Square
A man has scaled the scaffolding
around St. Peter’s Square and draped a
banner calling on Pope Benedict XVI to
“Stop Terrorism.”
The man identified himself on the
banner as Julian Jungarean, a
Romanian who has previously scaled
the colonnade around the piazza.
Witnesses say uniformed officers
were speaking with him from the
ground and a nearby roof.
The pope celebrated New Year’s
Day Mass earlier Tuesday in St. Peter’s
Basilica and said he was convinced
that peace will prevail in 2013 despite
the inequality, terrorism and
“unregulated financial capitalism” that
afflict the world. He later appeared at
his studio window overlooking the
piazza to wish thousands of people
below a Happy New Year. Mr.
Jungarean’s protest didn’t appear to
cause the pope any disturbance.
Associated Press
 EU
Turkey Criticizes EU Report
On its Membership Progress
Turkey accused the European Union
of bias and bigoted attitudes towards
the EU candidate country on Monday
and blamed it for undermining the
Turkish public’s trust in the bloc.
Turkey criticized the European
Commission’s latest report on its
EUROPE WATCH
progress towards EU membership as it
presented for the first time its own
report highlighting its reforms over the
last year.
Turkey began accession talks in
2005 but the process has ground to a
halt due to an intractable dispute over
Cyprus, the divided island state which
Turkey does not recognize, and
opposition from core EU members
France and Germany.
Despite waning domestic support
for joining the EU, Ankara has
continued to push for full membership
of the union and has said it wants to
join before 2023, the centenary of the
founding of the Republic of Turkey.
“We observed that this year’s
Turkey Progress Report was
overshadowed by more subjective,
biased, unwarranted and bigoted
attitudes,” Turkey’s EU Affairs Minister
Egemen Bagis said in a statement
accompanying Turkey’s own 270-page
report.
Reuters
 GREECE
Retail-Sales Volume Falls,
Helping Prolong Recession
Greek retail sales volume fell at an
annual rate of 16.8% in October, data
from the Hellenic Statistical Authority
showed Monday, reflecting a slump in
consumer confidence levels in the
recession-ravaged economy.
The figures, which are adjusted for
inflation and don’t include volatile fuel
sales, were worse than September’s
downwardly revised 11.8% decline,
continuing a deteriorating trend seen
since summer last year.
With the economy now in its fifth
year of recession, the October figures
showed that Greeks had pared back
their spending, mostly on items such
as clothing and household goods by
roughly 25% from a year earlier, while
it shrunk even in supermarkets by
16.7%.
All categories of spending were
down from year-earlier levels in
October.
Nektaria Stamouli
Online>>
Follow the latest Europe news at
WSJ.com/Europe.
THE WALL STREET JOURNAL.
Dilemma Over
Nuclear Plans
Vexes Europe
BY GÉRALDINE AMIEL
AND ALESSANDRO TORELLO
FESSENHEIM, France—The
owner of the local nuclear power
plant, Electricité de France SA, is
spending €20 million ($26.4 million)
to upgrade it and extend its life
span for another decade, seemingly
breathing new life into this town on
the German border.
But the French governent—EDF’s
majority shareholder—says it plans
to close the site in 2016, amid an ef-
fort to reduce the country’s reliance
on nuclear power and promote re-
newable energy.
Amid uncertainty, EDF’s overhaul
is proceeding. But the conflict at
Fessenheim illustrates a broader di-
lemma facing France and other Eu-
ropean Union countries.
Citizens have grown more wary
about the dangers of the atom since
the March 2011 nuclear catastrophe
in Japan, and the political consen-
sus that once existed in some coun-
tries around nuclear energy is crum-
bling.
But phasing out nuclear power,
which helps meet nearly 75% of
France’s electricity needs and about
27% across the EU, could deprive
the continent of a key source of en-
ergy and jobs, making it more de-
pendent on fossil-fuel imports.
Higher fuel bills could also hurt
European economies, economists
warned. And closing nuclear reac-
tors—which emit little to no green-
Regaining Investors’ Confidence Key to Recovery
BY PAUL HANNON
The fate of Europe’s economy
this year largely depends on
whether policy makers can convince
businesses and households to in-
vest—and that could take providing
a clear path out of the region’s fi-
nancial crisis.
Years of uncertainty have taken
their toll on private-sector confi-
dence. Private investment by busi-
nesses and households in the 27
members of the European Union fell
by €350 billion ($462.63 billion) be-
tween 2007 and 2011, according to a
study by the McKinsey Global Insti-
tute.
More broadly, the European
Commission, the European Union’s
executive arm, expects total invest-
ment in the euro zone—including
that made by governments—will fall
0.6% this year, after having declined
an estimated 3.5% in 2012.
The fall in investment has been
damaging not just to economic
growth in recent years, but also to
Europe’s ability to grow in the fu-
ture. And it is concentrated in those
countries that are most deeply
mired in economic difficulty:
Greece, Ireland, Italy, Portugal, the
U.K. and Spain.
It isn’t that European businesses
can’t invest, it is that they won’t.
McKinsey estimates that far from
being short on funds, companies in
the EU were sitting on a cash pile of
€750 billion at the end of 2011.
There is little evidence that any of
house gas—could jeopardize the
EU’s efforts to address concerns
about global warming.
France’s Socialist President Fran-
çois Hollande, who made the deci-
sion to close Fessenheim and other
plants, said he seeks to transform
his country “into a nation of envi-
ronmental excellence.”
He plans to lower the share of
nuclear power in France’s energy
mix to 50% by 2025. He has ex-
tended a ban on shale gas explora-
tion and extraction, citing pollution
risks.
An unusual coalition of labor
unions and business leaders is
mounting opposition to Mr. Hol-
lande’s environmental drive.
In October, the directors of
France’s 19 nuclear plants sent a
joint letter to EDF employees saying
that closing the nuclear plant here
would be “a profound injustice.”
“Together, let’s all stay mobi-
lized,” they said.
Employees have posted signs on
the barbed wire surrounding the
Fessenheim plant protesting against
the decision to close it.
Other European countries are
grappling with similar problems.
In Belgium, where nuclear power
accounts for roughly 55% of electric-
ity output, the decision to phase out
nuclear energy by 2025 was made
nearly a decade ago. Yet, power
companies have been slow to invest
in new, mainly gas-fired electricity
production, as successive govern-
Private Loss | Changes in EU GDP components from 2007 to 2011
Private consumption
Private investment
Government investment
Government consumption
Net exports
Total EU GDP
2007
€12,408 billion
Note: Data are in constant 2005 euros Source: McKinsey Global Institute
that money was put to use last year.
Nor is there much sign that busi-
nesses will come out of their shells
in 2013.
French utility GDF Suez SA said
it planned to cut its capital spend-
ing 20%, to €7 billion a year for
2013 and 2014, partly in response to
Europe’s economic troubles. Swed-
ish engineering company Alfa Laval
said it would limit capital expendi-
ture to 2% of sales revenues in com-
ing years, down from 2.5%.
The Commission’s headline mea-
sure of confidence in industry, serv-
ices and the retail sector improved
in November after a long decline,
but remains very weak by historic
EUROPE NEWS
Alessandro Torello/The Wall Street Journal
Turbines at EDF’s nuclear plant in Fessenheim, simultaneously being upgraded and slated for closure.
ments discussed whether to extend
the lifetimes of some of the coun-
try’s seven reactors.
Belgium could be missing as
much as 4,800 megawatts of capac-
ity—the equivalent of nearly five
nuclear reactors—by 2017 as the
country awaits new energy sources
to come online, according to govern-
ment scenarios.
In Germany, the Fukushima di-
saster gave new ammunition to
powerful antinuclear lobby groups.
Days after the accident, the cen-
ter-right coalition government of
Chancellor Angela Merkel ordered
the immediate and permanent shut-
down of eight reactors. Months
later, Germany concluded a legisla-
tive process that would see its re-
maining nine reactors closing by
2022, reversing an extension of
their lifetimes that had just been
set.
Germany also boosted its efforts
to expand renewable energies such
as wind and solar power. The coun-
Amount, in billions
–€17
–€354
–€12
€125
€178
2011
€12,327 billion
standards.
Philippe Gudin de Vallerin, chief
European economist at Barclays,
lays a large part of the blame for
that lack of confidence at the feet of
Europe’s political leaders, whom he
criticizes for not having laid out a
clear plan for the region’s future
governance.
While EU leaders have agreed on
common supervision of the bloc’s
banks, they have yet to agree on a
common system of deposit insur-
ance or a shared system for rescu-
ing or closing down banks that get
into trouble. More broadly, it is un-
clear how much control over their
financial affairs and economic policy
try produces over 25% of its elec-
tricity from renewable sources and
plans to increase this share to 35%
by 2020.
Germany’s green push is coming
at a price: Electricity rates for
households are among the highest
in the EU and are expected to keep
rising. Consumer groups blame the
high prices on a system of sur-
charges levied on retail power rates
to help subsidize renewable ener-
gies, and warn that public support
for the government strategy could
dwindle unless companies help
shoulder more of the cost.
In Maintal, a small city northeast
of Frankfurt, Wilfried Dieling said
his electricity bill is set to increase
by about 15% in January. “It hurts,”
the pensioner said, noting that he
was refraining from heating his
glass-enclosed porch in the winter.
“They make little people carry the
load.”
In France, President Hollande’s
decision to close the Fessenheim
Percentage change
–0.2%
–14.5%
–4.2%
+5.0%
+170.5%
–0.6%
The Wall Street Journal
national government will ultimately
have to surrender in order to ensure
that there is no repeat of the cur-
rent crisis.
“There is still uncertainty about
the future, which is why business in-
vestment is collapsing,” Mr. de Val-
lerin said. “Businesses need a more
stable environment. The recovery
will really be there when investment
is coming back.”
That uncertainty about Europe’s
future is unlikely to be resolved in a
year when two of the EU’s big four
powers face elections. Italians will
go the polls in February, but Ger-
mans won’t elect a new government
until September.
Wednesday, January 2, 2013 | 5
plant initially came as a surprise.
The French Socialists have tradi-
tionally been strong supporters of
the country’s nuclear program.
The move was applauded by his
Green Party coalition partners but
also faced criticism.
Leading the charge was Laurence
Parisot, head of French business
lobby group Medef. She said France,
which has among the EU’s lowest
electricity prices, would lose this
competitive advantage if it closed
Fessenheim and other reactors.
According to some industry esti-
mates, as many as 24 of France’s 58
reactors would have to be shut
down to achieve Mr. Hollande’s goal
of reducing the share of nuclear
power to 50% of overall electricity
output.
“The financial cost would be gi-
gantic,” Ms. Parisot said at a recent
conference.
—Ruth Bender
and Jan Hromadko
contributed to this article.
As a result, 2013 could become
another year of muddling through
for the crisis-weary continent.
Most economists expect euro-
zone growth to be essentially flat
this year, with a modest pickup in
2014. Jens Larsen, chief European
economist at RBC, expects the com-
bined gross domestic product of the
17 countries that share the euro to
rise by just 0.1% in 2013, citing weak
bank lending and fiscal tightening.
While the euro-zone economy as
a whole is expected to stagnate, sev-
eral members will likely experience
another sharp drop in output this
year. Barclays expects Italy’s econ-
omy to shrink 0.8%, Portugal’s to
contract 1.7%, Spain’s to shrink by
1.5% and Greece’s to shrivel by 4.1%.
That the currency area as a
whole is still expected to avoid a
second straight year of contraction
in 2013 is largely down to Germany.
Europe’s largest economy has con-
tinued to grow, if barely, in recent
quarters. But with wages rising, un-
employment low and its exporters
likely to benefit from a revival of
demand in other parts of the global
economy, Germany’s economy is ex-
pected to expand more strongly in
2013.
The continued weakness of the
euro zone will likely continue to act
as a drag on its neighbors. However,
economies in the U.K., Sweden, Po-
land and Switzerland are expected
to pick up this year as long as there
is no further deepening of the cur-
rency area’s crisis.
6 | Wednesday, January 2, 2013
Checking the Economy’s Pulse
[ Capital ]
BY DAVID WESSEL
The U.S.
economy is
recovering slowly
from the financial
heart attack it
suffered in 2008.
Like a middle-aged man talking to
his doctors, it now asks: When will I
feel like myself again? Will I ever
get back to normal? Will it be soon?
Things are getting better. The
U.S. economy has been growing
since the middle of 2009,
something that can’t be said of the
euro zone, the U.K. or Japan. Yet it
still has a long way to go.
Economic physicians aren’t sure
when, if ever, it will be as vigorous
as it was before. It probably won’t
be this year.
Output of goods and services
per person hasn’t returned to
prerecession levels, and probably
won’t get there until the end of
2013. The latest government tally
found 4.2 million fewer jobs than
four years ago. Economists
surveyed by The Wall Street
Journal say the unemployment
rate, now 7.7%, won’t be back to
5.5% before 2016.
Lurking beneath the short-term
prognosis are bigger questions: Did
the financial crisis do long-lasting
harm to the economy’s muscle?
Has it slowed growth in
productivity, or output per hour of
Cliff Deadline Past, House Grapples With Compromise
Continued from first page
reservations about the deal.
“This shouldn’t be the model for
how to do things around here,” Mr.
McConnell said on the Senate floor
shortly before the vote. “But I think
we can say we’ve done some good
for the country. We’ve taken care of
the revenue side of this debate.”
One of the most strident oppo-
nents to the bill was Democratic
Sen. Tom Harkin of Iowa. Speaking
on the Senate floor shortly before
the vote occurred, he railed against
the compromise, saying it benefited
the wealthiest Americans at the ex-
pense of those who could afford it
least. “Maybe now we are all believ-
ers of trickle-down economics. Not
I,” Mr. Harkin said, declaring he
would vote against the legislation.
Major elements of the compro-
mise would:
Permanently raise tax rates to
39.6% on income over $400,000 for
individuals and $450,000 for jointly
filing couples.
Raise taxes on capital gains
and dividends for those households,
Reuters
from the current 15% to Clinton-era
levels of roughly 20%.
Limit the value of personal ex-
emptions as well as the value of
itemized deductions, two restric-
tions that would kick in at $250,000
for individuals and $300,000 for
married couples filing jointly. Those
limits disappeared in 2010.
Set the estate tax rate at 40%
on estates over $5 million, up from
the 35% that applies now to those
over $5.12 million. That isn’t as high
as the 45% rate Mr. Obama sought
with a $3.5 million exemption.
Delay for two months part of
the $110 billion in spending cuts
that otherwise would have taken
place in early January—cuts that
work, the magic elixir of rising
living standards?
There are worrisome signs.
One is a gauge closely watched
by the Federal Reserve as it tries to
discern the pace at which the
economy can safely grow over time
without generating inflation,
known as its potential for growth.
A rule of thumb holds that
unemployment generally falls by
half a percentage point for every
percentage point of growth above
the long-run trend.
“The fact that unemployment
has declined in recent years despite
economic growth at about 2%
suggests that the growth rate of
potential output must have recently
been lower than the roughly 2½%
that appeared to be in place before
the recession,” Fed Chairman Ben
Bernanke said in a November
speech.
A percentage point may not
sound like much, but it adds up
over time. At 2% a year, a $50,000
household’s income grows to
$82,000 in 25 years; at 2.5%, it gets
to $93,000.
Mr. Bernanke cataloged the
reasons why the past few lousy
years might have lingering effects:
So many workers have been
sidelined for so long they may
never go back to work. Business
investment declined sharply during
the recession, leaving firms and
workers less to work with.
Individuals, businesses and
investors may be so shaken that
they will take fewer of the risks
Vice President Joe Biden, arriving at the Capitol on Tuesday, sought to round up Democratic support for a cliff compromise.
would be replaced by tax increases
and cuts in other programs.
The Senate compromise measure
continues an existing pay freeze for
members of Congress for the cur-
rent fiscal year, but doesn’t extend
the pay freeze for federal workers.
The wider deal doesn’t do much
to control the U.S.’s long-term bud-
get woes, which are driven largely
by entitlement spending, especially
on health care, left untouched in
this agreement. And depending on
the budget math and the ultimate
fate of the spending cuts, it may not
U.S. NEWS
that produce efficiencies, new
companies and new ways of doing
things.
He sounded pretty glum. After
all, the U.S. has consistently defied
Fed forecasts that growth will perk
up. Maybe this isn’t temporary.
But suddenly Mr. Bernanke
pivoted, looked ahead and predicted
confidently that “the effects of the
crisis… should fade as the economy
heals.” The pace of growth will vary
with the ups and downs of the
business cycle, of course, and with
demographics, but he sees no
reason to believe that the pace of
economic growth and technological
progress has taken a big, permanent
downshift from the prerecession
trend because of the crisis.
This isn’t an academic
indulging his curiosity. In deciding
how much monetary medicine to
give the economy, the Fed relies, in
part, on measures that compare the
actual output of the economy to its
potential. Overestimating the
potential for growth can lead the
Fed to overdose the economy and
generate unwelcome inflation, as it
did in the 1970s.
Mr. Bernanke and like-minded
economists draw comfort from
economic historian Alexander
Field’s work on the Great
Depression, which he calls “the
most technologically progressive
decade of the century.” Amid all
the pain, he argues, came long-
lasting innovations in products,
production processes and
transportation, some forced by the
do much for the short-run deficit ei-
ther.
By waiting until the last minute,
and by cutting a deal on a much
smaller scale than either side once
envisioned, Washington also de-
ferred many of its thorniest ques-
tions, though perhaps for only a few
weeks. In late February or early
March, the Treasury Department
will run out of extraordinary mea-
sures to deal with the government’s
borrowing limit—which it otherwise
would have reached on Monday—
and Congress would need to ap-
imperative to cope with adversity.
“It was the expansion of potential
output during the Depression,
largely unappreciated because it
took place against a backdrop of
double-digit unemployment, that
laid the foundation both for
successful war mobilization and for
the golden age that followed,”
writes Mr. Field, of Santa Clara
University in California.
Will we look back at the 2010s
and see something similar?
Perhaps. Mr. Field calls himself
“agnostic.”
There are bleaker views.
One holds that the credit
arteries of the economy are still
blocked and that well-intentioned
but counterproductive government
policies are prolonging the pain in
housing and elsewhere. The
resulting stretch of very slow
growth will be so long it will seem
almost permanent.
Another argues that a slowdown
in growth began to infect the
economy before the financial crisis,
but economists didn’t realize it at
the time. Largely for this reason,
Fed officials have shaved their
long-term growth forecasts. In
early 2011, they put the long-term
U.S. growth rate at 2.5% to 2.8%.
Now they expect 2.3% to 2.5%.
Yet another camp questions
whether personal computers,
cellphones and the Internet, for all
the hoopla, will prove as
economically significant to the
way Americans live, shop and
work as electricity, air conditioning
prove an increase.
The delay in the spending cuts
will run out about the same time. In
effect, Congress has delayed the fis-
cal cliff by erecting a new and po-
tentially more dangerous one.
Mr. Biden, asked about the out-
look for the compromise, told re-
porters that his long experience on
the Hill taught him two things. “You
shouldn’t predict how the Senate is
going to vote before they vote—you
won’t make a lot of money,” he said.
“And you surely shouldn’t predict
how the House is going to vote. But
THE WALL STREET JOURNAL.
A Long Way to Go
$15 trillion 2001-2007 TREND
OUTPUT
14 GAP
13
12
11
10
9 ACTUAL GDP
Seasonally adjusted
annual rates, 2005 dollars
8
7 Gross domestic product,
though growing, hasn't
recovered all the ground
6 lost during the
recession.
5
1997 2000 '05 '10 '12
Source: Commerce Department
The Wall Street Journal
and airplanes.
“What happened to the future?”
asks Peter Thiel, co-founder of
PayPal. “We wanted flying cars;
instead we got 140 characters.”
Online>>
Daily news and analysis from
Economics Editor David Wessel and
Washington Bureau Chief Gerald F.
Seib at WSJ.com/SeibWessel.
I feel very, very good.”
The changes in tax rates that
were agreed to between Messrs. Bi-
den and McConnell would raise
roughly $600 billion in new revenue
over 10 years. While that would rep-
resent the largest tax increase in de-
cades, it would be less than 20% of
the revenue that would have come
in if policy makers allowed all the
current tax breaks to expire on New
Year’s Eve.
The Biden-McConnell deal is a
classic compromise that included
something for everyone to love—
and hate. The key question is
whether the positive components
and the pressure of the Jan. 1 dead-
line are enough to neutralize the
parts that raise objections.
For Republicans, the bill includes
the bitter medicine of the first in-
come-tax rate increase since 1993, a
violation of the anti-tax orthodoxy
that has defined their party. On the
other hand, it would codify the
Bush-era lower income-tax rates for
most Americans as permanent law,
ending the recurring battles over
how long they will endure.
For Democrats, the bill’s tax in-
crease makes good on their party’s
marquee promise in the 2012 elec-
tion to raise taxes on upper-income
Americans and not the middle class.
But many Democrats, especially lib-
erals, were infuriated that the bill
set the income threshold as high as
$450,000.
Heading into a meeting with Mr.
Biden and Senate Democrats, Sen.
Clare McCaskill of Missouri said,
“Nobody’s happy—that means it’s
probably a compromise.”
—Corey Boles, Carol E. Lee,
Andrew Ackerman
and Patrick O’Connor
contributed to this article.
THE WALL STREET JOURNAL.
Congress Ushers in New Veteran Troop
BY SARA MURRAY
A decade of war is ushering in the
largest crop yet of Iraq and Afghani-
stan veterans to serve in the Con-
gress, marking something of a chang-
ing of the guard as World War II
veterans all but disappear from Capi-
tol Hill.
The new class of former service-
men—and two women—comes as the
ranks of veterans in Congress dwin-
dles. Some 16 members of the incom-
ing 113th Congress to be sworn in this
week served in Afghanistan or Iraq,
according to data from Iraq and Af-
ghanistan Veterans of America. Nine
are new members.
Rep.-elect Tom Cotton (R., Ark.)
believes this is just the beginning of a
Associated Press (2)
wave of service members from Af-
ghanistan and Iraq likely to pursue
congressional office in coming years.
These veterans “are still entering the
sweet spot of their professional life,”
said Mr. Cotton.
Raised on a cattle farm, Mr. Cot-
ton, 35 years old, earned a law degree
at Harvard Law School. He left his pri-
vate practice to volunteer as an Army
infantryman and served as a platoon
leader in Baghdad. Later, he was de-
ployed to Afghanistan.
Even with the influx of new veter-
ans, the next Congress will include the
fewest number of former service
members in decades, according to
data from the American Legion. In
1977’s 95th Congress, 412 members
had served in the military. In the 113th
Congress, that number will drop to
103, including six from the Korean
War and 52 from the Vietnam War
era.
During the past decade of war,
fewer than 1% of Americans have been
on active duty, a sharp contrast with
New Measures Rule—From Marriage to Marijuana
BY DAN STRUMPF
Measures that legalize same-sex
marriage and loosen marijuana re-
strictions are among the new and
sometimes contentious laws taking
effect across the country at the start
of the new year.
Maryland’s Civil Marriage Protec-
tion Act becomes law on Tuesday,
bringing the number of states that
have legalized same-sex marriage to
nine, plus the District of Columbia,
according to the National Confer-
ence of State Legislatures, a biparti-
san group that conducts research for
state governments.
The same-sex marriage laws cap
a year in which the issue took on a
heightened profile in many state-
houses and ended up on November
ballots in several states. They also
join a raft of new statutes across the
country this year that address issues
related to such topics as marijuana
use, health care, social media and
dangerous driving.
“In a number of places—but not
most places—attitudes have shifted”
on same-sex marriage, said Jack
Tweedie, director of the children
and families program at the NCSL.
“Most states still have laws and con-
stitutional amendments that pro-
hibit same-sex marriage and I don’t
think we should expect rapid change
in that number.”
The implementation of Mary-
land’s same-sex marriage law will
come just three days after a similar
measure became law in Maine, and
almost a month after Washington
state legalized gay unions. The mea-
sures followed a surprise endorse-
The new Congress will include the addition of a new generation of veterans. Left: Rep.-elect Tulsi Gabbard (D., Hawaii), is a combat veteran. Right: Rep.-elect Tom
Cotton (R., Ark.) served in Iraq and Afghanistan. The influx of Iraq and Afghanistan veterans comes as the total number of veterans in Congress has been in decline.
the 9% who served at the time of
World War II, when there was a mili-
tary draft. “Maybe it’s an appropriate
representation,” said Rep.-elect Scott
Perry (R., Pa.), 50, who enlisted in the
Pennsylvania Army National Guard
and served in Iraq for a year.
In the 113th Congress, World War
II veterans will have nearly disap-
peared. With the death of Sen. Daniel
Inouye (D., Hawaii), only three re-
maining members served in that war:
Sen. Frank Lautenberg (D., N.J.), Rep.
John Dingell (D., Mich.) and Rep.
Ralph Hall (R., Texas).
Louis Celli, the legislative director
for the American Legion, said it can
be a challenging transition from mili-
tary service into politics. Many ser-
ment of same-sex marriage from the
Obama administration early in 2012
after Vice President Joe Biden
backed the idea.
Not every state is opening the al-
tar to same-sex couples: 37 have
passed laws restricting marriage to
relationships between a man and a
woman, according to the NCSL. In
California, which previously allowed
same-sex marriages but currently
bans them, a new law takes effect on
Tuesday that allows clergy who ob-
ject to same-sex marriage to avoid
officiating at such ceremonies. The
U.S. Supreme Court will enter the
Associated Press
debate in 2013 by taking up the
question of the constitutionality of
both California’s gay-marriage ban
and the federal Defense of Marriage
Act, which defines marriage as the
legal union of one man and one
woman.
Marijuana users in Washington
and Colorado celebrated after voters
there in November approved recre-
ational pot use. On Tuesday, Wash-
ington will implement a law that li-
censes producers and dispensaries
for medical-marijuana users, and
both states are set to enforce regula-
tions later this year for sale of the
drug to recreational users. For now,
however, sale of the drug for recre-
ational use remains illegal in those
states, and federal law still prohibits
marijuana possession.
“There’s no mechanism by which
people can legally sell it yet,” said
Ann Marie Painter, a partner at the
law firm Morgan, Lewis & Bockius
LLP in Dallas.
California passed another atten-
tion-grabbing law in 2012: A ban on
U.S. NEWS
vice members come from working-
class families who don’t have access
to the fundraising networks necessary
to run for political office.
“We have less people in Congress
now that have a deeper understand-
ing of the needs that our veterans
have after they come back,” Mr. Celli
said. He pointed to debates over bene-
fits under Tricare, the health care
program for military personnel and
retirees, as an area where veterans’
voices could make a difference.
As Rep.-elect Tulsi Gabbard (D.,
Hawaii) put it, there is value in
“knowing what the cost of war really
is.” Ms. Gabbard, 31, will be one of the
first female combat veterans in Con-
gress, along with Rep.-elect Tammy
Jake Dimmock waters plants at a medical-marijuana dispensary in Seattle.
Washington state’s voters have approved recreational pot use.
mental-health providers offering so-
called conversion therapy aimed at
changing the sexual orientation of
patients under 18. The law is meant
to outlaw such therapy, which has
been criticized by many psycholo-
gists as ineffective and possibly
harmful. The ban was set to go into
effect Tuesday, but a federal appeals
court in December delayed it, pend-
ing a decision on the law’s constitu-
tionality.
Laws governing social media are
taking hold in a variety of states. In
Illinois, for instance, a law kicks in
on Tuesday making it illegal for em-
ployers to request social-media
passwords or account information
from employees or job applicants.
California, Delaware, Maryland and
New Jersey passed similar legisla-
Duckworth (D., Ill.), who flew combat
missions in Iraq as a captain in the
National Guard and lost both legs
when her helicopter was hit by a gre-
nade.
With so few veterans roaming the
halls of Congress, newcomers may
also gain quick authority on national
security and foreign policy issues, Mr.
Cotton said.
The military background helps
“you understand in a more tactical
and frontline sense the implications of
the decisions we make in Washing-
ton,” he said. “People experience do-
mestic policy every day. That’s not the
case with foreign policy.”
Even before the new Congress is
sworn in, Mr. Cotton has begun wad-
tion in the last year.
State Rep. La Shawn Ford, a
Democrat who introduced the Illi-
nois law, said the measure was par-
tially in response to constituents
who complained they were being
asked by employers—primarily in
the law-enforcement and banking
sectors—for access to their Face-
book accounts.
“You wouldn’t ask for anyone’s
password for the ATM machine or
password for their voicemail,” Rep.
Ford said. “Passwords are very pro-
tected.”
Meanwhile, 2013 will mark the
start of a number of rules related to
the Obama administration’s health-
care overhaul. Several new taxes, in-
cluding a 2.3% tax on products sold
by medical-device makers, will be-
Wednesday, January 2, 2013 | 7
ing into the national security fray. He
recently penned an op-ed column
slamming the prospect of former Sen.
Chuck Hagel of Nebraska serving as
the next secretary of defense. Mr. Cot-
ton took issue with a 2006 column
Mr. Hagel wrote, calling for a troop
withdrawal in Iraq.
If nothing else, having served in
combat can put Beltway traditions in
better perspective. As incoming mem-
bers groaned over the office lottery to
determine where members would set
up shop on the Hill, Mr. Cotton
couldn’t help thinking: “It could be
worse. You could be under a poncho
in an ice storm in the woods.”
—Andrew Grossman contributed to
this article.
come effective on Tuesday to raise
revenue to help fund the Affordable
Care Act, which requires that unin-
sured Americans have health insur-
ance or pay a penalty starting in
2014.
Several states passed laws con-
cerning insurance coverage for au-
tism. Alaska, for instance, will enact
a law on Tuesday requiring private
health insurance plans to cover the
diagnosis, testing and treatment of
autism-spectrum disorders for peo-
ple up to age 21. The law will make
Alaska the 31st state to pass autism
insurance reform, according to the
NCSL.
More states will crack down on
dangerous driving practices. In Ohio,
police will begin issuing tickets
around March 1 to drivers caught
texting while driving. In Missouri, a
law takes effect in October requiring
drunk drivers—for at least 72 days
after their conviction—to have an in-
terlock mechanism that unlocks only
after a sober driver blows into the
device.
The prize for some of the most
unusual new laws likely goes to Illi-
nois. One measure taking effect in
2013, aimed at protecting children,
prohibits sex offenders from distrib-
uting candy on Halloween or work-
ing as Santa or Easter Bunny imper-
sonators. Another requires middle-
schoolers in the state to learn how
to use a defibrillator.
—Justin Scheck,
Arian Campo-Flores,
Valerie Bauerlein,
Mark Peters, Caroline Porter and
Nathan Koppel
contributed to this article.
8 | Wednesday, January 2, 2013
Year of Political and Economic Struggle
 AFRICA
Mining Riches Spark Quarrels,
Draw Foreign Investor Interest
Africa’s resource riches have drawn
scores of foreign investors, notably
from China and India. The high-stakes
scramble has also stoked renewed
tensions among African neighbors that
threaten to become bigger conflicts in
2013.
Where border tensions are
particularly high on the continent, oil
and gas is usually involved. Or
sometimes gold. Or water.
Sudan and newly independent
South Sudan came to the brink of war
last year after repeated clashes along
their ill-defined, oil-rich border—they
still haven’t agreed on a security pact
to restart trans-shipments of crude.
Tanzania and Malawi are bickering
over the location of a common border
after Malawi awarded a gas
exploration license to a U.K company.
And the most recent flare-up in
Congo’s eastern region involves gold-
smuggling rebels who the United
Nations alleges have the backing of
both Rwanda and Uganda. Both
countries deny the accusations that
they are funding and advising the
Reuters
insurrection, or benefiting from any
gold that moves across their borders.
Given the importance of food
security, frictions are rising as well
over water that would flow into the
continent’s farmlands. Egypt and
Sudan have sparred with Ethiopia over
the latter’s plans to build a giant dam
on the Blue Nile, a major Nile tributary.
The troubles underscore how well-
positioned the African continent is to
draw foreign investment as levels of
energy, minerals and food stocks come
under pressure elsewhere. But with
fresh investment, old disputes and
hostilities are bound to resurface.
Whether African nations can prevent
new fights from erupting will depend
on these countries finding the political
and economic incentives to maintain
peace.
Peter Wonacott
 MYANMAR
Investors Watch Reforms
To See if They Are for Real
Myanmar surprised the world over
the past 18 months with blockbuster
reforms ending decades of harsh
military rule. The big test will come
this year, though, when investors and
political activists find out if the
changes will stick—and if Myanmar
can start to fulfill its promise as one
of the world’s hottest new emerging
markets.
Recent troubles have given
observers cause to worry. Sectarian
violence between minority ethnic-
Rohingya Muslims and majority
Buddhists in western Myanmar has
left more than 180 people dead since
June. A harsh crackdown on activists
protesting against a Chinese-backed
copper mine in November raised fears
Myanmar’s leaders haven’t yet learned
to manage dissent without force.
Myanmar leaders say they intend
to stay the course, though, and that
2013 will be an even bigger year for
reform. Among other things, they have
promised more freedom for the press
and bigger investments in power,
communications and tourism
infrastructure to make Myanmar more
viable for foreign capital. Investors will
also be watching to see if the
government grants more independence
to Myanmar’s central bank, lets foreign
banks expand in the country, and
encourages foreign competition in
sectors such as telecommunications
and natural resources.
And then there is the biggest
Mexico’s President Enrique Peña Nieto has an ambitious reform agenda—but no majority in Congress.
question of all: Whether opposition
figures such as Nobel laureate Aung
San Suu Kyi will be permitted to exert
serious influence over policy in the
country—or be relegated to secondary
roles as former military officers
continue to call the shots?
Patrick Barta
 JAPAN
A New-Old Leader Jolts
Economic, Foreign Policies
Japan heads into 2013 with a new
leadership determined to shake things
up.
First, the economy. New-old Prime
Minister Shinzo Abe, who staged a
Associated Press
comeback last month after resigning
from the top post in 2007, has
declared war on Japan’s chronic
deflation, thought to be a prime culprit
in the country’s two so-called lost
decades of stagnation.
Mr. Abe is pressing Japan’s central
bank to adopt a much more muscular
monetary policy, including an inflation
target and “unlimited” easing. That
rhetoric is already weakening the yen
against the dollar, and economists
expect the trend to accelerate this
year.
The Abe government is also
proposing to boost jobs and output
with a big dose of government
spending, casting aside fiscal
constraints Japan’s previous
administration had put into place to
corral the country’s runaway debt. The
stimulus could prompt a growth spurt
in the world’s third-largest economy. It
could also send bond yields soaring,
leading some economists to float an
unlikely but distressing scenario of
skyrocketing inflation and capital flight,
spreading a European-style sovereign-
debt crisis to Japan.
Then, Mr. Abe has said he wants to
overhaul Japan’s relations with the
world, particularly the U.S. and China.
Just what that means is still unclear,
but look for increased military
spending, a sterner tone vis-à-vis
Beijing and an early visit to President
Barack Obama, likely this month. How
Mr. Abe handles China is of particular
concern to Asia watchers, because ties
between the two countries have
frayed badly since the Japanese
government in September bought a
handful of little islands that Japan
WORLD NEWS
Will Aung San Suu Kyi be given an opportunity to influence Mynmar policy?
controls but China also claims.
On two key issues likely to come to
a head this year, Mr. Abe has kept
mum: Japan’s participation in a pan-
Pacific free-trade pact, and the future
of the country’s nuclear program. The
Trans-Pacific Partnership, as it is
called, is favored by Japan’s struggling
exporters and by the U.S., but opposed
by politically powerful interest groups
from farmers to doctors. Japan
watchers say the government is
unlikely to touch the issue until after
national elections during the summer,
when Mr. Abe hopes to solidify his
grip on the legislature.
On energy, Mr. Abe’s cabinet has
said it is revisiting the previous
administration’s proposal to eventually
shut down the country’s nuclear
plants; Mr. Abe and his advisers are
said to lean toward keeping them
open. But with a majority of Japan’s
populace opposed to atomic energy
following the devastating 2011 nuclear
accident in Fukushima, Mr. Abe is likely
to move cautiously—slowly restarting
some of the 48 reactors that have
remained offline since the months
after the accident.
Phred Dvorak
 MEXICO
New President Tries to Turn
Attention to Economic Opening
For Mexico, 2013 marks the return of
the Institutional Revolutionary Party,
which ruled Mexico for most of the
20th century but was swept to the
sidelines in 2000.
President Enrique Peña Nieto, who
began his six-year term in December,
has an ambitious agenda—from
quelling Mexico’s drug violence to
confronting its biggest monopolies.
But with no majority in Congress, he
will need to keep the backing of
leaders from both left and right to
push ahead on a reform agenda.
On the drug war, the president has
signaled a shift from taking down big-
name drug lords to focusing on
measures to reduce violence in areas
that were hard hit by the fighting,
chiefly along the northern border.
Leaders will also begin recruiting
10,000-member gendarmes they say
will aid the police and military, expand
a new system in which courtroom
trials will take place in open
courtrooms rather than behind closed
doors, and continue cooperation with
the U.S. under the $2 billion Merida
Initiative, a security cooperation
agreement.
Mexico’s new leadership will try to
make the economy its main focus. Mr.
Peña Nieto has already passed a labor-
reform law that curbs some union
powers and eases the hiring of
workers.
Next up are reforms to state-run
monopolies like Petróleos Mexicanos,
THE WALL STREET JOURNAL.
which Mr. Peña Nieto wants to open
to foreign investment, and introducing
competition to Mexico’s television
sector, which is currently dominated
by Grupo Televisa SAB and TV Azteca
SAB.
Nicholas Casey
 CHINA
Eyes on Xi, Li as New Guard
Tackles Economy, Corruption
China’s new leadership is expected to
provide the first indications of its
commitment to restructure the
economy, overhaul foreign policy and
combat corruption in 2013, following the
completion in March of a once-a-decade
change in political power.
Xi Jinping, who became Communist
Party chief in November, will become
president at the meeting of the
National People’s Congress—the rubber-
stamp parliament—while Li Keqiang,
No. 2 in the new party leadership, is
expected to take the reins of the
economy as premier.
Many other state and government
posts—including the heads of
ministries and regulatory bodies—will
also be announced or approved during
the meeting, at which departing
Premier Wen Jiabao will deliver his
final “work report” reviewing the
government’s achievements over the
past year.
With the succession complete, the
new leadership will face mounting
domestic and international pressure to
provide details of how it plans to tackle
the vested interests in China’s economy,
and move from an export-oriented
growth model to one driven by
domestic consumption.
In the wake of the Bo Xilai scandal,
China’s leaders are also expected to
face strong calls from the Chinese
public to make systemic changes
backing up their rhetoric on corruption
and abuse of power. Mr. Bo’s trial,
expected at some point in the year,
could refocus attention on those
issues.
Internationally, meanwhile, foreign
governments are anxious to see if the
new leadership will try to repair
relations with neighbors alarmed at
China’s growing military muscle, or
maintain the assertive diplomacy that
triggered the U.S. strategic “pivot”
toward Asia.
Jeremy Page
 EGYPT
Economic Weakness Threatens
Steps Toward Democracy
Egyptians, weary from two years of
political upheaval and violence, begin
2013 facing two crises—an immediate
threat of economic ruin and a longer-
term battle to form the foundation for
the country’s fledgling democracy.
Islamist President Mohammed
Morsi’s most urgent task is to heal an
economy teetering on its own cliff’s
edge. In mid-January, Egypt’s
government will return to
consultations over a long-delayed $4.8
billion International Monetary Fund
loan seen by many as the country’s
last hope to fill a budget deficit set to
reach $13 billion. Mr. Morsi will need to
push through tax increases, make
serious cuts to Egypt’s bloated energy
and food subsidy regime, and possibly
shrink its massive bureaucracy.
That will be a tall order for Mr.
Morsi, who is also running a deep
deficit of political trust. Members of
Egypt’s sizable, secular-leaning
minority are outraged by Mr. Morsi’s
Islamist agenda and maximalist
attitude toward power. The Islamists’
declining popularity leaves an opening
for Egypt’s sidelined liberals.
Matt Bradley
 THE WALL STREET JOURNAL.
Reuters/EPA
Russian President Vladimir Putin, left, giving his New Year’s address on Dec. 27. Brazil’s President Dilma Rousseff, right, speaking in Brasilia on the same day.
Brics Fade as Engine of Growth
BY BOB DAVIS
BEIJING—Not too long ago, the
Brics nations looked like they might
be able to provide a powerful engine
of growth for the global economy.
Don’t count on it for 2013.
Brics refers to some of the stars
of the emerging markets—Brazil,
Russia, India, China and South Af-
rica—which together represent 40%
of the world’s population. But only
one of the nations, China, has the
economic heft to make a major dif-
ference internationally on its own,
and it is just now starting to come
out of a slowdown. The other four
nations face economic challenges
ranging from inflation to inadequate
foreign investment to labor unrest.
Since 2009, the leaders of the
group have held four leaders sum-
mits. South Africa, which joined the
group at the end of 2010, is hosting
the fifth summit in Durban, South
Africa, in March 2013. But the hope
that the Brics countries would help
one another through increased
trade, investment and political sup-
port hasn’t panned out. Officials and
analysts from Brics nations say they
act as much as rivals as allies, and
their lack of cohesion adds to their
economic problems.
China complains that other Brics
countries increasingly target it in
anti-dumping suits. Brazil objects to
Moscow’s restrictions on Brazilian
agricultural imports. Russia is trying
to turn itself into a major farm ex-
porter, which is bound to heighten
competition with Brazil. Slower
growth in China and India pushes
down commodity prices, which
hurts South Africa and Russia.
“The Brics is not about the econ-
omy,” said Fyodor Lukyanov, an ana-
lyst who chairs an influential Krem-
lin foreign-policy advisory board.
“The bloc sees itself as an alterna-
tive to the West, but not a confron-
tational one, like Iran.” On the eco-
nomic front, Brics nations “have
different, sometimes conflicting in-
terests,” he said.
The Brics view themselves as an
alternative to the Group of Seven in-
dustrial nations—U.S., Canada,
France, Britain, Germany, Italy and
Japan—politically and economically.
But the economies of the Brics and
the G-7 remain interlocked. When
the U.S. financial crisis spread to
Europe, it didn’t stop there. The
Brics nations weakened because
they lost big export markets and
sources of financing and investment.
In 2009, China’s vast stimulus
plan helped shore up commodity
prices, which helped its Brics part-
ners—for Russia on oil and gas, for
Brazil or iron ore and agricultural
goods; and for India and South Af-
rica on minerals. But China itself
slowed in 2012, as did the other four
Brics nations, which all are expected
to register slower growth for 2012
than they did the previous year, ac-
cording to JP Morgan. The bank
predicts all but Russia will see mod-
est improvements in 2013.
Weaker Brics
Annual change in GDP:
CHINA
2011
2012 FORECAST* 7.6%
INDIA
6.5
5.2
RUSSIA
4.3
3.6
SOUTH AFRICA
3.5
2.3
BRAZIL
2.7
1.0
*Forecast made Dec. 14, 2012; Source: J.P. Morgan
“These countries face so many
domestic problems,” said Arvind
Subramanian, a former IMF senior
economist who is now at the Peter-
son Institute for International Eco-
nomics in Washington. “The com-
mon dynamism they had is coming
under question.”
For China, 2013 looks as if it will
yield somewhat faster growth than
2012, when its economy is expected
to show a 7.6% increase, according
to JP Morgan, the slowest pace in
more than a decade. China slowed
because European and U.S. export
markets shriveled, but also because
the country’s leaders, wrestling with
the legacy of the stimulus spending,
imposed restrictions on real estate
to deflate a housing bubble.
Now, feeling more confident that
it has housing and banking problems
under control, officials have been
easing restrictions and approving
WORLD NEWS
more infrastructure projects. A
number of analysts project China’s
growth in 2013 should top 8%.
“China should be able to gener-
ate a positive impulse for growth,”
said RBS analyst Louis Kuijs, as im-
ports of commodities and other
goods pick up.
Modest gains by other Brics na-
tions aren’t likely to matter nearly
as much internationally. India, with
nearly the same population as
China, has an economy just one-
third the size of China’s. With infla-
tion in India above 7% and large cur-
rent-account and budget deficits,
growth isn’t the country’s main con-
cern.
“The government has now little
choice but to press for fiscal consol-
idation,” said an RBS analysis, to re-
duce deficits and reassure investors
the country isn’t a candidate for de-
fault. New Delhi is focusing on push-
9.3%
ing through politically difficult re-
forms that would boost foreign
investment, open up closed sectors
and spur infrastructure spending.
Brazil, with its history of hyper-
inflation, is also on guard for a re-
surgence in inflation, which may
limit its potential for growth in the
coming year.
A number of Brazil analysts say
that the country’s mix of high tax
rates, poor infrastructure and heavy
government intervention in indus-
tries gives it a natural speed limit of
about 3.5% a year. Attempts to push
the economy to go faster through
stimulus spending would also speed
up inflation.
“There are too many economic
bottle necks right now,” says David
Beker, a senior economist at Bank
of America based in São Paulo.
The country’s leaders have tried
to rely on their ties with other Brics
nations to help out economically.
President Dilma Rousseff was in
Russia to meet with President Vladi-
mir Putin in December 2012 and in-
vited Prime Minister Dmitry Medve-
dev to come to Brazil for the annual
Carnival celebration in February.
But Brazil’s efforts haven’t
yielded much more than photo ops
so far. The biggest disappointment
for Brazil has been China’s refusal to
buy more Brazilian goods. China has
declined to allow giant Brazilian
ships designed specifically to bring
iron ore to Chinese ports to dock,
citing safety concerns, though crit-
ics say China wants to retain much
of the shipping business for Chinese
carriers.
Russia has its own problem, in-
cluding the woes of the European
Union, Russia’s main trading partner
and the largest buyer of Russian oil
and gas.
As for South Africa, the country’s
violence remains a barrier to
growth. Since police shot and killed
34 platinum miners near Johannes-
burg in August, labor turmoil has
crippled the mining industry and
hobbled manufacturers. Standard &
Poor’s Ratings Services and Moody’s
Investors Service downgraded South
Africa’s debt in the past three
months, saying they feared the gov-
ernment wouldn’t be able to quell
the unrest and wider social tensions.
Looking to give the group more
cohesion and economic purpose, the
BRIC nations have proposed to cre-
ate a Brics development bank, but
even that effort has come to high-
light the group’s divisions.
Liu Youfa, vice president of the
China Institute of International
Studies, a Chinese government think
tank, attended a September session
of Brics academics in Chongqing,
China, whose aim was to fill in de-
tails of the bank proposal. The
bank’s financing would be reserved
for member nations, including fund-
ing for big infrastructure projects
and engineering contracts, he said.
Construction would benefit China,
whose firms build roads, dams and
airports around the globe.
But other countries have differ-
ent plans for the bank. South Africa
wants the funding to be available for
other developing nations. India,
which proposed the development
bank, likes the idea of infrastructure
financing but fears that China wants
to run the bank mainly to make
yuan loans and further the interna-
tional use of China’s currency, “One
country wants to dominate due to
its financial standing, which would
not be acceptable to the others,”
said Brahma Chellaney, an analyst
with the Centre for Policy Research,
a New Delhi think tank.
—Patrick McGroarty in
Johannesburg, John Lyons in São
Paulo, Alexander Kolyandr in
Moscow and Romit Guha in New
Delhi contributed to this article.
Wednesday, January 2, 2013 | 9
Hong Kong
Leader
Is Target
Of Protest
Associated Press
HONG KONG—Tens of thousands
of people marched in Hong Kong on
the first day of 2013 to call for the
city’s Beijing-backed leader to step
down over allegations he was un-
truthful about illegal renovations at
his home and to press for full de-
mocracy.
Police said 26,000 people joined
the march at its peak Tuesday, while
organizers said 130,000 took part.
They carried banners and
chanted slogans urging the leader,
Leung Chun-ying, to resign.
Some held signs depicting Mr.
Leung as Pinocchio or with wolflike
fangs, a play on Mr. Leung’s nick-
name, the wolf. One demonstrator
was dressed as a wolf wearing a
Communist Red Guard uniform, a
reference to fears over Mr. Leung’s
close ties to China’s leaders. Many
waved Hong Kong’s British colonial-
era flag.
In the evening, about 2,500
members of a small radical group
briefly blocked several roads after
they were stopped by authorities
from marching to Mr. Leung’s offi-
cial government residence. At one
point, protesters pushed and shoved
with police.
In a sign of the widening politi-
cal divisions in the semiautonomous
region 15 years after Britain handed
control back to China, thousands of
other Hong Kongers joined a rival
march held in support of Mr. Leung
on the same day by pro-government
groups.
Organizers of that march said
60,000 people took part while police
put the number at 8,000.
The day of demonstrations came
half a year after Mr. Leung took of-
fice after being chosen by a 1,193-
member committee of mostly pro-
Beijing elites. He won the job of
Hong Kong’s leader, known as the
chief executive, after a scandal over
an illegal basement brought down
his rival.
Illegal structures were later dis-
covered at Mr. Leung’s house,
prompting lawmakers to accuse him
of covering it up and calling for his
impeachment. Demonstrators are
using the controversy to push for
full democracy for Hong Kong.
Mr. Leung’s popularity has
plunged since he took office because
of the scandal over his house and
other controversies.
Mr. Leung “is not honest. As
chief executive, he cannot convince
the public that he is a leader with
credibility,” said Sandy Chung, a
clerk. “I don’t want Hong Kong to be
led by a person without credibility.”
Another protester, designer Cal-
vin Tse, said he was upset that he
didn’t have a say in choosing the
city’s leader.
“We don’t even have a vote, he is
elected by a small group of people.
We cannot use our voting right to
express our view no matter how his
performance is,” Mr. Tse said.
Hong Kong was handed back to
China in 1997 and granted Western-
style civil liberties not seen on
mainland China. Beijing has pledged
that Hong Kong’s leader can be di-
rectly elected by 2017.
Full democracy for the legisla-
ture, where some representatives
are chosen by business groups, is
promised for 2020.
10 | Wednesday, January 2, 2013
Global Brewers Face Challenges in India
BY SIMON ZEKARIA
Diageo PLC’s November acquisi-
tion of a majority stake in United
Spirits Ltd. has brought India into
focus as a lucrative market for the
liquor business. But despite India’s
huge population and strong eco-
nomic growth, beer makers still face
an uphill task in the world’s second-
most-populous country.
The average Indian drinker con-
sumes 1.7 liters of beer a year, com-
pared with more than 37 liters in
China and 74 in the U.S., according
to Euromonitor. India’s spirits mar-
ket is far more developed, largely
because of the popularity of Scotch
whisky, with average annual con-
sumption of two liters in India tally-
ing more closely with 3.4 liters in
China and 5.6 in the U.S. This ex-
plains the United Spirits deal, in
which London-based Diageo agreed
to pay as much as $2 billion.
“India is almost unique. There is
a [spirits] ladder for people to
climb. You have country liquor,
which is really cheap hooch. Then
Indian-made foreign liquor, [grain]
whiskey, whiskey with malt and bot-
tled-in-Scotland imported blends,”
says Bernstein analyst Trevor Stir-
ling.
Several factors are cited for In-
dia’s relatively low beer consump-
tion. Taxes based on volume, rather
than alcohol content, make beer ex-
pensive, with federal and state im-
port duties as high as 100%. Brew-
ers also have to contend with
inadequate cold storage, limited re-
tail space and restrictions on adver-
tising. Attitudes toward alcohol can
be negative; in Mahatma Gandhi’s
birthplace of Gujarat, for example,
prohibition is still enforced.
India also is a tough market for
brewers to enter. The dominance of
Bangalore, India’s United Breweries,
controlled by tycoon Vijay Mallya, is
getting stronger; the brewer’s share
of Indian beer consumption rose to
57% in 2011 from 43% five years ear-
lier, says Euromonitor. London-
based SABMiller PLC’s share has
dropped to 24% from 37% in the
same period. Denmark-based Carls-
berg A/S’s modest presence of 7%
today is slightly above local compa-
nies Mohan Meakin Ltd. and Mount
Shivalik Industries Ltd. Belgium’s
Shell Arctic Rig Runs Aground Off Alaska’s Coast
BY TOM FOWLER
Royal Dutch Shell PLC suffered
another setback in its attempt to
drill for oil in U.S. Arctic waters
when an offshore rig ran aground
after breaking free from tow ships in
high seas.
The Kulluk, a drilling rig oper-
ated by Noble Corp., struck Sitkal-
idak Island, an uninhabited area
about 300 miles southwest of An-
chorage late Monday, according to a
joint statement by Noble, Shell and
the U.S. Coast Guard, which were co-
ordinating their response to the ac-
cident.
The rig has about 139,000 gallons
of diesel on board, along with about
12,000 gallons of combined lubrica-
tion oil and hydraulic fluid. A Coast
Guard helicopter that flew over the
rig didn’t spot any immediate signs
of leaking fuel.
Shell used the Kulluk and an-
other rig to drill exploratory wells in
the Arctic Ocean off Alaska’s north-
ern coast last year, the first such op-
erations in U.S. Arctic waters in
Flat Market | India’s taste for beer is weaker than its appetite for spirits
A man on a motorbike rides past the factory of United Breweries, which manufactures Kingfisher beer in India.
World’s largest beer and spirits markets by volume in 2011
BEER in billions of liters
China
U.S.
Brazil
India
Source: Euromonitor International
Anheuser-Busch InBev SA, the
world’s biggest brewer, and Can-
ada’s Molson Coors Brewing Co.
have around 1% each.
“Our approach is not just to de-
fend our territory. Rather it is to try
and make our position even stron-
ger,” says United Breweries Manag-
ing Director Kalyan Ganguly.
European and North American
brewers still feel the market is
worth pursuing, given its recent
growth. Beer volume in India rose
12% to 1.9 billion liters in 2011, ac-
cording to Euromonitor, and is ex-
pected to grow to about $5.6 billion
in 2016.
Indians have a clear preference
for strong beers, as shown by the
relative success of brands such as
Elephant, Knock Out and Bullet,
more than two decades.
But the ambitious drilling ven-
ture—monitored by rival companies,
the U.S. government and environ-
mental groups—has encountered
problems from the outset. The drill-
ing season started later than
planned because of lingering sea ice.
The other drilling rig, the Noble Dis-
coverer, almost ran aground when
its anchor slipped in Dutch Harbor,
Alaska.
Also, an important piece of spill-
response equipment was damaged
during testing, leading Shell to scale
back plans to drill six wells to just
two wells. A Coast Guard inspection
of the Noble Discoverer, conducted
after the drilling season, discovered
problems with the ship’s propulsion
and safety systems.
Shell spent more than $4.5 bil-
lion in permits, personnel and
equipment over six years to assure
regulators and native Alaskans that
its work would be safe and environ-
mentally benign. The company has
said it plans to return to the Arctic
Ocean this year despite the setbacks.
CORPORATE NEWS
SPIRITS in billions of liters
48 China
24 India
13 Russia
1.9 U.S
Photo: Reuters
owned by Carlsberg, SABMiller and
United Breweries, respectively.
High-alcohol lager constitutes 80%
of the market, and is perceived as a
masculine, good value as a substi-
tute for liquor. The challenge for
companies such as AB InBev, Carls-
berg, SABMiller and the Nether-
lands’ Heineken NV is to change
perceptions in India and to establish
a more lucrative, Western-style beer
market, with a broader variety.
To do that, brewers are changing
flavors and selling pricier and more
profitable brews to young, profes-
sional Indians. United Breweries in-
troduce milder varieties of its best-
selling Kingfisher lager and pushes
minority shareholder Heineken’s
flagship beer. SABMiller rolled out
American-style lager Miller High
Associated Press
The mobile drilling unit Kulluk on Sunday, before it ran aground
The rig that ran ashore Monday
first ran into problems on its way
back from the remote drilling site
last week. While it was being towed
to Seattle, the engines of a tow ship
4.4
2.2
1.7
1.7
The Wall Street Journal
Life, and Indus Pride, with spices
such as cardamom and fennel. Beer
festivals take place in cities such as
Bangalore, Hyderabad and Chennai.
Beer “is not a huge market, but
there is significant headroom for
growth,” says Paolo Lanzarotti,
SABMiller’s managing director in In-
dia. “The premium space is growing
at a rate of knots.”
Soren Gronnegaard Lauridsen,
Carlsberg’s managing director in In-
dia, says consumers are shifting to
Western styles of drinking. “You are
seeing people, including women,
drinking beer from the bottle. I
don’t think you would have seen
that even five years ago.”
Craft beer, generally made by
small and independent brewers, is
growing too. Urban microbreweries
failed during a storm.
In Monday’s accident, Coast
Guard vessels and another tow ship
hired by Shell went to the Kulluk’s
aid but tow cables repeatedly
THE WALL STREET JOURNAL.
including Rockman’s Beer Island,
cricket-themed Howzatt and Dool-
ally have appeared in Gurgaon and
Pune.
“Consumption is moving toward
milder and more premium brands of
beer. If foreign beer makers can sort
out [access] they would find con-
sumers willing to experiment,” says
Sunita Sachdev, an analyst at UBS.
But these are small steps and
challenges remain. Aside from re-
strictions on alcohol in parts of the
country, India’s bureaucracy is a
block to significant growth. Alcohol
sale and distribution are restricted
by cross-border import, export and
excise tariffs, forcing beer compa-
nies to open breweries everywhere
they want to do business, which in-
creases production costs and cuts
efficiency.
“The nature of regulation in In-
dia is a little bit more complex than
most other markets,” says SAB-
Miller’s Mr. Lanzarotti, who calls for
a “homogeneous” tax structure. But
he believes change will come over
the long term. “By definition, it is a
slow burn,” he says.
Carlsberg’s Mr. Lauridsen agrees.
“You realize that it will be an im-
mense task for the central govern-
ment to take away the excise auton-
omy that the local state
governments have today,” he says.
“It is difficult to create a market
when your hands are tied behind
your back,” says Ernst & Young ana-
lyst Andrew Cosgrove. It means sig-
nificant deal making in India isn’t a
priority. “I don’t hear the global
beer companies talking a lot about
[acquisitions],” he says.
“There is huge potential [in In-
dia], but the uncertainty and the
complexity make that potential very
difficult to realize,” Mr. Cosgrove
says.
Mr. Lauridsen says that despite
Carlsberg’s ambition to be the fast-
est-growing beer company in India,
significant consolidation is unlikely.
Mr. Lanzarotti agrees that acqui-
sitions aren’t the main priority.
“There are a large number of very
small beer players out there. There
is opportunity, but we remain fo-
cused primarily on organic growth,”
he says.
—Rumman Ahmed
contributed to this article.
slipped from the rig as it faced 35-
to 45-foot seas and 50-knot winds.
At around 8:10 p.m. Monday, op-
erators of a tow ship tethered to the
Kulluk, the Alert, decided to discon-
nect when the rig was about four
miles from shore, citing safety con-
cerns for crew members. The rig
crew already had been evacuated.
Darci Sinclair, a Shell employee
serving as spokeswoman for the uni-
fied accident command, said the
Coast Guard was expected to make
another flight over the rig Tuesday,
weather permitting, to determine
the next step in salvaging the Kul-
luk.
Even before Monday’s grounding,
other oil-exploration companies had
taken note of Shell’s challenges in
the Arctic. Norway-based Statoil
ASA said it would delay plans to
drill in the U.S. Arctic Ocean by at
least a year because of Shell’s expe-
riences. France’s Total SA said last
year that the risks of an oil spill in
environmentally sensitive areas such
as the Arctic were too high for com-
panies to continue drilling there.
THE WALL STREET JOURNAL.
Region’s Game Board Is at a Crossrail
BY SARAH KROUSE
Throughout the London region,
construction crews are burrowing
tunnels, laying track and beginning
to build stations as part of the larg-
est addition to the city’s public
transportation system since World
War II.
But even before the crews ar-
rived, investors were making big
bets on how the new system, named
Crossrail, will change the game
board of one of the biggest real-es-
tate markets in the world. Specula-
tors have been bidding up values of
properties near the new stations on
the route.
Developers including Derwent
London PLC and Great Portland
Estates PLC are moving ahead with
plans for big mixed-use projects, be-
lieving that Crossrail will increase
demand. “We always bought in
these areas” near planned Crossrail
stations, says John Burns, Derwent’s
chief executive. “But when Crossrail
started to become more than an
idea, we started to buy more.”
Last summer in Farringdon, the
former Guardian newspaper head-
quarters was put up for sale and
more than 20 investors submitted
bids. The winning bid, by Viridis
Real Estate, was for £29 million
($47.1 million), £5 million more than
the asking price.
David Hookey, a broker at prop-
erty consultancy DTZ who worked
on the deal, says the Crossrail sta-
tion planned nearby boosted inter-
est. “It was one of the most compet-
itively chased properties in the
market last year. To get so far above
the asking price was quite unex-
pected.”
Scheduled to open in 2018,
Crossrail will bring new connections
and capacity to the region’s rail net-
work, partly by adding about 21 ki-
lometers of tunnels under central
and southeast London. They will
connect a system that will have a
total length of 117 kilometers with
37 stations, eight of them new.
The government of Prime Minis-
ter David Cameron is moving ahead
with the £15 billion project because
it believes that modern rail is criti-
cal to London’s growth and eco-
nomic health. Planners say Cross-
rail will help London compete with
For London’s Office Towers, It’s About Location
BY DARREN LAZARUS
Five months after the Shard sky-
scraper in London celebrated its
near-completion with a laser show
and party attended by Prince An-
drew, it still hasn’t completed a
lease for any of its 54,800 square
meters of office space.
But a few kilometers away, in the
city’s insurance district, another
new development scheduled to open
in 2014 is doing much better. The
Leadenhall Building, nicknamed
“The Cheesegrater” for its distinc-
tive wedgelike design, is now 51%
preleased after securing Aon Corp.
and Amlin PLC as tenants.
The mixed fortunes of the two
projects illustrate the crosscurrents
at work in the London office market
these days as the U.K. struggles
with a weak economy.
On one hand, demand is weak
mainly because of contractions by
many banks and securities firms.
But real-estate experts say the office
market is showing some signs of
health thanks to demand from sec-
INTERNATIONAL PROPERTY: LONDON
Linking London | The Crossrail will connect hubs in the city’s east and west
New station
Existing station
Paddington
Acton
Main
Line
2 miles
2 km
1 Tottenham Court Rd.
Cost: £1 billion
Daily passengers: 102,000
Minutes to Heathrow Airport: 28
£1 billion = $1.62 billion
Sources: Crossrail (map, renderings); Morgan Sindall Group PLC; Ferrovial Agroman
other global financial centers by
easing congestion on the existing
rail network and reducing the travel
time between destinations.
The project already is providing
much-needed jobs in the city’s con-
struction industry, which is strug-
gling with the U.K.’s weak economy.
In 2012, the City of London—the
central financial district—had the
lowest level of new office-building
completions in 25 years, according
to property consulting firm Drivers
Jonas Deloitte.
Proponents of the project also
contend that it will open up new
parts of London for development.
An October report by consultant
GVA, commissioned by Crossrail, es-
tors like the insurance industry, as
well as media and technology. As a
result, some office-building owners
are riding out the economic storm
surprisingly well considering that
the U.K. just emerged from a dou-
ble-dip recession.
Robert Noel, chief executive of
Land Securities Group PLC, says
demand from these other sectors
demonstrates that the city isn’t hos-
tage to the fortunes of investment
banks. “It’s a global trading hub and
it’s the global center for wealth
preservation in all its forms.”
Investors had been worried
about the market after the first re-
cession hit. At the time, a flurry of
new development was underway, in-
cluding the Shard and the Cheeseg-
rater. Many of the new buildings
were in London’s traditional finan-
cial district, where planners have
encouraged tall, modern buildings in
part to stay competitive with Ca-
nary Wharf.
To be sure, there has been plenty
of pain in the market in recent
years. Office tenants leased only
Tunnels to be built
Track to be built or upgraded
Maryland
Stratford
LONDON
2 3
1 government is very good at invest-
Bond Liverpool
Street
Street
Canary
Wharf
mes R i v e r
ha
T
2 Farringdon
Cost: More than £200 million
Daily passengers: 88,400
Minutes to Heathrow Airport: 31
timated the new project could in-
crease the capital value of residen-
tial property in central London by
as much as 25% near some stations
and boost the capital value of office
buildings near stations by as much
as 10% over the next decade.
But Crossrail could wind up be-
ing a boondoggle. Detractors say it
is too expensive and serves stations
that already exist along London’s
subway and regional rail lines.
Moreover, real-estate experts
note that some property owners will
benefit at the expense of others
once the system opens. For example,
a big winner is expected to be prop-
erty owners in the Canary Wharf
area, which is getting a new station
nine million square feet, or 836,00
square meters, of space in 2012,
down 19% from the 25-year average
volume of 11.1 million square feet,
according to Drivers Jonas Deloitte.
The slowdown is primarily a re-
sult of weak demand from the finan-
cial sector, which had been the larg-
est single source of demand in 2006
and 2007, accounting for one-third
of all leasing activity.
During the first nine months of
2012, financial companies leased
just 695,000 square feet in Central
London, or just 13% of the overall
leasing volume, according to Knight
Frank LLP. But the insurance indus-
try hasn’t been suffering the con-
tractions being seen by banks and
securities firms. And media and
technology firms have expanded, ac-
counting for 1.57 million square feet
of leasing in the first nine months of
2012. That was 29% of the overall
volume, compared with only 14% of
the volume for the sector in 2006,
Knight Frank says.
Landlords also are encouraged
because the new development hasn’t
Seven Kings
Forest
Gate Ilford
Manor
Park
Custom House
Woolwich
Abbey
Wood
3 Whitechapel
Cost: £110 million
Daily passengers: 71,400
Minutes to Heathrow Airport: 36
The Wall Street Journal
that will make travel to the com-
mercial hub much faster. The trip
from Heathrow Airport to Canary
Wharf will be shortened to about 40
minutes from one hour.
But that could hurt other land-
lords because Canary Wharf’s rents
are lower than in other office cen-
ters. “People don’t talk about the
losers here,” says John Lutzius, an
analyst with Green Street Advisors.
“But one potential negative is that
the low-cost market is becoming
more accessible.”
Mega-development plans in Lon-
don have had a mixed record over
the past 25 years. The Canary Wharf
office development struggled for
years, but finally gained traction
resulted in a space glut, although it
has contributed to the market weak-
ness. Indeed, according to Green
Street, developers delivered an av-
erage of 4.3 million square feet per
year between 2008 and 2011. The
historical yearly average between
1987 and 2011 was 4.6 million
square feet.
As a result, the performance of
the new projects has been heavily
determined by their location. An-
other development in the insurance
district—nicknamed “The Walkie
Talkie” because it resembles a tele-
phone handset—is one-third leased
even though it isn’t scheduled to be
completed until the spring of 2014.
But the 41,000-square-meter Heron
Tower in the Financial District,
which opened in March 2011, is only
about one-third leased.
About a kilometer away, the
roughly 35,600-square-meter Wal-
brook Building has attracted just
two tenants since its completion in
February 2010. Some projects ran
into big problems even before they
were completed. For example, in
Wednesday, January 2, 2013 | 11
and is now home to some of the
city’s top financial-services compa-
nies. More recently, the city spent
roughly £6.5 billion building venues
and infrastructure for last summer’s
Olympics. The games were a hit as a
sporting event, but it is too early to
tell whether they will lead to a long-
term improvement to East London,
the rundown section of the city
where events were mostly held.
Another new station will be in
the Olympic Park area. “The U.K.
ing public money to create the infra-
structure that allows private invest-
ment to happen in those areas,”
says Peter Lowy, chief executive of
Westfield Group, which invested
£1.5 billion in a retail and entertain-
ment complex next to the Olympic
Park, Europe’s largest urban shop-
ping center.
The idea of connecting key hubs
on the east and west sides of Lon-
don dates back to the days of Win-
ston Churchill and evolved over de-
cades into a plan to link stops in the
center of the city with regional sta-
tions. The plan finally reached criti-
cal mass in 2008 when it was ap-
proved by Parliament, allowing the
project to be funded by future fares,
taxpayers and a special levy on busi-
nesses in London. Crossrail is ex-
pected to carry 200 million passen-
gers a year, increasing the city’s rail
passenger capacity by 10%.
Crossrail already has worked
with developers at five sites and
plans to begin marketing a site in
Farringdon in late 2013.
Derwent is planning a 25,500
square-meter project on top of the
planned new Crossrail station at
Tottenham Court Road, and Great
Portland plans to submit an applica-
tion to the city in 2013 for a mixed-
use project on a 0.9 hectare site it
owns nearby.
Meanwhile, near the planned sta-
tion at Farringdon, Henderson
Global Investors is planning two of-
fice and retail developments, and a
partnership between Axa Real Es-
tate Managers and the family trust
of Iranian and British academic
Nasser Khalili is building a 19,500-
square-meter office project. Gold-
man Sachs Group Inc. also owns a
site in the area that could house a
93,000 square-meter project.
2007, developer Arab Investments
Ltd. began demolishing a building in
Bishopsgate with a plan to replace it
with the tallest building in the City
of London, a 288-meter tower
named the Pinnacle.
However, construction of the
$1.6 billion development stopped a
year ago, leaving seven stories of
concrete jutting from the ground.
Real-estate industry executives now
have a new tongue-in-cheek name
for it: “The Stump.”
The Shard, in the city’s South
Bank section, is the tallest sky-
scraper in London and includes a
Shangri-La Hotel set to open later in
2013. The Renzo Piano-designed
tower, which is costing more than
$650 million to build, is being de-
veloped by Sellar Property Group
with financial backing from Qatar.
Irvine Sellar, chairman of Sellar
Property, remains optimistic and
says that there are likely to be im-
minent announcements about leas-
ing activity at the Shard at the be-
ginning of 2013. “We are not doom
and gloom,” he says.
12 | Wednesday, January 2, 2013
Irina Nikolajeva was isolated for months for treatment of a drug-resistant form of TB. The expansion of TB among low-risk patients—such as Ms. Nikolajeva in Estonia—is raising alarms.
Estonia Wages Fierce War
Against Drug-Resistant TB
Nation’s Success Is Bright Spot but It Takes Years, and Pricey Treatments, to Gain the Upper Hand
BY GAUTAM NAIK
Tartu, Estonia
A
ll along the edges of Western Europe,
new and hard-to-defeat strains of tu-
berculosis are gaining a foothold, of-
ten moving beyond traditional victims—al-
coholics, drug users, HIV patients—and into
the wider population.
Which is why Irina Nikolajeva, a petite
34-year-old former furniture saleswoman,
spent the better part of four months in vir-
tual lockdown here in 2011. She was resis-
tant to all but one of 10 TB drugs. Nobody
could figure out how she even caught the
disease.
“NAKKUSOHT!” declared a bright red
sign just steps from her tiny, bare isolation
room. “DANGER OF INFECTION!” To see her
18-month-old daughter, she initially needed
Skype. “I could see my child running around
at home,” Ms. Nikolajeva recalled. “She’d
say, ‘Hello, Mama.’ ”
Estonia’s aggressiveness—and only re-
cently, its success—in turning the corner
against drug-resistant TB offers one of the
few bright spots globally as the ancient
plague mutates into new and more deadly
forms. Indeed, experts say the country, with
half the population of Chicago, could be a
IN DEPTH
model for others. But there is one catch: It
takes years and some pricey treatments just
to gain the upper hand.
“The easy ones are treated,” said Martin
Kadai, a public health adviser at Estonia’s
ministry of social affairs. The toughest pa-
tients, he said, remain.
In Western Europe, drug-resistant
strains of TB are starting to make a wider
appearance. In 2011, Britain reported 421
cases of drug-resistant TB, a 26% jump from
the previous year. Most Western Europe
cases can be traced to the TB-racked east-
ern half of the Continent. (In contrast, there
were 124 case of drug-resistant TB in the
U.S. in 2011.)
Nearby nations, including Serbia, Kos-
ovo, Montenegro and hard-hit areas in Rus-
sia, have sought Estonian advice in their
own fight against the disease—and they
need it. The 15 countries of the former So-
viet Union, as well as Romania, Bulgaria and
Turkey, together harbor more than 85% of
TB cases, and 96% of multidrug-resistant tu-
berculosis, or MDR-TB, found in Europe, ac-
cording to the World Health Organization.
“Eastern Europe is in a disastrous situa-
tion with MDR-TB and it risks compromis-
ing anything you can do” globally, said Ma-
rio Raviglione, who has led the WHO’s TB
THE WALL STREET JOURNAL.
Gautam Naik/The Wall Street Journal
“There are no borders” for tuberculosis,
Reining in TB said Masoud Dara, the WHO’s TB adviser for
Europe, based in Denmark. Several coun-
Number of new and relapse multidrug- tries in the region lack resources for strong
resistant tuberculosis cases in Estonia TB programs, he said.
A key part of Britain’s response to multi-
120 drug-resistant TB is a “virtual electronic
committee” that puts the details of newly
100
diagnosed cases on a secure website to be
80 shared with some doctors. Inspired partly
2012: 45
by Estonia’s approach, the system was
60
crafted by a group of TB experts who be-
40 came worried about the rise in British TB
cases.
20 The system isn’t yet recognized by the
0 U.K.’s National Institute for Health and Clin-
1998 '00 '02 '04 '06 '08 '10 '12 ical Excellence, or NICE, which sets medical
Source: Tartu University Hospital guidelines. Because of that, it captures only
The Wall Street Journal half of all multidrug-resistant cases in Brit-
ain, said Peter Davies, a physician at the
Liverpool Heart and Chest Hospital and
program for nearly a decade. founder of the MDR-TB committee. “We
At least 30% of all new TB cases in East- need NICE to recognize the service,” he
ern Europe are now resistant to key front- said. “But I don’t see how this is going to
line drugs. The equivalent official rate is 6% happen in the next year or two.”
for China and 2.1% for India, though the lat- A spokeswoman for NICE said it doesn’t
ter is probably an underestimate. (In abso- usually set guidelines for such projects. In
lute numbers, India and China have far an emailed response, a spokesman for the
more multidrug-resistant cases because of U.K.’s department of health said that, “de-
their larger populations.) spite the rise in cases, drug-resistant strains
 THE WALL STREET JOURNAL.
of TB are still relatively uncommon in the
U.K.”
Meantime, along the edges of Western Eu-
rope, the expansion of TB among low-risk pa-
tients—such as Ms. Nikolajeva here in Esto-
nia—is raising alarms. About 40% of Estonians
were apparently healthy when they got in-
fected, just as she was.
As part of the country’s efforts to rein in
the disease, its doctors can under a 2003 law
forcibly hospitalize infectious TB patients,
which they did about 10 times in 2012. In her
case, Ms. Nikolajeva agreed to her hospital
stay. She was confined for four months in iso-
lation, in a sparsely furnished room that re-
sembled a prison cell and was painted a
gloomy green. Yet it is the country’s unusually
harsh regimen of confinement and intensive
drug treatment that has helped dramatically
slash the number of cases of drug-resistant TB
here.
Ms. Nikolajeva received up to six drugs a
day, including one by injection. During that
time, she occasionally did get to see her hus-
band and their infant daughter, but the meet-
ings had to occur away from her room, in the
open air. Tuberculosis is most easily transmit-
ted by inhaling the bacteria that cause it.
If doctors hadn’t hospitalized Ms. Nikola-
jeva in isolation, “she could have infected even
more people in society,” said Manfred Danilo-
vits, a doctor involved in her care and an ar-
chitect of Estonia’s TB strategy.
The effort has helped the tiny nation stage
an effective comeback against both regular TB
and multidrug-resistant strains. As recently as
1998 Estonia was one of the leading exhibits in
TB’s global hall of shame, reporting 824 cases
of all types of TB, a very high level for a rela-
tively prosperous country of only 1.3 million
people.
For 2012, the Baltic nation expects to re-
duce the number of overall TB cases to fewer
than 300, and multidrug-resistant cases to 45
from about 100 in 1998. As a result, Estonia is
now on the verge of becoming a “low inci-
dence” TB country, according to criteria set by
the World Health Organization.
Estonia’s efforts to tame TB are by no
means over. About half of the new TB patients
each year suffer from alcoholism, drug abuse
or HIV, making them the toughest cases.
Nonetheless, “Estonia has done it right,”
said Lee Reichman, a TB expert and professor
of medicine at New Jersey Medical School in
Newark, N.J., who has studied the country’s TB
program. “They made TB a priority.”
Some 8.7 million people world-wide fell ill
with TB in 2011 and 1.4 million died, the vast
majority of them in poorer countries. After
HIV, tuberculosis is the second-biggest killer
world-wide that can be attributed to a single
Gautam Naik/The Wall Street Journal
A TB clinic at Tartu University Hospital in Estonia. The country offers one of the few bright spots globally as TB mutates into more deadly forms.
NEWS IN DEPTH
infectious agent.
While Estonia and other countries in the
region were under the boot of the Soviet em-
pire, TB was relatively rare. But after the
U.S.S.R. collapsed in the early 1990s, the
health system foundered. Many patients
stopped following the proper TB-drug regi-
men. That bred mutant resistant strains.
Within a few years, Estonia faced a public-
health emergency.
The response got kick-started in the
mid-1990s when neighbors including Finland,
Sweden, Denmark, Norway and Iceland—fear-
ful that TB would spill into their territory—of-
fered help. Then Estonia embarked on bolder,
homegrown initiatives.
Estonia banned pharmacies from selling TB
drugs, in order to prevent patient misuse that
can fuel drug-resistance. India is now planning
a similar strategy to fight its own TB problem.
All TB-related drugs and hospital stays are
now provided free to patients by the govern-
ment. Estonia benefits from a TB drug-pur-
chasing arrangement it has with the WHO, but
it still costs up to $5,000 to treat an MDR pa-
tient over a two-year period. In countries that
don’t have such arrangements, the tab can
reach $10,000 or more.
Also in place is a WHO-promoted plan that
encourages patients to come to clinics and
take their daily dose of TB drugs under the
watchful eye of a health worker. This is to en-
sure that people stick to the regimen. Missing
even a few treatments can allow drug-resis-
tance to build. A patient who follows the regi-
men for a week is rewarded with a €10
voucher, worth about $13, that can be used to
buy various things (but not alcohol).
One of Estonia’s toughest challenges is
treating difficult patients who either don’t
know they are infected or who simply won’t
follow their drug regimen. About 45% of the
country’s TB patients, for example, have alco-
hol or drug problems. So now, when people
come in for addiction treatment, they auto-
matically get tested for TB, too, in hopes of
catching the sick earlier.
The country has also revamped its creaky
Soviet-era lab network with state-of-the-art
equipment. On a recent morning, at one of the
main TB labs at Tartu University Hospital, a
technician used a microscope to study a new
patient’s sputum sample. A smattering of fluo-
rescent orange spots could be seen, indicating
TB.
The sample would later be placed in an-
other machine for testing against a range of
drugs. That step would indicate whether the
patient had regular TB or the drug-resistant
variety. The lab boasts a costly machine, Gen-
eXpert, that can diagnose TB and identify a
common type of drug resistance in two hours,
The Exception to a Trend
Estonia's efforts come amid a wider appearance of drug-resistant strains of TB in Eastern Europe
and Russia.
Share of TB cases with MDR-TB
New cases of 100,000 0 2%
TB in 2011
1%
1,000
ESTONIA
Source: World Health Organization
compared with older systems that take days.
Estonia is ahead of many countries in this
regard. In the U.S., for instance, the device
doesn’t yet have regulatory approval for use
on TB. India is only beginning to install Gen-
eXpert machines.
Also central to Estonia’s TB effort is the
close attention paid to every case. Once a
month, a half-dozen TB doctors from across
the country gather to discuss patients. Re-
cently, the group assembled in Tartu to go
over 35 cases. One was a 51-year-old man with
drug-resistant TB. Fed up with being in isola-
tion, he walked away before the treatment was
finished.
On a laptop, Dr. Danilovits displayed an X-
ray of the man’s lung, marked with telltale
signs of the disease. The man had been rehos-
pitalized, he said, “But the response hasn’t
been good so far.”
In June 2011, Ms. Nikolajeva, the young
woman with the toddler daughter, came down
with severe bouts of coughing and a weeklong
fever. A friend persuaded her to see a doctor,
who suspected pneumonia and prescribed an-
tibiotics.
Ms. Nikolajeva felt no better. Her weight
Wednesday, January 2, 2013 | 13
32%
10%
RUSSIA
The Wall Street Journal
fell to 46 kilograms from 52 kilograms, accord-
ing to Lea Pehme, another doctor closely in-
volved in Ms. Nikolajeva’s care. In August, af-
ter several more tests—X-rays, a skin test and
a bronchoscopy—she was finally diagnosed
with an especially severe type of multidrug-re-
sistant TB: She was resistant to all but one of
10 drugs.
Her husband and daughter tested negative.
“I thought I might not be cured, I might die,”
said Ms. Nikolajeva.
Her doctors, too, were “pessimistic,” said
Dr. Danilovits, who oversaw her treatment. If
all drugs fail, doctors sometimes have no op-
tion but to stop providing them entirely. At
that stage, there is almost nothing more that
can be done.
Ms. Nikolajeva was sequestered in a tiny
room in the 25-bed TB hospital in Tartu. She
didn’t like the idea of being in isolation. “But
I was terrified that if I went home, I would in-
fect my child,” she said.
Too unwell to read, Ms. Nikolajeva passed
the time watching a small hospital-supplied TV
placed on the window sill. After six weeks, Ms.
Nikolajeva was allowed a visit with her hus-
band and daughter. They took a walk in a
nearby park.
Ms. Nikolajeva received five or six drugs
each day. The powerful medications made her
weak and nauseated. One powdered medicine
she found especially repulsive. “I would put it
on the table and stare at it for 15 minutes” be-
fore taking the plunge, she recalled.
One day, a new patient arrived in the room
next door. She had two children, including a
newborn. But her family lived 200 kilometers
away. “I helped her get through the initial
shock of being isolated,” said Ms. Nikolajeva.
“We discussed baby matters.”
The new patient taught Ms. Nikolajeva to
knit. Ms. Nikolajeva crafted a summer hat for
her daughter. “I didn’t know the size,” she
said. “I later found out it was too small.”
A year ago in November, Ms. Nikolajeva left
the hospital. The TB had largely cleared from
her lungs, and she was no longer deemed to be
infectious to others. She had regained some
weight.
In about three months’ time, provided all
goes well, she can stop taking the drugs. It will
mark the end of a treatment odyssey that will
have lasted two years.
On a recent morning, as snow fell in whis-
pers and winter tightened its grip on this
northern nation, Ms. Nikolajeva returned to
the clinic to take her daily dose of TB medi-
cines. There, she popped a series of pills and
signed a register, with a nurse watching on.
“It was great to pack up my things and fi-
nally go home,” Ms. Nikolajeva said. “But there
was no celebration.”
Online>>
Watch an interview with Manfred Danilovits, an
architect of Estonia’s TB strategy, at WSJ.com/Health.
14 | Wednesday, January 2, 2013 THE WALL STREET JOURNAL.

OPINION: REVIEW & OUTLOOK

The Bankia Disaster

B
ankia, Spain’s fourth largest lender
and the tattered emblem of the
country’s banking crisis, has been
delisted from the IBEX 35 following last
week’s announcement that the bank has
negative equity of €4.1 billion. Shares are
trading at less than a fifth of their July
2011 debut price, and holders of the
bank’s preference shares are threatening
legal action for the losses they will take
under the bank’s EU-sponsored rescue.
Various protest groups have camped out-
side Bankia’s Madrid headquarters over
the past few months, demanding investi-
gations into cooked books and mis-sold
financial products.
When Madrid announced last May that
Bankia would need a bailout to repair the
largest yearly loss in Spanish banking his-
tory, few doubted that the lender would
still be making headlines eight months
later. The real revelation in this unhappy
saga is the degree to which politics has
shaped and impeded the rescue process.
The major sticking point has to do
with those preference shares. Burden-
sharing with private investors lowers the
cost of bank recapitalization to the Span-
ish state and is required under last year’s
bailout agreement with the EU. But the
many thousands of holders of Bankia
preference shares were largely retail in-
vestors, and many seem to have been re-
tirees. Numerous legal cases have been
filed alleging that Bankia misrepresented
the risks associated with these products,
and the political pressure to cover share-
holder losses has been intense.
Some have speculated that internal
disagreement over the treatment of pref-
erence shareholders contributed to
Spain’s months-long delay in formally re-
questing EU bailout funds. Madrid agreed
last month to compensate some of those
investors without using EU money, but
some shareholders are pushing for an of-
ficial inquiry into Bankia’s failure.
That might prove a step too far for
Madrid. In December an investigative
magistrate summoned former Bankia
chairman Rodrigo Rato, who served as
Spain’s finance minister in the Aznar
government and then as the Interna-
tional Monetary Fund’s managing direc-
tor, for a private hearing—where Mr.
Rato blamed everyone but himself for
Bankia’s demise.
Courts made noises last summer
about leveling charges against Mr. Rato
and other Bankia execs. But neither the
ruling People’s Party nor the opposition
Socialists have much reason to push for
a judicial shakedown that would impli-
cate both sides.
Bankia stands as a reminder that
Spain’s property bubble—and the bank-
ing crisis that is its aftermath—had its
roots in the intertwining of government
and finance. Until the crash, Spain’s cajas
were community institutions closely tied
to regional governments, and bank
boards and regulators were peopled by
party insiders willing to overlook lend-
ers’ real-estate excesses. Spain will see
more disasters like Bankia’s until these
links are fully wrung out.

The Elephant in the Courtroom

D
on’t worry, kids. Elephants are
staying in the circus. And the an-
imal-rights activists who tried to
drive them out are paying a price for
their abusive litigation. On Friday Feld
Entertainment, producer of the Ringling
Brothers and Barnum & Bailey Circus,
announced a legal settlement under
which the American Society for the Pre-
vention of Cruelty to Animals (ASPCA)
has paid $9.3 million to the company.
Yes, you read that correctly. A spe-
cial-interest group sued a corporation
and in the resulting settlement it was
not the business but the activist group
that had to write a check. The case is
an example of how the ASPCA has be-
come increasingly politicized and much
different from the nice outfit that looks
out for the well-being of homeless and
lovable dogs and cats.
Twelve years ago the ASPCA and
other activist outfits joined with a for-
mer Ringling employee to sue the com-
pany under the Endangered Species Act.
The claim was that Ringling was abus-
ing Asian elephants. Perhaps the activ-
ists figured the circus would fold up its
big top and write a check.
Not on Chairman and CEO Kenneth
Feld’s watch. He’s been working in the
family business since 1970 and tells us
that he’s “proud of our animal care and
I’ll put it up against anyone in the
world.”
After nine years of litigation, a fed-
eral court found that the plaintiffs had
no standing to sue under the Endan-
gered Species Act and that the former
Ringling employee was “not credible”
and “essentially a paid plaintiff and fact
witness” whose only source of income
during the litigation was the animal-
rights groups that were his co-plaintiffs.
Mr. Feld says the $9.3 million pay-
ment from the ASPCA represents less
than half of what his company has had
to spend defending itself against the
“manufactured litigation” from the ac-
tivists. But he seems likely to recover
more. His company is continuing its liti-
gation against the Humane Society of
the United States, the Fund for Animals,
the Animal Welfare Institute, the Ani-
mal Protection Institute United with
Born Free USA, the former employee
and the lawyers who prosecuted the bo-
gus case.
“This goes way beyond economics,”
says Mr. Feld. He adds that the “level of
harassment” that his elephant trainers
undergo from activists is almost “un-
bearable” and that “the activists are
trying to bring down an American insti-
tution.” The longtime Ringling boss ar-
gues that he is the trustee of a tradition
“older than baseball” that offers a van-
ishing commodity for American fami-
lies: affordable G-rated entertainment.
Mr. Feld’s legal victories ensure that
the Ringling tradition will continue, but
the larger winner is the cause of justice.

Stockton Tries a Chrysler

T
he municipal bankruptcy unfold-
ing in Stockton, California is giv-
ing investors a bad case of deja
vu. Just as the Obama Administration
bailed out the United Auto Workers in
Chrysler’s bankruptcy while hanging
bondholders out to dry, the city of Stock-
ton is subordinating its bond debt to
worker pensions. But what’s really scary
is that the Stockton case could be re-
played in dozens of California cities.
The San Joaquin Valley’s second larg-
est city filed for Chapter 9 bankruptcy
last summer after a three-month media-
tion with creditors and unions ended in
stalemate. Bond insurers that guarantee
about $200 million in debt wouldn’t sub-
mit to a haircut unless the rich pensions
that helped drive the city to bankruptcy
were also clipped. Yet unions wouldn’t
countenance an even modest reduction
to their pensions.
Over the last two decades the city
sweetened benefits and pay such that
the average firefighter’s total compensa-
tion is more than three times the city’s
median household income. Public safety
officers can retire at age 50 with pen-
sions equal to 90% of their highest sal-
ary, and until this year free lifetime
health benefits. These benefits weren’t
sustainable even in good times. In 2007
the city had to borrow $127 million to
pay a delinquent pension bill.
The city issued these pension obliga- has challenged the city’s attempt to having run out of cash, is going the
tion bonds which temporarily juiced city “transfer the cost of lucrative, above- Chapter 9 route.
coffers and served as an arbitrage tool market employee wages and benefits, Dozens of cities in California includ-
for city politicians who wanted to get in granted when tax revenues were flush, to ing Oakland, Sacramento and Los Ange-
on the booming stock market. Stockton capital market creditors by haircutting les are slouching toward insolvency, but
officials bet they could save money by bond principal.” In none of the 43 mu- only a few such as San Jose and San Di-
borrowing at a rate 200 basis points be- nicipal bankruptcy filings over the last ego have taken on the unions and re-
low the 7.75% yield that the California three decades has principal been structured worker retirement benefits.
Public Employees’ Retire- slashed. Many are instead borrowing to pay their
ment System promised The California city Assured Guaranty fears retirement obligations just as Stockton
and invest the bond pro- that other cities will fol- did, thereby shifting the risk of paying
ceeds in the pension fund.
uses bankruptcy to low Stockton’s bad exam- for pensions to the bond markets. Oak-
But Calpers’s actual re- stiff bondholders ple. The Bay Area suburb land approved $210 million in pension
turns have fallen short of
the city’s borrowing costs,
but preserve pensions. of Vallejo set that prece-
dent four years ago when
obligation bonds last year, despite com-
ing out $245 million behind after invest-
so Stockton’s total debt the union-influenced ing $417 million from a pension obliga-
has increased. Calpers threatened litiga- tion bond sale in Calpers 15 years ago.
Unions claim it’s unfair to trim pen- tion if the city attempted to modify pen- Once upon a time in America, a city
sions since the city intends to terminate sions in bankruptcy. Calpers insisted that that reneged on its bond debt would
retiree health benefits. But few compara- pensions were protected by the state have taken decades to issue new debt,
ble California cities (and even fewer constitution’s contracts clause, though but Stockton’s behavior suggests there is
companies) provide retirees with medi- the very purpose of bankruptcy is to little such fear today. Investors who fail
cal benefits, and most pensioners will be break and rewrite contracts. to impose discipline on deadbeats are
eligible for Medicare or federal subsidies Concern that insolvent cities might likely to find the deadbeats playing them
on the new state health exchange. When strategically declare bankruptcy to can- for suckers.
companies can’t pay their bills, they usu- cel their bond debts is finally getting no- Ratings agencies downplay the “sys-
ally freeze or terminate their pension ticed by investors, even by the famously temic risk” that the Stocktons of the
plans and restructure benefits as part of late credit-rating agencies. “The recent United States pose to the $3.7 trillion
bankruptcy. uptick in bankruptcy filings in California municipal bond market. But then they
Instead Stockton is seeking to use could signify not only a lack of ability, also said mortgage-backed securities
bankruptcy to wipe out $197.5 million in but a lack of willingness to pay debt ser- were Triple-A. While the market may not
principal and interest on the pension ob- vice at the expense of other financial ob- be in danger of blowing up soon, bond-
ligation bonds it issued in 2007. But not ligations,” Moody’s prophesied last year. holders face a very real danger of being
so fast. Bond insurer Assured Guaranty Meanwhile, the city of San Bernardino, blown off to preserve worker pensions.
THE WALL STREET JOURNAL.
BY RUPERT DARWALL
“Unhealthy absence of activity,
energy”—2012 was the year when
Britons became reacquainted with
the dictionary definition of stagna-
tion. Chancellor of the Exchequer
George Osborne claimed in last
month’s Autumn Statement that
the British economy was slowly
healing. And using IMF forecasts
for 2013, he asserted that the U.K.
is recovering faster than neighbors
such as France and Germany.
Reuters
In fact, the British economy has
had the weakest recovery of any
major economy. In the two years
following the trough of the reces-
sion in 2009—and before the 2012
double dip—the U.K. grew by 2.6%,
compared to 3.4% for France and
7.3% for Germany. Of the EU mem-
bers not directly hit by the euro-
zone debt crisis, only Slovenia and
the Netherlands have performed as
poorly.
Stagnation has left the U.K.
without a credible economic frame-
work. On becoming chancellor in
2010, Mr. Osborne bet that an eco-
nomic rebound would do much of
the work in reducing government
borrowing—the centerpiece of the
coalition government’s economic
program. He designed a fiscal man-
date that he could meet without
ever hitting it, as it is based on
balancing the cyclically adjusted
current budget on a rolling five-
year target.
The mandate’s only anchor was
to have public-sector net debt fall-
ing as a proportion of GDP in
2015-16. But even that anchor has
Michele Flournoy’s Afghan Intervention
BY PAUL WOLFOWITZ
Now that Michele Flournoy is
being mentioned as a serious candi-
date to succeed Leon Panetta as U.S.
secretary of defense, it is important
that she be judged on her merits—
not because she’d be the first
woman in that job, not simply be-
cause she was an effective defender
of President Obama’s policies dur-
ing the recent campaign, and not
because she isn’t Chuck Hagel.
Having only a slight acquain-
tance with Ms. Flournoy, I can’t
judge her overall record or com-
pare her with other candidates.
But I do know that she made a
critical contribution as undersecre-
tary of defense for policy to what
could be the Obama administra-
tion’s most important achievement
in Afghanistan, the substantial
strengthening of that country’s
EUROPE
Tracy Corrigan, Editor in Chief, Europe
Neil McIntosh, Deputy Editor, Europe
Terence Roth, Managing Editor, Europe
Brian M. Carney, Editorial Page Editor
Lauren Berkemeyer, Advertising
Kate Dobbin, Communications
Florence LeFevre, Institutional Sales Europe
Paul Little, Consumer Sales
Michael Lloyd, Institutional Sales U.K.
Kelly Leach, Publisher
Published since 1889 by
Dow Jones and Company
© 2013 Dow Jones & Company. All Rights Reserved
Britain’s Great Stagnation
Wishing Chancellor Osborne a better 2013.
now been cut. In the absence of re-
classifications and cash transfers
from the Bank of England, the in-
dependent Office of Budget Re-
sponsibility reckons net debt will
only start to fall in 2017-18—two
years late.
Over the next couple of years,
progress in reducing the deficit
will be glacial. The public sector’s
net cash requirement is forecast to
fall by £2 billion next fiscal year
and £4 billion the year after. Then
the pace picks up. Of the forecast
£57 billion reduction in new bor-
rowing over the next five years, £51
billion is to come in the last three
years.
But even then public spending
is due to fall by just 0.6% a year af-
ter inflation. Most of the projected
deficit reduction comes from an as-
sumption of accelerating growth,
which the OBR expects to average
2.2% a year for the next five years.
If the economy’s problems are
own security forces.
That achievement is not one
that I’ve seen reported before. I
only know of it because Lt. Gen.
William Caldwell, who was previ-
ously my senior military assistant,
told me about the support Ms.
Flournoy provided him when he
was in charge of training the Af-
ghan army and police from 2009 to
2011. This story demonstrates some
qualities that Democrats and Re-
publicans alike should be looking
for in a secretary of defense.
Gen. Caldwell was sent to Af-
ghanistan in November 2009 to
take charge of training the Afghan
National Security Forces (or ANSF,
principally consisting of the army
and the national police). Ms.
Flournoy told him—very cor-
rectly—that his mission held the
key to U.S. success, and she didn’t
think we were doing well. “I’m not
sure what it takes to do better, but
we must,” she said. “I hope you
will tell me what we need.”
In truth, the training mission
was on the brink of failure. More
personnel had left the ANSF in the
previous month than had joined it.
Gen. Caldwell quickly concluded
that he couldn’t get the job done
with just the 1,200 U.S. troops in
his command. At a minimum, he
told the NATO command in Af-
ghanistan, he needed two or three
thousand more. But the command’s
priority was for combat troops, not
trainers, and his request was
turned down. He was told to make
do with what he had.
The story might have ended
OPINION
more deep-seated, the OBR’s eco-
nomic forecasts—and the Coali-
tion’s hopes of reducing the deficit
without large tax hikes and sharper
reductions in spending—are for the
birds.
Monetary policy also suffers
from a credibility gap. The Bank of
England has consistently under-
forecast inflation, which has been
above target since the end of 2009.
In a speech last October, Andrew
Haldane, one of the bank’s execu-
tive directors, said that the Bank of
England had been created in 1694
to do none of the things it does to-
day, but rather to pay the mon-
archs’ debts. Perhaps the irony was
unintended: Today the Bank’s prin-
cipal economic function is what it
was then—buying government
debt.
Ultra-loose money is subject to
diminishing and possibly negative
returns. The thinking is that once
an economy is sparked back to life,
there if Gen. Caldwell hadn’t re-
ceived a clear mandate from Ms.
Flournoy. Preferring to incur the
ire of the theater command than to
see the training mission fail, he re-
ported the problem to Ms.
Flournoy, who immediately took it
up with Adm. Mike Mullen, the
chairman of the Joint Chiefs of
Thanks in part to her hard
work, Afghanistan’s security
forces are better able to
protect their own country.
Staff. Quickly, with what is remark-
able speed for the Pentagon, Gen.
Caldwell learned that the next bat-
talion headed to Afghanistan—the
2-22 Infantry Battalion of the 10th
Mountain Division—was being re-
assigned from a combat mission to
a training mission.
As a result of his leadership and
Ms. Flournoy’s strong support, the
ANSF grew to 305,000 over the
next two years from just under
200,000. It reached 352,000 this
October. Ms. Flournoy’s role was
also important in improving the
quality of Afghan forces, particu-
larly in backing Gen. Caldwell in the
face of objections that training in
civilian skills, such as basic literacy,
wasn’t part of his mission.
The overall quality of the ANSF
is still poor by U.S. standards. And
the much-discussed problem of
“green on blue” attacks by suppos-
Wednesday, January 2, 2013 | 15
policy can be tightened. But as Ja-
pan’s experience suggests, that mo-
ment can be a long time in coming.
It is hard to see how a capitalist
economy can function properly
when capital is being priced close
to zero.
The announcement that Mark
Carney, governor of the Bank of
Canada, is to be the next governor
of the Bank of England was a coup
for Chancellor Osborne. But so far
Mr. Carney’s main contribution has
been to float the idea of switching
from targeting inflation to target-
ing the level of nominal GDP.
In reality, adopting a nominal
GDP target would give the Bank an
active mandate to create higher in-
flation. It is easy to see why this
would be attractive to a chancellor.
At a stroke, he meets his fiscal
mandate and can run large deficits
indefinitely.
The U.K. economy faces three
interrelated weaknesses: high gov-
ernment borrowing, weak house-
hold balance sheets and a lack of
productivity growth. According to
figures compiled by Ben Broadbent,
an external member of the Bank’s
Monetary Policy Committee, U.K.
households’ net wealth declined to
around three times disposable in-
come in recent years from around
four times at the end of the 1990s.
Simply shifting government liabili-
ties to households via higher taxes
does not strengthen the economy.
Instead, the government’s focus
should be on raising productivity
so that earnings grow.
Here the government’s record is
distinctly mixed. On the plus side,
edly friendly Afghans on Americans
and other coalition troops—which
have killed 61 U.S. and coalition
personnel this year—is very dis-
turbing. But that number is
dwarfed by the much less discussed
number of ANSF personnel killed in
action—roughly 3,400 this year
alone—which is 10 times our own
losses and more than the total of all
coalition fatalities (roughly 2,160
U.S. and 1,069 non-U.S.) during the
11 years of this long war.
Those are grim numbers, but
they show that Afghans are bear-
ing an increasing share of the
war’s burden—as well they should.
But in defending their own country
they are also helping us, because
the U.S. has a vital stake in pre-
venting the Taliban from returning
to power. Ms. Flournoy grasped
that central strategic point and
pursued it with bureaucratic deft-
ness, without seeking publicity for
what she had done.
The qualitative problems of the
ANSF are real, and there are major
gaps in air and medical support
and logistics. But we should view it
as a glass half-full and work to fill
it. We should not prematurely ex-
pect Afghan units to operate inde-
pendently, even without air sup-
port, which few U.S. units are
expected to do. All of which makes
one question the wisdom of re-
ported plans to cut the ANSF back
to 230,000 personnel after 2014.
No matter who is nominated for
secretary of defense, senators
should ask that person why—after
overcoming huge challenges to
tight control of government spend-
ing has brought about a sharp fall
in public-sector cost inflation, from
more than 4% a year in the past
decade to less than 0.5% a year in
2011—evidence of how taxpayers’
money was wasted in Labour’s
spending boom.
The Coalition’s energy reforms
show it at its most economically
dysfunctional. “We don’t want Brit-
ish families and businesses to be
left behind as gas prices tumble on
the other side of the Atlantic,” Mr.
Osborne declared in December. Yet
the government’s policies do pre-
cisely that. They squeeze house-
hold disposable incomes with
higher energy prices; they rig the
energy market so that if gas prices
fall, the taxpayer is on the hook to
pay higher subsidies to renewable
energy producers; they worsen to-
tal factor productivity by mandat-
ing inefficient wind and solar
power plus all the capital needed
for conventional standby capacity.
It might as well have been a policy
designed to keep the economy
mired in stagnation.
Facing an ineffectual Labour op-
position calling for higher govern-
ment borrowing, the Coalition’s po-
litical standing is stronger than the
success of its economic policies are
in improving Britain’s economic
performance. With just over two
years until the next election, it is a
long time to be talking about an
upturn rather than delivering one.
Mr. Darwall is author of “The Age
of Global Warming: A History”
(Quartet), due out in March.
build the ANSF to its present
size—are we planning to cut its
forces by a third? Is that based on
a military requirement or a predic-
tion that the Taliban will be weak-
ened so much that a much smaller
force will suffice? Is it because of a
belief that a better-trained, higher-
quality smaller force will compen-
sate for the loss of quantity?
And are there plans for what
will happen to 100,000 personnel
with military training cut loose in
an economy that will be hurting
from the departure of so many co-
alition personnel? Or is it simply a
matter of what Washington is will-
ing to pay for, since the Afghan
economy is far too weak to sup-
port the ANSF levels required to
get the job done?
If that is the real reason, it
would seem to be a case of “penny
wise and pound-foolish.” After all
the sacrifice and effort it took to
get to this point, Washington
should find a way—working with
its allies and with the rich Persian
Gulf countries—to sustain an Af-
ghan army that is capable of pro-
tecting both Afghanistan’s inter-
ests and our own in that remote
but important country. If anyone
associated with this administration
understands this, one would think
Ms. Flournoy does.
Mr. Wolfowitz, a visiting scholar
at the American Enterprise Insti-
tute, served as U.S. deputy secre-
tary of defense from 2001-05. This
article is adapted in part from
AEI’s public-policy blog.
16 | Wednesday, January 2, 2013
Turmoil Over America’s Radio Voice in Russia
BY JOHN O’SULLIVAN
A few years ago Peter Pomeran-
zev, an Anglo-Russian journalist,
found himself in a Moscow taxi
where the radio was playing Radio
Liberty, the U.S.-financed station
that transmits uncensored broad-
casts in Russian. As a boy Mr. Po-
meranzev had been taken to hear
his father, a Russian poet in Lon-
don, deliver regular broadcasts to a
closed Soviet Union. But that was
another era. Why, in 2009, would a
Moscow taxi driver listen to Radio
Liberty?
The driver replied that he had
listened to Radio Liberty through-
out the Cold War. After 1991 he
switched to easy listening. Now
Vladimir Putin was snuffing out
media freedom.
The driver concluded: “I’ve got
to start listening to it again.”
The mass firing of Radio
Liberty journalists prompted
a protest by human-rights
activists in Moscow.
That sentiment is worth keeping
in mind when considering the con-
tinuing drama at Radio Liberty, a
drama that began in September
with the mass firings of RL’s Mos-
cow journalists by parent company
Radio Free Europe/Radio Liberty.
The firings, at the direction of RFE/
RL President Steven Korn and Vice
President Julia Ragona, saw the
journalists barred from their of-
fices, directed to a law firm and
asked to resign for modest sever-
ance.
RFE/RL also closed Radio Lib-
erty’s medium-wave radio broad-
casts, reduced programming, an-
nounced that RL would be run from
Moscow instead of Prague, and
hired journalists allegedly better
equipped for the digital age.
Even without the style of the fir-
A Canadian Rock Star and the Pacific Rim Fab Four
[ Americas ]
BY MARY ANASTASIA O’GRADY
Nothing takes
the “happy” out of
Happy New Year
like the thought of
Barack Obama in
the White House
for four more years. Elsewhere in
the hemisphere, the outlook is
equally grim in many countries. But
believe it or not, a few countries
are getting things right.
The losers are easy to pick out.
Fidel Castro still fogs a mirror, and
the military government in Venezu-
ela will probably continue wrecking
the economy even if Hugo Chávez
succumbs to cancer. The prospects
of Argentina ever retiring per-
onismo remain dim.
Ecuador and Bolivia also fit the
loser mold: left-wing populist
politics supporting corporatist, au-
thoritarian states. Political compe-
tition has survived in Brazil. Yet by
sticking to a closed economic
model that tries to preserve an
ings, Russians would have been up-
set by the purge of a rare news out-
let outside the control of the
Kremlin and its compliant oligarchs.
Mikhail Gorbachev was among the
first to protest, saying that the dis-
missals looked “especially strange”
given Mr. Putin’s moves against in-
dependent journalism in Russia.
Soon the Moscow community of
human-rights and democracy activ-
ists erupted in opposition. Ten dis-
tinguished members—including Ly-
AFP/Getty Images
udmilla Alexeeva of the Moscow
Helsinki Committee and Sergei
Kovalyev of the Sakharov Founda-
tion—wrote to the U.S. Congress
calling for an investigation. Four
other RL journalists resigned in
sympathy with the 37 dismissed.
Some formed an organization that
they named Radio Liberty in Exile.
What has prolonged the crisis is
the weakness of the case for the fir-
ings advanced by RFE/RL managers.
They first explained that a new
Russian law restricting foreign me-
dia ownership forced them to give
up RL’s medium-wave license. But
other foreign stations work with a
Russian partner. Were partners vig-
orously sought? If so, how many? If
the partnering option failed, why
not continue broadcasting and com-
pel Mr. Putin to close down the bu-
reau rather than spare him
embarrassment by pre-emptive
compliance? Finally, why move the
main body of Radio Liberty to Mos-
cow where it is plainly vulnerable
to a Kremlin that is relentlessly
hostile to the media? It doesn’t add
up.
The managers’ second explana-
tion is that the firings and hirings
were the necessary result of switch-
ing RL content from radio to a mul-
timedia Internet platform. But even
after roughly 60 radio affiliates in
Russia ended their relationship
with RL under official pressure, ra-
dio still accounts for about half of
RL’s total audience. Some Russians
listen to the radio programs
through the Internet, but now many
of those programs will be axed.
industrial plan from the 1960s, it
continues to underperform relative
to its potential.
State-managed economies never
do well, as Argentina’s latest
relapse can attest. According to
nongovernment estimates, inflation
is now close to 25%. Growth is
slowing and capital is fleeing the
country. In Venezuela, inflation is
running at 17% and citizens are
bracing for a sharp devaluation.
In Ecuador, the economy is
growing modestly but government
is ballooning. President Rafael Cor-
rea has seized enterprises,
terrorized the press and gotten
chummy with Iran.
Bolivia is growing, but its
political institutions are on the
rocks. A recent corruption scandal
features “eight arrests so far in
what authorities described as a
band of shakedown artists,
extortionists and thieves led by the
No. 1 legal adviser in the interior
ministry,” the Associated Press re-
ported on Dec. 10.
But while some countries are
trampling civil liberties and push-
ing corporatism, a handful continue
OPINION
A pro-Radio Liberty protester is detained by a Moscow police officer, Oct. 9.
Having radio as an in-house partner
gave RL’s website an advantage in
Russia’s competitive digital envi-
ronment. Above all, if strengthen-
ing RL’s digital presence was the
strategy, why jettison RL’s
successful website team?
In reality, long before Mr. Korn
arrived in June 2011, some RFE/RL
senior managers wanted major pro-
gramming changes to make Radio
Liberty livelier, more contemporary,
less political and more attuned to a
younger audience. Well and good,
but those aims have to be recon-
ciled with the organization’s mis-
sion statement: “RFE/RL’s mission
is to promote democratic values
and institutions by reporting the
news in countries where a free
press is banned by the government
or not fully established.”
Jefim Fistein, currently an RFE/
RL senior adviser, managed just
such a balancing act as director of
the Russian service until last May.
Radio Liberty improved its news re-
porting and expanded the range of
topics covered while maintaining
high standards of political and cul-
tural debate. It pioneered the live-
streaming of court trials and street
demonstrations. Increasingly, RL
set the news agenda for what re-
mained of Russia’s independent
press. Two external critics invited
to critique RL—a BBC World Ser-
striving for open markets, political
pluralism, economic competition
and monetary stability. This bifur-
cation of the Americas, which be-
gan a decade ago, too often goes
unnoticed.
Capitalizing on its strong insti-
tutions and its rich resource base,
Canada is the rock star of the hemi-
sphere. A Latin American fab four—
Chile, Mexico, Peru and Colombia—
also are on the open-market road,
pursuing serious economic policies
and steadily advancing. UCLA econ-
omist Sebastian Edwards calls their
success “the resurgence of the Pa-
cific of the Americas.”
In a column in Chile’s daily
newspaper La Tercera on Dec. 8,
Mr. Edwards noted, for example,
that these four Pacific economies
are ranked by the World Bank’s
“Doing Business” survey—measur-
ing the ease of transacting com-
merce—between 37th and 48th in
the world. On the Atlantic, Brazil is
ranked 130th, Argentina 124th and
Venezuela 180th.
In a report by the United
Nations Conference on Trade and
Development, Chile ranked sixth in
vice veteran and a Daily Telegraph
Internet pioneer—concluded that
the service was doing the right
things.
The outsiders’ verdict annoyed
those managers who wanted more
popular fare. But the managers
were bureaucrats, not program-
makers. They needed a simpatico
editorial vision. They found it in
Masha Gessen, the Radio Liberty di-
rector appointed by RFE/RL Presi-
dent Korn after the September
housecleaning.
“I want to do a kind of journal-
ism that no one is doing at the mo-
ment. I would describe it as normal
journalism,” she told the Moscow
Times shortly after her appoint-
ment. “Something that’s not polem-
ical, like opposition media, and
something that’s not controlled by
the Kremlin.” In practice this jour-
nalism has turned out to be softer
news features in which liberty is
likely to mean sexual liberation
(with illustrations) rather than “po-
litical” aspects of human rights.
Five years ago when young Rus-
sians were alienated from politics,
there might have been a case for
Radio Liberty to take that ap-
proach. But other news outlets are
doing such journalism in Moscow
today—with Mr. Putin’s blessing. As
for normality, well, normal journal-
ism in an environment of worsening
the world in 2011 for its record of
attracting capital relative to its
size.
The World Bank reports that
Chile’s foreign direct investment-
to-GDP ratio was 7% or higher ev-
ery year from 2008-2011. For Peru
the ratio has mostly hovered
around 5% or better. Compare these
stats with those of Brazil, a media
darling in recent years whose FDI-
to-GDP ratio was 1.9% in 2009 and
2.9% last year.
Mexico’s FDI-to-GDP in 2011 was
a disappointing 1.8%, probably
thanks to the lack of investment
opportunity in telecommunication
and energy, where the government
has allowed monopolies to persist.
If newly inaugurated President En-
rique Peña Nieto can successfully
open these sectors to competition,
a foreign investment boom is likely.
Mexican GDP growth hasn’t
been great (3.8% in 2011). But the
opening of the country to trade—
which started with the 1994 North
American Free Trade Agreement—
has driven a transformation in
Mexican economic thinking. This
transformation in turn has sparked
THE WALL STREET JOURNAL.
authoritarianism surely includes
the kind of “opposition media” that
Ms. Gessen disdains.
Her style of journalism is also
ill-timed. Russia’s young people are
no longer so disaffected from poli-
tics. They are taking sides. New dis-
sidents are joining old. Four of the
dismissed journalists have since
won awards for crusading human-
rights reporting. Radio Liberty
could be providing a platform for a
coalition of dissidents young and
old.
Inevitably, reports filtered into
Washington that the RL “brand”
was damaged by the firings. All au-
dience measures were down, and
Russia’s democratic activists had
been alienated. In mid-December
the Broadcasting Board of Gover-
nors (the official agency overseeing
U.S. international broadcasting)
took action—thanks in large part to
the terrier-like insistence of one
governor, Victor Ashe, a former U.S.
ambassador to Poland knowledge-
able about Eastern Europe. The
governors announced an investiga-
tion to be completed in six months,
but according to multiple sources
they also asked Mr. Korn to resign.
He did so on Monday.
Mr. Korn did not respond to an
email request to comment for this
article, and his telephone was not
accepting messages.
Now any investigation should be
handled by the new or interim head
of RFE/RL. That person, someone
experienced editorially and interna-
tionally but detached from recent
BBG politics (former NPR president
Kevin Klose would be ideal), can de-
termine what went wrong in the
course of putting it right. The
board’s sole advice should be: Re-
hire the journalists dismissed in
Moscow to such loud effect.
Mr. O’Sullivan, former Radio Free
Europe/Radio Liberty executive
editor (2008-11) and vice president
(2011), is the author of “The Presi-
dent, the Pope, and the Prime Min-
ister” (Regnery, 2006).
speculation that Mexico could over-
take Brazil as Latin America’s larg-
est economy in the next decade.
Mexico is part of the Trans-Pa-
cific Partnership negotiations that,
once completed, will deepen inter-
national trading relationships with
10 other countries—Australia, Bru-
nei, Chile, Canada, Malaysia, New
Zealand, Peru, Singapore, the U.S.
and Vietnam.
The Latin American fab four
have one more thing in common:
Poverty rates are dropping and a
middle class is growing. Chile has
made the most progress with only
11% of the population living in pov-
erty now, according to a recent U.N.
report. Peru says poverty has
dropped to 27.8% of the population,
down from more than 60% 20 years
ago and down from 31.3% in 2010.
Poverty in Venezuela ticked up last
year.
These countries could always re-
verse direction. Meanwhile they are
providing a useful lesson about
what drives development and
makes people better off.
Write to O’Grady@wsj.com
Pound/Euro 0.8109 g 0.90% Yen/$ ¥86.61 À 0.58%
Wednesday, January 2, 2013
Investors’ Adventure: Search for Yield
BY TOM LAURICELLA
Amid the swings in financial
markets in 2012, one major force
drove investors. And it is likely to
intensify in 2013: the search for
yield.
While the fixation of investors
has been on budget wrangling in
Washington, generating a decent re-
turn with interest rates at rock-bot-
tom levels is a constant concern.
The world’s central banks are on
course to keep pumping large
amounts of money into financial
markets. That will keep interest
rates on government bonds at near-
record lows and force investors into
higher-yielding—and risky—fare.
The list includes junk bonds, emerg-
ing-market debt and more exotic se-
curities such as investment trusts
and limited partnerships.
With Federal Reserve officials
giving assurances that interest rates
will likely stay low for years to
come, many investors see a green
light to take on even riskier invest-
After a Wild Year, Time
For a Sober Look at Risk
[ Current Account ]
BY FRANCESCO GUERRERA
We all have a
period of our lives
that we like to
think of as “the
wild years.” For
most of us, the
degree of transgressions may
have fallen well short of Mick
Jagger circa 1972, but in our
mind, boy, those were the days.
Many investors will remember
2012 as such a year. Money
managers, hedge funds and even
individual investors and
universities all scrambled for
that elusive “yield”—a rate of
return that would vault their
results past the measly interest
rates paid by Treasurys.
The search took them to ever-
riskier places, from junk bonds
and mortgage-backed securities
to strange corporate concoctions
such as “business development
corporations” and “master
limited partnerships.” These
investments can be found in
financial glossaries under the
rubric “buyer beware” and could
turn out to be losing bets in
years to come.
But in 2012, there were few
blowups there—a sign that, after
the risk purge that followed the
financial crisis, the dangers
lurking in the financial system
remain manageable. For those
searching for yield, the past 12
months weren’t so much “the
Global Dow 1995.97 À 0.57%
Optimism for Japan Stocks
Depends on Politics, Yen
MARKETS 25
THE WALL STREET JOURNAL.
ments, especially when it comes to
ones where higher interest rates
could inflict losses.
In the process, investors will end
up paying still more for even skimp-
ier yields. That isn’t just likely to
curb returns: A number of market
observers warn that, somewhere
down the road, investors might dis-
cover greater risks in their portfo-
lios than they had bargained for in
2013.
“The search for yield is going to
be even more challenging,” said
Rebecca Patterson, chief investment
officer at Bessemer Trust, which
oversees $75 billion. Ms. Patterson
sees warning lights flashing in some
corners of the markets, such as junk
bonds issued with more lax protec-
tions for investors.
“Risk is building behind the
scenes,” she said.
As investors clamor for anything
providing higher yields, Wall Street
firms are gladly complying with new
offerings.
Junk-bond issuance hit a record
year of living dangerously” but
“the year of trying to live
dangerously.”
To be sure, some small
investors had an entirely
different experience. Uncertain
about the economy and scarred
by stock exchanges’ persistent
inability to run themselves (as
shown by the botched listings of
Facebook Inc. and BATS Global
Markets Inc.), a cohort of
average Joes and Janes pulled
money out of stocks. Not even
the stock market’s strong gains
during the year were enough to
entice them back in.
Nevertheless, the majority of
the investing world begins 2013
with a strong appetite for risk
and a willingness to look for it in
exotic and dangerous corners of
the market.
Whether this is the right
strategy or just the first step
toward inflating another painful
bubble will depend on two
factors: the direction of the
economy and the price of
different assets.
As Fredrik Nerbrand, global
head of asset allocation at HSBC
Holdings PLC, wrote in a
Christmas missive to clients,
“there are two predominant
drivers of returns at the
moment: the global business
cycle and relative valuations.”
On the first point, Europe is
mired in a recession, while Asia
is likely to contribute its fair
share of global growth. That
leaves the U.S. as the
Please turn to page 23
Gold 1674.80 À 1.20% Oil 91.82 À 1.12% 3-month Libor 0.30600 10-year Treasury g 14/32 yield 1.759%
Europe’s Cable Firms
Show Some Spark
HEARD ON THE STREET 32
europe.WSJ.com
$350 billion in 2012. In the fourth
quarter, some 40% of those bonds
had fewer-than-usual protections
for bondholders, the highest since
the onset of the financial crisis, ac-
cording to S&P LCD.
That is just the tip of the ice-
berg. Issuance has boomed in high-
yielding real-estate investment
trusts, energy stocks known as mas-
ter limited partnerships and busi-
ness-development companies, which
are essentially publicly traded ven-
ture-capital funds that pay out most
of their income to investors. Even
collateralized loan obligations—
pools of risky loans to corpora-
tions—made a comeback after that
market largely shut down following
the financial crisis. In 2012, CLO is-
suance totaled three times that of
2011, according to J.P. Morgan
Chase.
In 2012, the riskier the high-
yielding investment, the better it
SporkUnltd.
tended to perform. The lowest ranks
of the high-yield bond market—cor-
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18 | Wednesday, January 2, 2013 THE WALL STREET JOURNAL.

YEAR-END REVIEW & OUTLOOK

Postcrisis Rally Indexes’ Performance for the Year

Dow Jones Industrial Average S&P 500 Nasdaq Composite

In U.S. Reaches
15000 1500 3300

14000 1400 3100

A Pivotal Point
13000 1300 2900

12000 1200 2700

BY JONATHAN CHENG
Stock investors in the U.S. took
another wild ride in 2012, courtesy
of political gyrations from every
corner of the globe. But that didn’t
prevent the Dow Jones Industrial
Average from racking up strong
gains.
Again, the U.S. proved a haven
amid the global worries despite the
uncertainty in the run-up to the
election in November and Washing-
ton’s own political impasse over the
deficit. Investors flocked to divi-
dend-paying blue-chip stocks, push-
ing the Dow up 7.3% to near postfi-
nancial-crisis highs.
The questions for 2013: Will the
U.S.’s unsettled fiscal outlook, com-
bined with an expected slowdown in
U.S. company earnings and uncer-
tainty around the world, finally
knock stocks off balance? Or will in-
vestors’ hunt for higher yields lead
them back to stocks after several
years embracing the perceived
safety of bonds?
Investors step into the new year
with a daunting, if well-known, list
of macroeconomic fears. Europe’s
debt crisis rolls on. The U.S.’s long-
term fiscal woes remain unresolved.
China’s economy is slowing amid a
leadership change. And conflict
threatens the Middle East two years
after the first Arab Spring uprising.
up 7.3% 13.4% 15.9%
11000 1100 2500
At the same time, the outlook for '12 '12 '12
U.S. company profits is starting to
weaken. Many strategists and ana- Source: WSJ Market Data Group The Wall Street Journal
lysts expect earnings to level out
this year, potentially depriving
stock investors of the main engine still stuck in a multiyear funk. “It’s thing that doesn’t exacerbate the market watchers have been bracing
of stock-price gains in recent years. hard to grow it at the same pace as situation. for what they expect to be a rush
“We’ve had very healthy corpo- last year.” Indeed, Japan likely That “just-good-enough” sce- into stocks by investors who have
rate profits, but it’s been decelerat- joined Europe in recession in Sep- nario, combined with the promise of crowded into bonds in recent years.
ing,” said Omar Aguilar, chief in- tember, according to revised gov- continued stimulus measures by the Some 259 companies in the S&P
vestment officer of stocks at ernment data released in December. Federal Reserve, may be enough to 500 have a dividend yield higher
Charles Schwab Investment Man- “Earnings are weakening,” said allow investors to focus on funda- than the 10-year Treasury note, ac-
agement, which oversees more than Peter Andersen, a portfolio manager mentals. And there, too, the bulls cording to FactSet. And with Trea-
$250 billion. Investors point to cor- at Congress Asset Management Co. paint a rosy picture. sury yields near historic lows, Mr.
porate profit margins that have ex- in Boston, which manages about While companies aren’t likely to Knapp and some other market
panded to record levels, suggesting $7.5 billion. “They have been cutting increase profits like they did in watchers expect income-starved in-
to some investors that companies costs, and now they’re at the end of 2012, these investors are loath to vestors to seek out “stocks with
have cut costs as much as they can. that rope; there’s not that much count out corporate America, which bond characteristics,” like dividend-
cost to cut.” has continued to defy expectations paying stocks.
Bullish market watchers said on profit growth. “In a slow-growth environment,
While companies aren’t those fears are overdone. Many op- In addition, stocks remain mod- dividend stocks are still a good
timists expect stocks to hit highs in estly valued compared with long- place to be,” said Marc Harris, di-
likely to increase profits 2013, helped by an easing of politi- term historical levels, investors rector of U.S. equity research at
like they did in 2012, cal worries and a greater willing- said. The Standard & Poor’s 500- RBC Capital Markets. “People are
ness among investors to pay more stock index fetches about 12.6 times going to be searching for that in-
some investors are loath for steady, if unspectacular, growth projected earnings, according to come.”
to count out corporate in the U.S. and around the world. FactSet, below the long-term histor- Even the most bullish of inves-
They point out that as Europe’s ical average of 14.2 times. The S&P tors recognizes, however, the im-
America. crisis drags into a fourth year, many 500 hasn’t traded at or above that portance of building certainty
investors are taking a longer view, average in nearly three years. around global policy. A blunder by
focusing on the larger macroeco- Barry Knapp, head of U.S. equity policy makers in Europe, Washing-
“Given the deceleration of earn- nomic shifts, and adjusting their ex- portfolio strategy at Barclays, ex- ton or China could throw investors
ings growth, we are going to be pectations. In Washington, too, in- pects earnings growth of 4% next for a loop. “It’s frustrating, but poli-
highly dependent on global [gross- vestors have pared back year while stock valuations rise tics will be in the mix with the fun-
domestic-product] expansion, and expectations for a far-reaching modestly. damentals for the foreseeable fu-
that’s a risk,” he said, pointing to a “grand bargain” on the deficit, Many stock investors also are ture,” said Mr. Aguilar of Charles
Europe in recession and a Japan seemingly content to settle for any- keeping an eye on fund flows. Many Schwab.

Investors’ Adventure: the Search for Less Paltry Yields

Continued from previous page
porate bonds rated triple-C—re-
turned 18.3%, according to Barclays.
“Frontier” emerging-market bonds
from smaller, less actively traded
bond markets returned 21.5% in
2012, according to J.P. Morgan’s
Nexgem index, despite the 2011 de-
fault by the Ivory Coast and a loom-
ing default by Belize, two countries
in the frontier-markets benchmark.
That compares with a 3.8% re-
turn on 10-year Treasury notes, ac-
cording to Barclays.
Jan Loeys, head of global asset
allocation at J.P. Morgan, points to
big rallies in risky emerging-market
bonds and continued demand for
Mexico’s 100-year bond issued in
2010 as signs of market frothiness.
The Mexican bond is yielding 4.5%,
down from 6.1% when it was sold.
Yields fall as prices rise.
Mexico has defaulted three times appears on track to purchase $1.02 dent in the stock market, too. While dropped to 2.7 percentage points
in the past 100 years, but “investors trillion of bonds, leaving not much investors broadly showed little ap- from four percentage points.
are saying, ‘I feel happy buying that more than $300 billion net new is- petite for U.S. stocks, pulling $24 “The paradox of the corporate-
100-year bond because everybody suance for global bond investors, ac- billion out of U.S. stock funds in bond market has been that the
else is buying, too,’” he said. In cording to RBS. In 2012, even after 2012, equity income funds, which lower that yields go, the more that
2012, the total return on the Mexi- the Fed’s purchases, there was still specialize in dividend payers, took people want to own it,” said Mr.
can 100-year bond was 19%, accord- an estimated $1.3 trillion in bonds in $21 billion. Marrinan. “We know that’s not sus-
ing to J.P. Morgan. in the market for other investors, During 2012, yields on both in- tainable indefinitely.”
But such worries are being according to RBS. vestment-grade and below-invest- Part of the risk facing investors
eclipsed by successive rounds of “There just ain’t enough bonds ment-grade corporate bonds is that the math on bond prices and
quantitative easing by the Fed and to go around,” Mr. Marrinan said. dropped both on an absolute basis yields means it won’t take much
other central banks. That dynamic Corporate bonds were the fa- and in comparison to Treasury higher yields to inflict substantial
will only become stronger in 2013, vored destination for many yield yields. In mid-October, RBS says, its losses.
said Edward Marrinan, macro credit seekers, and investors took comfort broad measure of investment bonds With 10-year Treasury notes
strategist at RBS Americas, in Stam- in companies with strong balance hit a record-low yield of 2.6%, while yielding about 1.7%, a one-point rise
ford, Conn. sheets. U.S. investment-grade corpo- high-yield bonds hit an all-time low in yield would lead to a 9.2% decline
In 2013, issuance of Treasurys, rate-bond funds raked in $131 bil- of 5.9% on Dec. 19. in the value of the bonds, according
government agency—including lion, up from $75 billion in 2011, ac- Among high-yield bonds, debt to data compiled by Vanguard
mortgage-backed bonds—and in- cording to Lipper. carrying ratings of BB, at the mid- Group. For an investment-grade cor-
vestment-grade corporate debt will High-yield bond funds, mean- point of the junk category, slid to a porate-bond index of five- to 10-year
be $1.328 trillion once maturing while, attracted $30.1 billion, more yield of 4.5% at year-end from 6% at notes, a one-point rise in yields
debt is subtracted from the total, than double 2011’s pace. the start of 2012. At the same time, would be accompanied by a 6.4%
RBS predicts. Meanwhile, the Fed The preference for yield was evi- the spread over 10-year Treasurys drop in price.

Businesses Alfa Laval........................5
This index of businesses Allegheny Technologies
mentioned in today’s .......................................26
issue of The Wall Street Amlin.............................11
Journal is intended to Anheuser-Busch InBev.10
include all significant Aon................................11
reference to companies. Apollo Group.................26
First reference to the Apple.............................32
companies appears in Arab Investments.........11
bold face type in all Axa Real Estate
articles except those Managers...................11
on page one and the Bank of America........9,22
editorial pages. Barclays.........4,5,19,24,32
BNP Paribas..................24
Canon ............................ 25
Carlsberg.......................10
Cliffs Natural Resources
.......................................26
Commerzbank...............24
Derwent London...........11
Deutsche Bank..............24
Deutsche Telekom........32
Dexia ............................. 26
Diageo...........................10
Electricite de France ...... 5
Facebook .................. 17,32
FactSet Research
Systems.....................26
Federated Investors.....26
Flowserve......................26
FMC...............................26
France Telecom.............32
INDEX TO BUSINESSES
GDF Suez ........................ 5
Goldman Sachs Group
..................................11,25
Google...........................32
Great Portland Estates 11
Grupo Televisa S.A.B. .... 8
Heineken.......................10
HSBC Holdings ........ 17,19
IntercontinentalExchange
.......................................22
J.P. Morgan Chase
...............................9,19,22
Kabel Deutschland
Holding.......................32
Knight Capital Group....22
Land Securities Group..11
Liberty Global...............32
Macquarie Mexico Real
Estate Management . 20
Martin Marietta
Materials ................... 20
MegaFon ....................... 20
Microsoft.......................32
Mohan Meakin..............10
Molson Coors Brewing.10
Moody's.........................24
Mount Shivalik
Industries...................10
NASDAQ OMX Group...22
Netflix...........................26
Neuberger Berman.......19
Newfield Exploration....26
Noble.............................10
Nomura Holdings..........25
NYSE Euronext.............22
People’s Insurance of
China..........................20
PNC Financial Services
Group..........................22
Realogy Holdings..........20
Research In Motion......32
Rosneft ......................... 20
Royal Dutch Shell.........10
Royal KPN.....................32
SABMiller......................10
Sellar Property Group..11
Snap-On ........................ 26
Statoil ........................... 10 UBS ............................... 24
Telekom Austria...........32 United Spirits...............10
Thomson Reuters.........26 Virgin Media.................32
TNK-BP..........................20 Viridis Real Estate.......11
TomTom.........................32 Vulcan Materials..........20
Total..............................10 Westfield Group...........11
Toyota Motor................25 Ziggo ............................. 32
Corrections  Amplifications
Readers can alert the London newsroom of The
Wall Street Journal to any errors in news articles
by emailing wsjcontact@wsj.com or by calling
+44 (0)20 7842 9901.
THE WALL STREET JOURNAL.
China Stocks Rebound but Woes Persist
December Surge Aside, Shanghai Market Was Among World’s Weakest; Dominance of Small Investors Is Challenge
BY DANIEL INMAN
AND CHAO DENG
Long a laggard, China stocks
staged an unexpected December
sprint to end the year in positive ter-
ritory. The big question for investors
is whether the rally has legs, or
whether the market will soon be
winded.
The Shanghai Composite Index
ended the year up 3.2% thanks to a
15% surge in December. Investors
have been encouraged by the new
leaders of China’s Communist Party,
who have emphasized urbanization
as a key policy goal. Urbanization, or
the shift of Chinese people to the cit-
ies from the countryside, is an im-
portant driver of growth.
But the December rally can’t hide
all of the Shanghai market’s prob-
lems. It remains one of the worst-
performing global benchmarks in a
year when the Standard & Poor’s
500-stock index rose 13% and U.K.
stocks climbed 5.8%. It underper-
formed Hong Kong’s China-focused
Hang Seng Index, which gained 23%
in 2012.
Frank Yao, a Hong Kong-based
senior portfolio manager at Neu-
berger Berman, which manages
$203 billion globally, said low valua-
tions in the market, combined with
China’s high growth compared with
other countries, represent “a won-
derful opportunity for long-term in-
vestors.”
“As long as the fundamentals re-
main solid, that is a wonderful buy-
ing opportunity,” said Mr. Yao. He
has been taking advantage of the low
Emerging Markets Emerged Unevenly Last Year
BY ALEX FRANGOS
For all the talk about how
emerging markets are going to rule
the world, 2012 wasn’t their year.
The biggest markets—China, Bra-
zil and Russia—limped behind, as
emerging markets overall drew even
with their developed-market peers
to which they are often compared,
thanks to strong performances in
markets such as Turkey and Thai-
land. The broad MSCI Emerging
Markets Index, which measures per-
formance in 21 countries, rose 15%
in 2012, better than the 13% rise in
the Standard & Poor’s 500-stock in-
dex.
Hopes are brighter for 2013, as
some investors expect economic
growth to accelerate across emerg-
ing markets for the first time since
2010, giving an opportunity for
companies to boost profits.
“Emerging-market investors have
been chumps the last couple of
years,” said Morgan Harting, emerg-
ing-market multiasset portfolio
manager for AllianceBernstein in
New York, which has $426 billion
under management.
Many investors presumed that
because economic growth is faster
in emerging markets than Europe
and the U.S., stock markets in places
like China and India would outper-
form. While headline growth there
was better than the West, the rate
of growth decelerated, pressuring
company revenues as labor and
commodities costs were rising.
This year augurs a change in the
pattern, with the International Mon-
etary Fund forecasting underlying
growth in emerging markets to ex-
YEAR-END REVIEW & OUTLOOK
Nose Dive
Shanghai-listed stocks
underperformed in 2012
Year-to-date change
20%
15
10
5 Enterprises
0
–5
–10
–15
2012
*In local-currency terms Sources: FactSet (indexes); HSBC Markets (Asia) Limited (A-share trading)
prices, focusing on stocks exposed to
central and western China, which are
less developed than the coast.
The CSI 300, a gauge of the per-
formance of 300 big companies trad-
ing on the Shanghai and Shenzhen
exchanges, is trading at a price/earn-
ings ratio of nearly 12 times, up from
its low of the year of about 10 times.
Stocks may rise “in the first half
of next year given an expected im-
provement in corporate earnings and
potential supportive measures from
Beijing,” said Amy Lin, an analyst
with Capital Securities.
Still, in 2013, Chinese shares will
face significant challenges, ranging
pand in 2013, to 5.5% from 5.3%.
“Just having moderate accelera-
tion, if companies can contain costs,
will have a big positive flow to the
bottom line,” Mr. Harting said.
Only one emerging-market index
ended in the red in 2012: Chile’s
Santiago Stock Exchange IPSA Index
dropped 11%. Russia’s RTS index
rose 11%. China’s Shanghai Compos-
ite Index gained 3.2%.
Keeping a cap on emerging-mar-
ket stocks was a slowdown in global
trade. That hurt companies that ex-
port commodities from places like
Brazil, Indonesia and Russia. It sty-
mied manufacturing companies in
China and Taiwan.
Meanwhile, countries with
strong domestic demand and
healthy banks, notably in Southeast
Asia, excelled. Others like Turkey
and India benefited from a what-
goes-down-must-go-up situation, re-
bounding from crashes in 2011. Cur-
rencies also played a role.
Indonesia’s Jakarta Composite rose
14%, but because the rupiah slid
against the dollar, foreign investors
saw only half that gain.
The opposite effect happened in
South Korea, where a strengthening
won boosted a 9.4% rise in the Kospi
index into a 17% gain for dollar-
based investors. “It’s a good envi-
ronment for active investors,” said
Adrian Mowat, emerging-markets
strategist for J.P. Morgan in Hong
Kong, as smart stock pickers can
now identify value in individual
companies and countries. “This is a
return to more normal conditions.”
Looking ahead to 2013, a big
question is whether last year’s mar-
ket darlings can repeat. Turkey’s ISE
The number of investors in China’s A-share
market who traded in the past year shrank.
MSCI
60 million
All Country
Asia ex Japan
50
Up 16.5%*
Hang Seng
40
China
30
Up 15.1%
Shanghai SE
20
A-Share
Index
Up 3.1% 10
0 cently upgraded its stock forecasts
2011
from whether a new generation of
leaders can push through overhauls
to the market’s continued dominance
by small investors rather than buy-
and-hold institutional types, such as
pension funds.
Individual investors tend to focus
on short-term gains, and for much of
the year had largely given up on
stocks, following losses in the two
previous years. As of October, only
56% of China’s 55.9 million trading
accounts were active, compared with
80% a year earlier.
China’s securities regulator has
spent much of the year introducing
overhauls in order to restore confi-
National 100 Index rose 53%, and
the Philippines’s PSE Composite in-
creased 33%, as both benefited from
expectations that ratings firms
could promote them into invest-
ment-grade status in 2013. An up-
grade would signal fundamental im-
provements in economies and the
ability of their companies to earn
greater profits. But with those rises
came increased valuations, as inves-
tors bid up prices faster than com-
panies are making money.
The biggest markets—
China, Brazil and
Russia—limped behind,
but Turkey’s ISE
National 100 Index
advanced 53%.
“Some of those markets may
have gotten ahead of themselves
and may be ripe for a pullback,”
said David Pinkerton, chief invest-
ment officer of Zurich-based Falcon
Private Bank, which has $12 billion
of assets under management. He is
a long-term buyer of emerging-mar-
ket stocks and bonds.
Thailand, which bounced back
from widespread flooding that ham-
mered its industrial base in 2011,
saw the SET index surge 36%. It is
the best-performing emerging mar-
ket over the past three years, with
an average annual return of 23%, ac-
cording to MSCI.
India, the world’s ninth-largest
economy, saw its stock market re-
Wednesday, January 2, 2013 | 19
Inactive
A-share
accounts
(didn’t trade
in the past year)
Active A-share
accounts
(traded in the
past year)
'12
The Wall Street Journal
dence in the market. There has been
a significant expansion of the Quali-
fied Foreign Institutional Investor
program, the main route that foreign
investors use to gain access to the
market.
The regulator has also introduced
measures such as cutting trading
costs and encouraging state pension
funds to buy more stocks.
But for Shen Jie, a 68-year-old
retiree in Shanghai, those steps
aren’t enough. He started buying
stocks in 1992, only to cash out in
2008, the year the market lost more
than two-thirds of its value. Ever
since, Mr. Shen has been reluctant to
bound after a terrible 2011. The
Bombay Stock Exchange’s Sensex in-
dex rose 26%, making up much of
the ground it lost the year before.
With a new finance minister in
place, a government that has pushed
through overhauls on attracting for-
eign investment, and inflation fi-
nally ebbing, the rally in India could
continue.
“India did a great job bringing
down everyone’s expectations to
rock bottom levels,” J.P. Morgan’s
Mr. Mowat said.
Brazil’s Bovespa index rose 7.4%,
as slow growth and the sharp de-
cline in global commodity prices hit
the once-hot economy. Signs that
China, Brazil’s biggest trading part-
ner, was picking up steam in the
fourth quarter gave some hope that
demand for Brazil’s coal, iron ore
and soybeans would come back in
2013.
Another bright spot for emerg-
ing markets: Bonds rallied as yield-
hungry investors soaked up a sub-
stantial increase in new offerings.
Governments in emerging markets
issued a record of more than $80
billion in bonds in 2012, according
to data provider Dealogic. In Asia
and Latin America, companies that
traditionally borrowed directly from
banks turned to bond markets in-
stead, finding ample demand from
investors.
Global bond investors from asset
managers, pension funds and
wealthy private-bank clients sup-
ported the bond boom as they fled
the near-zero interest-rate environ-
ment in the U.S., Europe and Japan.
J.P. Morgan’s EMBI+ index, which
tracks emerging-market bonds, mea-
re-enter the domestic market due to
concerns over the hefty pipeline of
IPOs and the problem of manage-
ment selling stock as soon as possi-
ble after a company lists.
“China’s stock markets and the
local economy have no connection,”
said Mr. Shen. “The day that the reg-
ulator is wise enough to make ordi-
nary investors believe they work for
all investors, I will buy shares again.”
Some institutional investors are
more optimistic.
“The economy is slowly recover-
ing, so risks to corporate earnings
in China are also on the decline,”
HSBC equity strategists Herald van
der Linde and Devendra Joshi said
in a research note. The bank recom-
mends that investors go “over-
weight” on Chinese stocks and re-
for the country.
Although Chinese economic
growth slowed to 7.4% in the third
quarter, its lowest level in three
years, figures released in recent
months have painted a brighter pic-
ture. The median forecast among 12
economists surveyed by The Wall
Street Journal is for 8% growth in
2013.
The upbeat sentiment on main-
land China has also come as central
banks in the U.S. and Europe have
been easing monetary policy and
driving down bond yields. That has
pushed cash into Asia as investors
have looked to emerging markets
for higher returns in both fixed-in-
come assets and stocks.
—Amy Li
contributed to this article.
sured a total return of 18% in 2012.
In comparison, the Barclays aggre-
gate index of U.S. bonds returned
about 4%.
In a sign of how the emerging-
market bond world is maturing,
Mongolia, Zambia and Bolivia issued
sovereign bonds for the first time,
receiving favorable terms. In Decem-
ber, mineral-rich Mongolia, which
was rescued by the International
Monetary Fund as recently as 2009,
persuaded investors to part with
their money for 10 years at an an-
nual interest rate of 5.125%.
The low interest rates on possi-
bly risky debt have some analysts
and investors concerned the emerg-
ing-market bond trend is over-
played. Should U.S. interest rates
unexpectedly perk up, investors
could flee emerging markets back
into Treasurys, a scenario that
played out with devastating effect
for emerging-market investors when
the Federal Reserve made surprise
rate increases in 1994.
“The downside risk is consider-
able,” said AllianceBernstein’s Mr.
Harting. He has positioned his fund
to be more invested in stocks than
bonds as a way to hedge against a
slide in bond prices.
Others see room for emerging-
market bonds to run. “It is hard to
make the case that valuations are
overly stretched,” said Andreas
Kolbe, emerging-market credit strat-
egist for Barclays in London. While
the difference between interest
rates among emerging-market
bonds and Treasurys has narrowed,
the spread is still more than a per-
centage point wider than their nar-
rowest level, reached in June 2007.
20 | Wednesday, January 2, 2013
The Top 10 | Biggest global IPOs in 2012, in billions of dollars
Issuer
Facebook
Japan Airlines
Grupo Financiero Santader Mexico
Felda Global Ventures Holdings
People’s Insurance of China
IHH Healthcare
Telefonica Deutschland Holding
Banco BTG Pactual
MegaFon
Astro Malaysia Holdings
Source: Dealogic
Europe and China Were
IPO Laggards in 2012
Amount Raised Globally Fell 29%; Facebook Boosted U.S. Total
BY TELIS DEMOS
Emerging markets and U.S. soft-
ware and housing stocks powered a
jump in fourth-quarter initial public
offerings, but it wasn’t enough to
stave off a decline in activity com-
pared with the previous year.
The drop in 2012 was driven by
slowdowns in China and Europe,
which offset a jump in the U.S. In
2011, 1,277 companies went public
globally, raising $159.8 billion. In
2012, only 751 companies made ini-
tial offerings, raising $113.1 billion,
a 29% decline in the amount of
funds raised.
“The big problem globally was
China,” said Mark Hantho, global
head of equity capital markets at
Deutsche Bank AG. “While some
concerns around inflation linger,
China still has substantial [gross-
domestic-product] growth and con-
sumer wealth being created. The
need for capital is still very high,
and that market may start to re-
awaken in the latter half of next
year.”
In a telling sign of the slow-
down, more money was raised in
U.S. IPOs versus China and Hong
Kong in 2012 for the first time since
2008, according to data provider
Dealogic. The U.S. raised $38.9 bil-
lion, a jump of 15%, while China’s
markets raised $21.8 billion, a de-
cline of 59%. Europe saw just $13.8
billion raised by IPOs in 2012, a de-
cline of 62% from a year earlier.
Dealogic’s IPO volumes exclude
real-estate investment trusts, busi-
ness-development companies and
special-purpose acquisition compa-
nies.
But deal makers in the U.S. were
hardly jubilant. Facebook Inc., the
biggest U.S. offering with a $16 bil-
lion IPO in May, saw its share price
fall sharply following a botched de-
but on the Nasdaq Stock Market. In
addition, companies frequently of-
fered concessions to investors in
the price or size of deals to get of-
ferings across the finish line.
Of U.S. IPOs in 2012, 40% priced
below their stated range, versus
32% a year earlier. In addition, the
average U.S.-listed IPO sold only a
third of the company’s stock to the
public in 2012, the smallest percent-
age in any year since 2000.
Smaller offerings allow compa-
nies to sell stock at a price only the
most interested investors will pay.
But such deals also can reduce a
stock’s liquidity and make some in-
YEAR-END REVIEW & OUTLOOK
Country Value
U.S.
Japan
Mexico 4.1
8.5
Malaysia 3.6
China 3.3
Malaysia 2.1
Germany 1.9
Brazil 1.7
Russia 1.7
Malaysia 1.5
vestors less willing to hold the
shares.
“Historically, an issuer might
say, ‘What’s the largest IPO I can
do?’” said Michael Goldberg, head
of U.S. equity capital markets at
RBC Capital Markets, a unit of Royal
Bank of Canada. “Now we’re advis-
ing clients to do something more
moderate in size, create demand
and supply tension for the IPO, and
come back later with a larger” of-
fering.
Global activity did pick up in the
fourth quarter, with IPOs rising 19%
by dollars raised, to $30.5 billion.
And looking ahead, advisers expect
continued action in the U.S. housing
and technology sectors, and a resur-
gence in activity in China and Bra-
zil.
Advisers expect
continued IPO action in
the U.S. housing and
technology sectors, and a
resurgence in activity in
China and Brazil.
Indeed, the recent uptick in-
cluded Asia. People’s Insurance Co.
of China Ltd. raised $3.1 billion in a
Hong Kong IPO in November, that
market’s biggest deal of the year.
The quarter also brought the
two biggest IPOs of the year in Eu-
rope, $1.7 billion raised by Russian
telecommunications group Mega-
Fon in London and $1.9 billion
raised by Spanish telecom
Telefónica SA in Germany.
Latin America also proved a
bright spot. After September’s $4.1
billion IPO by Banco Santander SA’s
Mexican unit, a Mexican real-estate
investment firm backed by Austra-
lia’s Macquarie Group Ltd., Macqua-
rie Mexico Real Estate Manage-
ment, raised $1 billion in a
December IPO.
David Hermer, head of Americas
equity capital markets at Credit Su-
isse Group AG, said Latin America
could continue to see a jump in ac-
tivity this year.
“Investors want infrastructure-
type plays, and we’re seeing them
pay increased attention to the re-
gion, driven by a scarcity of in-
vestible stocks in Colombia and
Peru, the recent election and posi-
tive outlook in Mexico, and renewed
%Change
offer/1 day
$16 30%
1.1
34
11
1.3
20
1.6
4.3
20
2.0
The Wall Street Journal
momentum out of Brazil,” he said.
The U.S. IPO tally was boosted
by social network Facebook, the
largest technology IPO ever. With-
out Facebook, new U.S. listings
would have raised a third less
money than a year earlier.
Investors later in the year
flocked to companies specializing in
“cloud” applications that deliver
services over the Internet. They
also snapped up shares in retailers
and housing stocks, based on the
belief that the home-sales market
would improve in 2013.
Despite Facebook falling 30% in
2012 from its initial offering price,
the average U.S. IPO in 2012 rose
18%, the most in at least five years.
Most of those gains came in the
first day of trading.
Workday Inc., a maker of cloud
human-resources software, went
public in October and has seen its
stock climb 95%. November IPOs for
Realogy Holdings Corp., which
owns real-estate agent brands like
Century 21, and home-goods retailer
Restoration Hardware Holdings Inc.
rose 55% and 41%, respectively.
“In a low-growth, low-return
world, high-growth captures the
market’s attention,” said Gregg Nab-
han, vice chairman of equity capital
markets at Bank of America Merrill
Lynch. “There can be real pushback
with investors if transactions are
launched at valuations that appear
to be overly aggressive, or if the
company’s competitive strength ap-
pears relatively weak. But those
that are pricing are performing very
well.”
That was reflected in an uptick
in the number of deals that didn’t
price when expected. There were 80
U.S. IPOs withdrawn or postponed
in 2012, the most since 2008, when
the financial crisis struck, according
to Dealogic.
There also was demand for
stocks paying yield. That included
master-limited partnerships, known
as MLPs, that own energy assets, or
real-estate investment trusts, or RE-
ITs, that own and rent out commer-
cial or residential properties and
use the cash flows to pay dividends.
“There was a strong bid all year
for defensive [stocks], and the
strength of [REITs] and MLPs were
indicative of that theme. Both those
subsectors outperformed because of
the yield component,” said Phil
Drury, co-head of equity capital
markets in the Americas at Citi-
group Inc.
Headwinds Hinder
Global M&A Deals
BY ANUPREETA DAS
AND DANA CIMILLUCA
Four years after the financial cri-
sis knocked the wind out of the
mergers-and-acquisitions business,
deal makers are largely reconciled
to the idea that the return to health
could take several more years.
Global deal volume reached $2.6
trillion in 2012, roughly in line with
volume in 2011, according to data
provider Dealogic. As in 2011, there
were fewer megadeals in 2012. The
largest announced acquisition, oil-
and-gas explorer OAO Rosneft’s
pending $54.5 billion purchase of
TNK-BP, was one of only four deals
above $20 billion, the same as 2011
but fewer than the three previous
years.
A relatively busy fourth quarter
infused the deals market with some
optimism: Global volume was up
52% compared with the third quar-
ter and 37% from a year ago. Still,
the outlook for 2013 among some
bankers and lawyers hardly budged.
All the conditions that should
make for an active M&A market,
such as cash-rich companies, low in-
terest rates that make borrowing
easy, and the need for growth, were
offset by the same perils that have
hampered deal making in recent
years: the debt crisis plaguing Euro-
pean governments, the high U.S. un-
employment rate, the stop-and-start
nature of consumer spending, and
the resulting lack of confidence
among CEOs and board directors to
push forward with deals.
“Europe has moved from the
emergency room into a chronic con-
dition, which is going to take a long
time to heal,” said John Huwiler,
global head of M&A at Jefferies &
Co., a subsidiary of Jefferies Group
Inc. “That doesn’t mean there’s going
to be no M&A, though. I think M&A
will slowly resume to a steady state.”
Additionally, deal makers spent
much of the fourth quarter awaiting
the outcome of the presidential
election, as well as the fate of “fis-
cal cliff” negotiations over a combi-
nation of spending cuts and tax in-
creases aimed at reducing the U.S.
budget deficit that would go into ef-
fect in 2013 if no deal is reached.
Frank Aquila, a partner at law firm
Sullivan & Cromwell LLP said if
CEOs and board directors feel good
about the handling of the fiscal cliff,
some big, “inevitable” tie-ups be-
tween complementary companies
that have been discussed for years
could happen.
Construction-materials company
Martin Marietta Materials Inc.,
which dropped its $5 billion hostile
bid for peer Vulcan Materials Co. in
May, will likely explore a friendly of-
fer if market conditions improve,
people familiar with the decision
have said.
“The low-growth environment
we are going to see is going to lead
to continued emphasis on industry
consolidation transactions,” said
Paul Stefanick, who is head of Amer-
icas investment-banking coverage
for Deutsche Bank AG.
Companies also will continue to
realign their portfolios by spinning
off or selling assets they no longer
see as central to their main busi-
ness, sometimes with such moves
spurred by activist investors de-
manding better returns on their
holdings, he said.
Activist investors, who usually
buy stakes in companies they see as
undervalued and push for changes,
THE WALL STREET JOURNAL.
have become a key feature of the
merger-and-acquisition landscape in
recent years.
While that trend is likely to con-
tinue in 2013, Peter Weinberg, a
partner at boutique investment
bank Perella Weinberg Partners,
said long-term investors such as
mutual funds and pension funds
can’t be ignored when making
merger-related decisions. Some-
times, he said, these investors pre-
fer that companies repurchase
shares rather than take on a deal,
with the risks that can entail.
“The largest institutional holders
of equities in the world are at the
center point of M&A activity,” Mr.
Weinberg said. “And now, any deal
is, and should be, compared to using
a like amount of capital to repur-
chase shares. If an acquisition
doesn’t capture the interest and
support of these institutions, it’s a
long [row] to hoe.”
In Europe, the dollar volume of
deals struck in 2012 hovered around
its postfinancial-crisis lows, with fi-
nancial and economic woes continu-
ing to hamper the M&A market
there. There were $737 billion of
deals with a European target in 2012,
down 1% from 2011. There were
signs, however, that a pickup could
be in the offing amid hopes that the
crisis in the region finally may now
be abating.
Dealing Down
Merger and acquisition volume
by region
U.S.
2011 $908
2012 $871
Europe
$748
$737
Asian-Pacific
$613
$584
Source: Dealogic
The Wall Street Journal
European deal volume in the
fourth quarter, at $249 billion, was
the highest level in the past three
years, according to Dealogic. “With-
out some exogenous shock, the envi-
ronment should continue to stabi-
lize,” said Gregg Lemkau, the head
of M&A in the European and Asian-
Pacific regions for Goldman Sachs
Group Inc.
Europe still lags behind the U.S.
in terms of volume. After years of
disappointing activity, few people
who make a living off deals are
ready to predict anything close to a
return to the heady precrisis days,
when deal making in Europe was
more than twice where it is now.
The U.S. accounted for $871 bil-
lion of deals in 2012. Deal volume
fell 5% in the Asian-Pacific region to
$584 billion compared with $612
billion in 2011.
Scott Matlock, the chairman of
international M&A at Morgan Stan-
ley, cited as a reason for his
guarded optimism a rising confi-
dence to do deals in the U.S., the
bellwether M&A region.
—Sharon Terlep
and Ryan Dezember
contributed to this article.
THE WALL STREET JOURNAL. Wednesday, January 2, 2013 | 21

YEAR-END REVIEW & OUTLOOK

A Tamer ‘Wild West’ Commodities Game

For Some, Two Years of Losses Suggest End of Supercycle; Demand Is Strong, but Supplies Have Increased
BY LIAM PLEVEN
Long known as the Wild West of
asset classes, commodities took a
walk on the mild side in 2012. That
could point to a new, potentially
calmer stage in the decadelong
rally, defined by more balanced
markets.
The Dow Jones-UBS Commodity
Index, which tracks 20 materials
from crude oil to lean hogs, fell
1.1%, the tamest move since it be-
gan in 1998. The index had swung
by double-digit percentages each of
the past five years and had never
risen or fallen by less than 2.7%
since the launch.
Producers have ramped up sup-
plies in response to the demand-
driven price increases spurred
largely by China’s rise. Now, that is
damping spikes: Copper, natural gas
and gold were among the raw mate-
rials that saw the smallest price
moves in years.
The 2012 decline in the index,
while modest, was the second con-
secutive annual drop, the first time
that has happened since the late
1990s. Some analysts said the re-
cent declines mark the end of the
supercycle that began more than a
decade ago.
Yet supply constraints can still
send prices soaring, as demon-
strated by sharp increases in the
cost of corn, soybeans and wheat in
2012 after hot, dry weather dam-
aged crops.
As a result, prices may not fall
back to the far-lower levels of a de-
cade ago, if demand stays strong.
But they also may not triple or qua-
druple again. And while the next
round of spikes could still be sharp,
they may be shorter-lived.
“They’ll be transient. They won’t
be structural,” said Jeffrey Currie,
global head of commodities re-
search at Goldman Sachs. That will
boost the economy, he said. “You
don’t have this persistent drag on
economic activity.”
But even if prices are relatively
calm in this new stage, raw materi-
als have the potential to remain a
source of economic stress and polit-
ical tension.
“We think the tightness of the
market will likely continue,” said
Bernice Lee, a lead author of a De-
cember report by Chatham House, a
London-based think tank, that
called for establishing a group of 30
natural-resource powerhouses, such
as Brazil, China, the European
Union, India, and the U.S., to facili-
tate information-sharing about vital
resources that could help manage
price volatility.
Energy
The diverging fates of the
world’s two reigning benchmark
crude prices in 2012 illustrate how
greater supplies are already curbing
prices in some cases, while tight in-
ventories are keeping them high in
others.
U.S. crude prices fell 7%, the first
annual decline since 2008, when
markets seized amid the global fi-
nancial crisis. The drop reflected the
impact of new drilling methods that
have unlocked vast new supplies of
oil and natural gas in the middle of
the U.S.
But Brent crude, the European
benchmark that tracks the cost for
many foreign buyers, as well as
many on the U.S. coasts, rose 3%, as
crude supplies elsewhere in the
world remain constrained. The rise,
though small, was striking, given
concerns over economic woes in Eu-
rope and elsewhere.
The result is a steep discount for
buyers who have access to cheaper
U.S. crude, which is landlocked to an
extent by inadequate pipeline infra-
structure. U.S. crude ended the year
at $91.82 a barrel, $19.29 less than
Brent crude, a gap that isn’t likely
to narrow soon, said Fatih Birol,
chief economist at the International
Energy Agency, a group of energy-
importing nations. New infrastruc-
ture is aiming to ease the bottle-
neck, but it could take time to catch
up with booming production.
U.S. natural-gas prices also
showed that commodity prices re-
tain the potential for large swings. A
glut of the fuel sent prices down
36% between the end of 2011 and
mid-April, but they rebounded as
producers pared back and consum-
ers shifted to the fuel, ending 2012
up 12%.
18%, and corn advanced 8%.
Road to Nowhere In response, farmers around the
world are once again planning to
After logging double-digit percentage swings eight of the past 10 years, the
ramp up production. If the weather
Dow Jones-UBS Commodity Index had a calm year, finishing down for the
cooperates, that could push prices
second consecutive year but recording the smallest change up or down since
back down, perhaps significantly, by
it was launched in 1998.
the time the harvest comes in next
DJ-UBS Commodity Index DJ-UBS performance fall in the U.S., the world’s largest
corn producer.
160 “You’ve got to get there first,”
24% 23% 7.6%
139.07 said Chris Gadd, an analyst at Mac-
2002 2003 2004
quarie. Animals that are huge con-
150 sumers of corn and soybeans need
18% 2.7% 11% to eat between now and then, and
2005 2006 2007 the larder is thin, which could push
140
prices up in the meantime, espe-
37% 19% 17% cially if harvests in Argentina and
130
Brazil in the first half of the year
2008 2009 2010
disappoint. Mr. Gadd has forecast
corn to reach $8.50 a bushel in the
13% 1.1% March-to-May time frame. By com-
120
J F M A M J J A S O N D 2011 2012 parison, corn futures for March de-
livery settled Monday at $6.9825 a
Individual commodities, however, often saw sharp price moves during the bushel.
course of the year.
Metals
40% NATURAL GAS CRUDE OIL No major commodity has seen
the kind of bull run that gold has
2012: since the end of 2000. Prices have
20
 7.1% risen sixfold in that period, ending
each year more valuable than at the
0 outset, and 2012 was no exception;
gold settled up 7%. But fans of the
precious metal are nervous. That
–20 2012:
 12.1% was the weakest annual gain since
2008, despite support from contin-
–40 ued central-bank buying, another
round of Federal Reserve stimulus
seen as weakening the dollar and
40% GOLD 2012: SUGAR boosting bullion, and the uncer-
 7.0% tainty of a hard-fought presidential
campaign followed by down-to-the-
20 wire talks over taxes and spending.
2012:
Gold fell 5% in the fourth quarter.
 16.3%
0 The yellow metal still has a
large camp of believers. “We think
there’s still upside potential for
–20 2013,” said Stephen Cucchiaro,
chief investment officer at Wind-
haven Investment Management,
–40
which manages more than $13 bil-
J F M A M J J A S O N D J F M A M J J A S O N D
lion in assets.
Sources: S&P Dow Jones Indices; SIX Financial Information Goldman Sachs is forecasting
The Wall Street Journal gold prices of $1,825 a troy ounce
in early 2013, which would repre-
sent a 9% gain from the year-end
Agriculture a year of weather problems, and the settlement price of $1,674.80.
Crop prices could be primed for resulting price increases put stress But, the bank said in a Decem-
a similar ride in 2013. on buyers around the world. Wheat ber report, “we see growing down-
A harsh U.S. drought dominated prices rose 19%, soybeans climbed side risks.”

A Familiar Tale in Europe: Coping With “Perma’ Crisis

Continued from first page
investors are gun-shy from the dis-
ruption of the past few years. In-
deed, the debt crisis has radically
reconfigured investing in Europe.
Investors have sucked money out of
troubled countries, in the process
creating a brand-new trillion-euro-
plus asset class: the risky Western
European government.
Money has crowded into assets
perceived as safe, like German gov-
ernment bonds, U.K. gilts and Swiss
francs; 2012 even saw a miniboom
in Danish government securities.
That has left a lot of investors earn-
ing not much yield.
The havens remained a strong
play all year, but spurts of newfound
confidence brought a strong rally in
the second half to other sectors: The
Stoxx Europe 600 index rose 14% in
2012, but that’s after rising more
than 10%, falling to a 5% loss and
then rebounding again. The 10-year
Spanish bond yield ended the year at
5.231%, roughly where it began, but
it peaked above 7% in the summer.
European Indexes
2012 performance of major stock-market indexes
14.4% 5.8%
Europe U.K.
Stoxx 600 FTSE 100
Dec. 31 close
279.68 5897.81
Source: WSJ Market Data Group
Bond yields rise when prices fall.
All told, most of the major Euro-
pean stock indexes had a good 2012.
Only Spain was in the red. The Ger-
man DAX gained 29%. Stock markets
in Austria, Belgium and—of all
places—Greece had strong years.
Greece is a wild card, but that
broader strength could continue in
2013. Investors looking to add risk
are likely to find stocks attractive,
Ms. Drew said. When dipping into
29.1% 15.2%
Germany France
DAX 30 CAC 40
3641.07
7612.39
The Wall Street Journal
stocks in the troubled countries of
southern Europe, Ms. Drew said,
caution is still a byword given the
fragility of those economies.
Investors will “want to look for
defensive opportunities—things that
aren’t highly exposed to consumer
disposable income,” she said.
“Those are the businesses that are
theoretically going to be the first on
the line to suffer.”
One of the most popular trades
for investors seeking extra yield in
2012 was to bulk up on corporate
bonds. To many, they offered a solid
premium over the low yields offered
by German bunds, without the un-
certainty of the riskier government
bonds of Spain and Italy. Merrill
Lynch’s Europe high-yield bond in-
dex is up 25% on the year.
That, too, could continue. Again,
though, use caution.
Standard & Poor’s projects Euro-
pean corporate-credit quality will
remain weak in 2013, with contin-
ued sluggish manufacturing weigh-
ing on companies. The default rate
among below-investment-grade
companies is likely to remain rela-
tively high, at 6.8%, by the end of
2013, S&P said.
Paul Watters, the head of corpo-
rate research at S&P, said there still
is a haves-and-have-nots divide:
Companies in the lower tiers of
credit and most small companies
have little access to capital markets.
And, he said, investors still are par-
ticularly keen on secured debt,
which is backed by collateral. “That
reflects the still quite-disciplined
approach that investors have,” Mr.
Watters said.
With prudent selection of com-
panies, credit has plenty of attrac-
tions. Central banks aren’t in any
hurry to raise interest rates, which
would squeeze credit investors, and
corporations have built up strong
buffers of cash.
“The corporate-credit sector is in
pretty good shape,” said Ross Pam-
philon, co-chief investment officer of
ECM, a credit-focused asset manager
in London that oversees about $9.5
billion. “We think the banking sector
is slowly going through a period of
recapitalization and a long period of
deleveraging, but that’s pretty good
if you’re a credit investor.”
And with German 10-year bonds
yielding less than 1.5%, many inves-
tors are getting restless in the ha-
vens.
“We’re seeing that 4% to 5%
yields are attractive to investors
these days,” Mr. Pamphilon said.
 22 | Wednesday, January 2, 2013
Bloomberg News
Sandbags surround the New York Stock Exchange on Oct. 30 after superstorm Sandy ravaged Lower Manhattan and
caused the bourse to shut for two days, raising questions about exchanges’ preparedness.
Wall Street Aims to
Move Past Glitchy Year
BY MATT JARZEMSKY
The past year exposed cracks in
the systems underlying the U.S.
stock market. In 2013, exchanges
and market overseers will seek to
repair them.
Incidents such as Nasdaq OMX
Group Inc.’s mishandling of Face-
book Inc.’s initial public offering and
a software glitch at Knight Capital
Group Inc. that caused erratic trad-
ing in dozens of stocks cost securi-
ties firms hundreds of millions of
dollars. (And in Knight’s case, it led
to a proposed takeover with Getco
LLC.) More important, according to
some observers, they shook individ-
ual investors’ confidence in the in-
tegrity of the market. As a result,
regulators and market participants
are turning their focus to testing
and maintaining their systems.
“Wall Street woke up to the fact
that operational risk on a trading
desk is a lot higher than people
used to think it was,” said Dan Ma-
thisson, Credit Suisse’s head of U.S.
execution and trading. “You can
have human error, you can have
fraud, and you can have a computer
glitch, and all those things can cre-
ate massive problems. We’re going
to see the emphasis more on nuts-
and-bolts operational issues.”
Throughout 2013, “the conversa-
tion is going to be centered around
risk management, technical resilience
and the adoption of stronger testing
standards,” said Eric Noll, who over-
sees trading operations at Nasdaq.
Exchanges and other market par-
ticipants have directed more cash
and staff to ensuring their systems
are working properly, said Joe
Mecane, head of U.S. equities for
New York Stock Exchange parent
NYSE Euronext.
“Both for us and the industry,
there is heightened awareness of
technology dependencies, which has
led us to be more cautious and more
deliberate in our approach, and put
more emphasis on a stable infra-
structure,” Mr. Mecane said.
NYSE Euronext may see some
changes, too, after agreeing last
month to be bought by Interconti-
nentalExchange Inc. for $8.2 billion.
The deal, expected to close in the
second half of 2013, would see ICE
Chief Executive Jeffrey Sprecher take
YEAR-END REVIEW & OUTLOOK
the top spot at the combined com-
pany. Mr. Sprecher has criticized cer-
tain aspects of stock trading, such as
exchanges’ practice of offering incen-
tives to traders that are active buy-
ers and sellers of securities. ICE also
has imposed curbs on high-frequency
traders in its futures markets.
Meanwhile, regulators are work-
ing out the details for systems
aimed at preventing wild swings.
Rules will finally go into effect that
were conceived in response to the
2010 “flash crash,” a 30-minute epi-
sode that took regulators months to
understand, though some still dis-
pute the causes.
For example, a pilot program
meant to strengthen circuit-breaker
rules, which halt trading when the
stock market suddenly jolts higher
or lower, is set to start in February.
The Securities and Exchange Com-
mission announced the program’s
approval in June.
Also coming in February is a pol-
icy limiting price swings in individ-
ual stocks. The “limit-up/limit-
down” system is meant to prevent
shares from rapidly swinging out-
side of a specified price band. In
most cases, for example, stocks in
the Standard & Poor’s 500-stock in-
dex won’t be able to trade 5% above
or below their average price over
the previous five minutes.
The rules are set to replace the
current circuit-breaker system for
individual stocks that halts trading
altogether. Critics of the halt ap-
proach have called it disruptive.
Those changes may be more visi-
ble to securities firms’ back-office
staffs than to individual investors,
but the SEC also is weighing a pro-
posal that could change the land-
scape for everyone who trades
stocks.
The agency plans to host a forum
in February to discuss increasing
the minimum increment—the “tick
size”—for some thinly traded
stocks. For example, the minimum
change in a stock’s price could in-
crease to a nickel, rather than the
standard penny.
Some say this could boost trading
volumes in those stocks because it
would make it more profitable for se-
curities firms to buy and sell such
shares. The one-cent increments cur-
rently used in stock trading offer a
slim gap between the prices at which
brokers buy and sell shares, reducing
the opportunity to take profits.
Many professional traders and
exchange executives would like reg-
ulators to undertake a more sweep-
ing review of the rules and dynam-
ics underlying the stock market.
Years of innovation have seen the
emergence of “dark pools,” net-
works that match stock buy-and-sell
orders electronically, and rapid-fire
computer-driven trading. But not all
market participants are happy with
the way the market has evolved.
“We are hopeful that there will
be some addressing of why you have
13 exchanges and 50 ‘dark pools,’
and why the market has become
overly complicated,” said Andy
Brooks, head of stock trading at T.
Rowe Price Group Inc., the Balti-
more asset manager. “We’ve reached
a point where everyone at the table
acknowledges that we’ve probably
made some mistakes in this incredi-
ble push for innovation and break-
neck speed.”
Kevin Cronin, who leads stock
trading at Invesco Ltd., said he is
concerned that the SEC’s ability to
monitor stock trading in “real time”
is limited, especially when it comes
to the actions of rapid-fire traders.
“Do the SEC and others have the
intellectual firepower—and I don’t
mean that disrespectfully at all, be-
cause it’s a very specific type of skill
set and understanding—to be able
to put all that information to-
gether?” he said.
To be sure, the SEC is working
on a computer system to track all
U.S. stock trading. The program,
which the agency approved in July,
is its biggest step since the May
2010 flash crash to improve its sur-
veillance of the market.
The SEC currently has to request
data from exchanges and the Finan-
cial Industry Regulatory Authority,
Wall Street’s self-regulator. Those
data can be difficult to read and
sometimes aren’t available immedi-
ately, hampering the SEC’s ability to
track market action instantly.
Last summer, the regulator con-
tracted with Tradeworx, a Red Bank,
N.J., high-frequency trading firm, to
provide a market-data service meant
to help the agency track stock and
options trades in real time.
U.S. Banks Prepare
For Rise in Lending
BY DAN FITZPATRICK
Some of the biggest U.S. banks
are barging into their rivals’ back-
yards, in a bare-knuckle bet that
2013 will bring a long-awaited rise
in demand for loans.
J.P. Morgan Chase & Co., the
largest U.S. bank by assets, is bulk-
ing up in No. 2 Bank of America
Corp.’s hometown of Charlotte, N.C.,
while Bank of America adds to of-
fices in traditional J.P. Morgan
strongholds Cincinnati and Cleve-
land. Together, the companies are
adding nearly 100 commercial bank-
ers across the U.S., including foot-
holds in Minneapolis and Pitts-
burgh, the hometowns, respectively,
of regional rivals U.S. Bancorp and
PNC Financial Services Group Inc.
The moves are the latest sign
that big banks need rising lending
income to offset revenue lost to a
regulatory overhaul and public
backlash against fees. The narrow-
ing spread between banks’ deposit
and lending rates is forcing some
banks to escalate their search for
loans and get more aggressive on
pricing in hopes they can offset
their margin compression by in-
creasing lending volume.
Tennessee’s capital of Nashville
is one of many large U.S. cities
where this battle for loans is esca-
lating. The city is dominated by
Bank of America and two big South-
eastern lenders, SunTrust Banks Inc.
and Regions Financial Corp., but is
also coveted by outsiders such as
J.P. Morgan and by numerous
smaller players, including Pinnacle
Bank, the largest local independent
bank in Nashville.
J.P. Morgan executives said they
can win business without poaching
from others, but one local banker
said it would be difficult to add
market share any other way.
“The only way to grow loans is
to take them away from someone
else,” said Terry Turner, chief exec-
utive of Pinnacle Bank’s parent, Pin-
nacle Financial Partners Inc. “It cre-
ates great pricing pressure.”
Nashville is among 10 large cities
selected by J.P. Morgan’s commer-
cial bank for an expansion, despite
having no retail branches there. The
New York bank is targeting large
population areas that offer “high
potential,” J.P. Morgan said in a pre-
sentation to investors last year.
Other targets include Birming-
ham, Ala., Richmond, Va., St. Louis,
Philadelphia and Boston. J.P. Mor-
gan also is adding to nine other cit-
ies in Florida and the West Coast
where it bought operations from
Washington Mutual Inc.’s failed
thrift. The goal is to increase com-
mercial-bank revenue by $2 billion,
add more than 200 new clients a
year and sell existing clients addi-
tional products.
In Nashville, (pop. 609,644), J.P.
Morgan took temporary office-park
space about 20 minutes from down-
town before moving to a more
prominent location at the end of
Music Row in late 2011. J.P. Morgan
recruited 38-year-old Nicole May-
nard from its Dallas office to lead
the operation as president of mid-
dle-market banking in Tennessee
and hired 10 other people.
Commercial-banking Chief Exec-
utive Doug Petno said his new
teams across the U.S. have “all the
time in the world” to make up
ground on rivals. His instructions:
“Draw a circle around the best
names in the market” and get to
THE WALL STREET JOURNAL.
know those companies before earn-
ing their business, he said.
In Charlotte, J.P. Morgan hired
away some Bank of America lenders
as part of its push in that city.
Meanwhile, Bank of America Chief
Executive Brian Moynihan is “push-
ing” his teams to “do more loans,”
he told investors in December.
In Nashville, J.P. Morgan became a
lead sponsor of a prominent Nashville
Chamber of Commerce initiative to
recruit new firms and help local com-
panies expand. Ms. Maynard attended
Rotary Club meetings and gained a
seat on the chamber’s International
Business Council, one of nine non-
profits across the state in which J.P.
Morgan now has a leadership role.
Last October, Ms. Maynard threw
a tailgate party before a football
game pitting hometown Vanderbilt
University against the University of
Florida. When she suggested the
bank invite clients from Knoxville, a
J.P. Morgan banker from that city re-
minded Ms. Maynard that no one in
Knoxville who roots for the home-
town University of Tennessee would
dare attend a Vanderbilt game.
“I should have seen that one
coming,” Ms. Maynard said. “Sadly,
Vanderbilt lost, but it was a heck of
a party. People had fun.”
After the Boom
Business loans outstanding at
U.S. banks and thrifts
$1.6 trillion
1.2
Q3: $1.45
0.8 trillion
0.4
0
2007 '08 '09 '10 '11 '12
Note: Business loans to commercial and industrial
customers
Source: Federal Deposit Insurance Corp.
The Wall Street Journal
J.P. Morgan’s rivals said they
aren’t going to give up without a
fight. Jim Schmitz, president of
middle Tennessee for Regions,
based in Birmingham, intends to
add more Nashville bankers at the
beginning of 2013. He said he would
try to recruit from rival banks if he
can find local lenders who can bring
“relationships with companies we
don’t already have.”
“The competition for people and
customers is as a fierce as I’ve ever
seen it,” he said.
Pinnacle already has hired away
one of the bankers who opened up
the initial J.P. Morgan office. Mr.
Turner, the bank’s 57-year-old CEO,
said he expects to increase Pinna-
cle’s loans by 37% over a three-year
period, to nearly $5 billion, by tak-
ing business from rivals. He has
hired 14 new bankers in anticipation
of that push.
“This is easily the most competi-
tive loan market I have ever been in,”
said Mr. Turner, citing a combination
of extended terms and low rates be-
ing offered to local companies.
J.P. Morgan isn’t immune to the
pricing pressures. Its commercial
bank loans were up 16% through the
end of the third quarter, but reve-
nue rose just 7%. Ms. Maynard said
J.P. Morgan refuses to buy “share
for the sake of buying share,” but
adds that “we certainly play to win.”
THE WALL STREET JOURNAL.
Traders Face Ebb in Currency Volatility
BY TOM LAURICELLA
The U.S. dollar lost ground
against the euro and many emerging-
market currencies but gained against
the yen in 2012, as markets were
buffeted by dueling efforts among
the world’s major central banks to
pour freshly minted money into their
economies.
As 2013 gets under way, investors
say there is little on the horizon to
suggest that the backdrop of unprec-
edented easy monetary policy will
change. And it is a force that many
traders say led to a quieting of price
swings in 2012 even as the global
economic backdrop remained unset-
tled.
As a result, a central debate is
whether the global tidal wave of li-
quidity will continue to mute volatil-
ity in the currency markets or
whether lingering economic imbal-
ances will once again flare up, lead-
ing to the kinds of price swings that
have been commonplace since 2008.
John Normand, head of global
foreign-exchange strategy at J.P.
Morgan Securities in London, said
central banks will continue to act as
a wet blanket.
“We’re looking at a market which
is much less stressed and which
presents fewer trading opportuni-
ties,” Mr. Normand says. “It makes
2013 a much more challenging year”
for returns.
But Matthew Alexy, a director for
global foreign-exchange sales at TD
Securities, says that calm masks
“some pretty significant imbalances
in the global economic environment.”
That lack of volatility, in which read-
After a Wild Year,
It’s Time For a
Sober Look at Risk
Continued from page 17
differentiating factor for the global
economy this year.
U.S. economists love to draw up
long lists of “headwinds” (things
like Washington policy stalemate,
lack of household income growth
and lackluster consumer confi-
dence) and “tailwinds” (a recover-
ing housing market, an improving
trade balance, the energy revolution
and the like).
But the fundamental issue cen-
ters on the ability of the superloose
monetary policy pursued by the
Federal Reserve to stimulate con-
sumers’ demand for goods and
services, and companies’ desire to
invest and hire. Without those ele-
ments, the U.S. economic recovery
will remain sluggish, patchy and
fragile even if politicians fill the fis-
cal policy vacuum of the past few
years.
As for relative valuations, inves-
tors and strategists are stuck in a
paradox: Many experts agree that in
the long run, bonds will yield lower
returns than in previous decades,
but few are prepared to bet that
stocks and other asset classes will
do better in the short term.
Mathematics and common sense
suggest that with bond yields at re-
cord lows and the likelihood of in-
terest rates rising at some point,
fixed income isn’t an investment for
the ages. In fact, the riskier parts of
the bond market so beloved by fund
Wednesday, January 2, 2013 | 23
YEAR-END REVIEW & OUTLOOK
make a currency less attractive to
Calmer Seas hold.
Stimulus efforts by major central banks muted currencies’ price swings in 2012, even as the global economic backdrop Shinzo Abe, the new Japanese
remained unsettled. prime minister, has pressured the
central bank to undertake “unlim-
Number of dollars one euro buys How many yen one dollar buys U.S. dollar vs. other currencies ited” monetary easing to revive the
$1.40 ¥90 PCT. CHANGE IN US$ economy and has asked his cabinet
2012: 2012: to produce a budget with trillions of
IN 2012 DEC. 31, 2012
1.81% to $1.3195 12.8% to ¥86.75
yen in stimulus spending. A weaker
1.35 85 Australian dollar  1.8% $1.0393
yen would boost exports by lowering
British pound  4.5% $1.6246 the cost of Japanese-produced goods
1.30 80 in global markets.
Canadian dollar  2.8% $1.0073 The dollar finished 2012 at
¥86.75, up 13%.
1.25 75 Mexican peso  8.5% $0.0778
“The Japanese will have an easier
time of weakening the yen against
Swiss franc  2.4% $1.0926
1.20 70 the dollar in 2013, but it’s not going
'12 '12 to be a completely easy task,” Mr.
Source: WSJ Market Data Group The Wall Street Journal Normand says. While the Bank of Ja-
pan can ramp up its monetary-policy
easing efforts, “the problem is that
ings of currency-price swings have range since it was introduced in the latter part of 2013 to $1.34. the Fed is also pushing rates down,”
hit levels last seen before the finan- 1999, spending all of 2012 between While the ECB has cut rates and he says. As a result, the yen may not
cial crisis, is “something that is go- $1.2060 and $1.3462. pumped money into the financial slide far against the dollar, but could
ing to have to give,” he says. In the end, the euro finished 2012 markets by expanding the holdings weaken much in comparison to
The poster child for generally be- within shouting distance of where it on its balance sheet, compared with higher-yielding currencies, such as
calmed currency markets in 2012 had started against the dollar, gain- other major central banks, “the ECB the Australian dollar and those from
was the euro-dollar exchange rate. ing 1.8% to $1.3195. is the one that’s relatively tight,” he emerging markets.
On the one side of the equation, the Elsa Lignos, senior currency says. Mr. Normand says the ECB is in It was against those higher-yield-
U.S. economy expanded moderately, strategist at RBC Capital Markets in no rush to significantly ease policy ing currencies that the dollar lost
but the Federal Reserve rolled on London, doesn’t think 2013 will pro- further, which in turn should provide ground in 2012.
with monetary-policy easing that vide much more in the way of room support to the euro. The New Zealand dollar, a favor-
only became more aggressive as the to play the euro against the dollar. On the other side of the coin, the ite of global yield seekers in 2012,
year went on. That was largely offset If there is a bias, it could be dollar surged in late 2012 against a gained 6.2% against the U.S. dollar,
by lingering woes in debt-strapped slightly higher, in part because U.S. suddenly vulnerable Japanese yen. the Mexican peso rose 8.5% and Nor-
Europe and easier monetary policy money managers have been holding The Japanese currency slid in the fi- wegian krone rose 7.4%. The Austra-
from the European Central Bank. less in European bonds and stocks nal two months of the year amid ex- lian dollar, meanwhile, gained 1.7%
As a result, over the course of the compared with benchmark indexes. pectations that a new government against the U.S. dollar.
year, $1.30 was a virtual magnet for “In order for the euro to go down would push the Bank of Japan to be One exception was the Brazilian
the euro; there were only three further [against the dollar] we need more aggressive about easing mone- real. Thanks to successful efforts by
months in which at some point it to identify a fresh source of weak- tary policy by essentially printing the country’s government to fight
didn’t change hands at that rate. In ness,” she says. more yen. Investors often equate back against surging capital inflows,
addition, the currency was contained J.P. Morgan’s Mr. Normand thinks monetary easing with a weaker cur- the dollar gained 9.8% against the
to its second-narrowest trading the euro will slowly grind higher in rency, in part because lower rates real.
Agence France-Presse/Getty Images (left); Getty Images (below)
managers in 2012—high-yield debt,
mortgage-backed securities and
other structured products—are
even more exposed to rising rates.
When the CFA Institute, a global
association of investment profes-
sionals, polled more than 6,000
members about their 2013 outlook,
half of them said that stocks would
provide the best returns this year,
up from 41% last year. Only 8%
chose bonds.
But the economic uncertainty
and the potential for external
shocks such as a big conflagration
in the Middle East, a banking fail-
ure in Europe or a crisis in China’s
wobbly financial sector are keeping risk of future inflation by buying
many fund managers and individual gold.
investors from plunging headlong On paper, these steady-as-she-
into stocks. goes strategies are sensible. But
In a recent note to clients, Bruce they are unlikely to satisfy those
Bittles, chief investment strategist clients who demand results every
at Robert W. Baird & Co. describes quarter or small investors, pension
the dilemma this way: There is no funds and academic endowments
conclusive evidence yet that the that have suffered years of below-
bond markets’ stellar run is coming par returns.
to an end but “the historical pat- After a year marked by the ob-
tern…suggests it may be getting sessive search for yield, the invest-
long in the tooth.” ment Holy Grail for 2013 is hidden
His advice for 2013: “Investors in the murky gray zone between
should still focus on managing risks risk and return.
rather than chasing returns.” Happy hunting.
Fund managers’ paths to get to
that ill-defined goal vary. But most Francesco Guerrera is The Wall
seem to entail increasing exposure Street Journal’s Money & Invest-
to stocks while keeping a substan- ing editor. Write to him at: cur- Economic uncertainty, banking crises in Europe (top) and the potential of
tial part of portfolios in high-grade rentaccount@wsj.com and follow military conflict over Iran’s nuclear operations (bottom) are helping to keep
corporate bonds and hedging the him on Twitter: @guerreraf72. investors from diving into stocks.
24 | Wednesday, January 2, 2013
ECB Vow Could Bolster
Rally in Spain’s Bonds
BY TOMMY STUBBINGTON
The recent rally in Spanish and
Italian debt should have further to
run in 2013, as the European Cen-
tral Bank’s promise to backstop
some of the euro zone’s weaker bond
markets continues to tempt yield-
hungry investors.
The two countries were pulled
back from the brink of fiscal disaster
in the summer by the ECB’s promise
to buy their bonds if their govern-
ments ask for help. Despite lingering
uncertainty over when Spain in par-
ticular will make such a bailout re-
quest, bond-market analysts say the
ECB has done enough to bolster con-
fidence in Spanish and Italian debt
well into this year.
Yields on ultrasafe German gov-
ernment bonds, known as Bunds, re-
main close to record lows, leaving in-
vestors starved of income. This has
driven a surge in demand for debt is-
sued by the likes of France and Bel-
gium, which are considered riskier
than Germany but a surer bet than
the more fragile and volatile nations
like Italy and Spain.
German 10-year yields, at 1.31%,
aren’t far above record lows hit in
2012. The country’s two-year yield
remains in negative territory, having
sunk below zero as investors sought
the safety of the euro zone’s largest,
most-solid economy. French, Belgian,
and Austrian yields also plumbed re-
cord lows as buyers looked further
afield for extra returns.
Prosperous New Year? Unlikely in U.S. Treasurys
BY CAROLYN CUI
Economic and political uncer-
tainties continued to hang over the
markets, driving Treasury yields
down to the lowest levels in history
as investors clung to haven bets.
Treasurys returned a paltry 2%
for investors in 2012, far below an
average of 8% for the past three de-
cades, according to Barclays PLC.
Yet, investors kept plowing into
Treasurys and other fixed-income
investments, amid a slow economic
recovery in the U.S. and the pro-
longed debt crisis in Europe.
By the end of 2012, bond inves-
tors found themselves stuck in a
limbo: While a 30-year bull market
may be nearing an end, a bear mar-
ket isn’t ready to start. Bond inves-
tors watch the Treasury market, as
interest rates for all sorts of bonds
are based on Treasury yields.
During 2012, the $11 trillion
Treasury market began to show
signs of fatigue. Trading volumes
were down about 10% from 2011, de-
spite more debt issued. Volatility
also fell sharply in 2012 to its low-
est level in five years, according to
J.P. Morgan Chase & Co.
The yield on the 10-year Treasury
note, after plunging to an all-time
low of 1.404% in July, moved in a
narrow band for most of the year.
Bond prices move inversely to yields.
With rates at rock-bottom levels,
“most of the rally has run its course,”
Reuters
said Terry Belton, head of fixed-in-
come strategy at J.P. Morgan. Since
the onset of the financial crisis, inter-
est rates have dropped significantly,
as the Federal Reserve undertook a
series of aggressive monetary poli-
cies to boost the economy.
YEAR-END REVIEW & OUTLOOK
Now, with the ECB returning a
semblance of stability to markets,
bond investors are likely to turn
their attention to the much more
substantial yields offered by Spain
and Italy.
“In Europe, we prefer Italian and
Spanish bonds over debt of weaker
core countries,” BlackRock Invest-
ment Institute, a unit of the world’s
largest money manager by assets,
said in its outlook for 2013.
The timing of a Spanish aid re-
quest remains a source of investor
uncertainty. For now, the Spanish
government is in no hurry to seek
outside help, and a strong rally in
Spanish bonds since the summer
eased much of the pressure on
Madrid to do so. But the country re-
mains mired in recession, and some
analysts say its funding needs—and
the expected difficulty in finding
enough buyers—could force the issue
this year.
Strategists at UBS forecast bond
sales by Spain to rise to a record
€123.5 billion ($163 billion) in 2013.
For now, Spain has found buyers
on the strength of ECB President
Mario Draghi’s summer pledge to do
“whatever it takes” to save the euro,
which helped restore confidence. Its
benchmark 10-year yield has re-
treated to 5.23%, from a high of
7.67% in July, according to data from
Tradeweb. The equivalent Italian
yield has fallen to 4.49% from 6.67%
over the same period.
Many analysts think yields re-
The Federal Reserve, led by Ben Bernanke, moved aggressively in 2012.
The 10-year Treasury yield fell to
1.759% at the end of 2012, just 0.119
percentage point below a year earlier.
main too high given the diminished
risk of full-blown calamity in the
euro zone. Interest-rate strategists at
RBC Capital Markets, for example,
say Spanish yields are high enough
to cushion buyers against potential
losses.
Any surge in yields, threatening
Spain with a loss of market access,
would likely trigger an aid request,
unlocking ECB buying. Therefore, the
majority of analysts foresee at most
a temporary spike in yields.
Among those are strategists at
German bank Commerzbank, who
expect the government to seek aid
early this year. The 10-year yield
should fall below 4.5% once ECB
bond-buying kicks in, they add.
“By midyear Draghi will be
cheered as the man who saved the
euro,” the strategists said.
Another risk, particularly in
Spain, are the credit-rating firms.
Moody’s Investors Service made
clear in October that the prospect of
ECB intervention was crucial in its
decision to leave Spain clinging to its
investment-grade rating. Too much
delay in asking for aid could spur
Moody’s—or one of the other major
ratings firms—to slash Spain’s rating
to “junk” status, and see its bonds
slide from major indexes. If that
were to happen, many investors who
track these benchmarks would find
themselves forced to sell Spanish
debt.
Mindful of this downgrade risk,
analysts at BNP Paribas say they
Such ultralow interest rates con-
tinued to force some investors to
look for higher yields by getting into
Edging Closer
Yields on the 10-year government bonds of the
major euro-zone economies fell during 2012.
8%
6
5
4 4.491%
3
2 1.987%
1
0
J F M A M J J A
Source: Tradeweb
prefer Italian bonds to their Spanish
counterparts, despite a debt load
that is one of the highest in Europe
and February elections that are ex-
pected to be a referendum on con-
troversial austerity measures. They
have a positive outlook for lower-
rated euro-zone debt in general, as
investors continue to hunt for yield.
That should narrow the yield pre-
mium over “core” countries, they
said.
This easing of tensions should
help yields in Germany and other
safe-harbor countries to climb fur-
riskier assets such as corporate
bonds and taking on more leverage.
“Those are the typical signs of a late-
stage bull market,” Mr. Belton said.
Still, bond investors and analysts
are reluctant to call the start of a
bear market. Investors’ confidence
in stocks was shaken by the finan-
cial crisis, and many still prefer
keeping assets in less-risky assets
like bonds or even cash. During the
first three quarters, foreign central
banks, investment funds and house-
holds all increased their holdings of
Treasurys, according to the latest
government data.
“They feel the fear trade was
better,” said James Swanson, chief
investment strategist at MFS Invest-
ment Management, which oversees
$310 billion in assets.
These investors also felt assured
with the Fed on their side. Follow-
ing its December meeting, the U.S.
central bank announced its plan to
continue buying bonds and keep in-
terest rates low until the unemploy-
ment rate drops below 6.5%. “We’re
still quite a ways away from” that
target, Mr. Belton said. The U.S. job-
less rate stood at 7.7% in November.
In 2013, bond investors will keep
a close tab on the U.S. labor market.
At the current rate of job
growth, Mr. Swanson of MFS ex-
pects unemployment to drop below
7% by December 2013, when wage
inflation will start to kick in. Wages
account for half of the consumer
prices. Typically, higher inflation ex-
pectations will drive up yields.
When yields start to rise, bond
prices will drop precipitously. “Peo-
ple don’t know how scary the bond
market can be,” Mr. Swanson said.
In his asset-allocation portfolio, Mr.
THE WALL STREET JOURNAL.
SPAIN
5.222%
ITALY
FRANCE
GERMANY
1.313%
S O N D
The Wall Street Journal
ther from the depths of 2012, push-
ing down bond prices, despite wide-
spread predictions the 17-member
euro zone will remain in recession in
the coming year.
Ten-year Bund yields should
reach 1.6% to 1.8% in the first quarter
of 2013, and around 2.25% by the
end of the year, according to
Deutsche Bank.
“The backstops in place should
increase the resilience of the euro-
zone bond market against [likely]
further shocks,” the bank’s interest-
rate strategists said.
Swanson is now underweight Trea-
surys and overweight emerging-
market debt and U.S. value stocks.
His rationale: The business cycle is
stronger than people think, and an
improving housing market will drive
the economy upward.
Some analysts and investors ar-
gue that the day of reckoning is still
way ahead. Barclays’ analysts cited
a sizable fiscal tightening and strin-
gent bank regulation among the me-
dium-term headwinds preventing
rates from moving up.
The healing process for the labor
market may take longer than ex-
pected. Analysts point to a recent
material deceleration of hourly wage
growth, which is now below the in-
flation rate.
In the absence of an uptick in
hourly wage growth, the labor mar-
ket would require payroll numbers to
rise faster than the current pace to
generate stronger income growth,
said Ajay Rajadhyaksha, Barclays’s
head of rates and securitized prod-
ucts research. To have inflation be-
come a concern for the bond market,
“I think you have to have wage infla-
tion go up first,” he said.
“If that slack goes away, that’s
really the key ingredient that will
trigger the eventual sustained bear
market in bonds,” J.P. Morgan’s Mr.
Belton said.
Interest rates this year are ex-
pected to stay close to current lev-
els, with some gyrations in the first
quarter depending on the outcome
of the “fiscal cliff” negotiations.
“I’m afraid it’s the beginning of a
very dull market,” said David Ader,
head of government bond strategy
at Stamford, Conn.-based CRT Capi-
tal Group LLC.
THE WALL STREET JOURNAL. Wednesday, January 2, 2013 | 25

MARKETS

Optimism Reigns for Japanese Shares

BY BRAD FRISCHKORN 12% against the euro since Nov. 14 more of daily trading on the Tokyo way, including cuts to pension bene-
as market participants bet that Mr. On the Rise Stock Exchange. fits and a staggered increase in the
TOKYO—Encouraged by promises Abe’s Liberal Democratic Party Aggressive easing of monetary national consumption tax, Mr. Eadon-
Daily index closes of Tokyo Topix
of strong action by Japan’s new gov- would come back to power. The dol- policy by the Bank of Japan should Clarke noted. “Politicians now have a
ernment to weaken the yen, end de- lar was quoted late Monday in New 900 Dec. 28: 859.8 theoretically also work to inflate as- strong incentive to introduce policies
flation and introduce structural York at ¥86.74, its highest level in set prices—including for real estate to stoke more GDP growth,” he said.
overhauls, market experts are gener- nearly 2½ years. 850 and stocks—and fuel loan demand. This optimistic scenario has its
ally bullish on Japanese equities for A cheaper yen relative to the Ko- “The setting of an inflation tar- detractors, however, including those
2013 after the market surged nearly rean won is also seen as critical be- get of 1% to 2% by the Bank of Japan who note that Mr. Abe’s first stint
800
20% in the last six weeks of trading. cause Japan and South Korea compete should not be infeasible,” said David as premier in 2006 lasted barely a
For all of 2012, the Nikkei Stock in key industries such as autos and Herro, the Chicago-based chief in- year. Remaining in the job is diffi-
Average rose 23%, its best perform- electronics, making a stronger yen a 750 vestment officer at Harris Associ- cult, making it hard for prime minis-
ance since 2005, while the broader big obstacle for Japanese producers. ates. “Japan desperately needs to re- ters to take radical action. The
Topix index was up 18%. Based on “A weaker yen would be a pow- 700 verse its deflationary spiral, and prime ministership has changed
projections from seven brokerages, erful tool for escaping from defla- October November December this is the single best way to do it.” hands six times in the last six years.
the Topix index is forecast to climb tion as it would improve the com- Source: SIX Financial Mr. Abe has pushed for a 2% tar- Profit-taking could also stifle the
7% in 2013. petitiveness of Japanese exports, The Wall Street Journal get, but the central bank has yet to market if jitters worsen over the
Politics have everything to do leading to expanded earnings and act. U.S. budget, or if the LDP backtracks
with the optimism: Almost all of the higher share prices,” said Daiwa Re- While aggressive monetary easing on key policy goals.
gains came after snap elections were search strategist Kazuhiro Miyake. Strategists almost uniformly and setting higher inflation targets “It’s tempting to take some
called in mid-November. The new “The resulting upturn in consumer agree that Japanese shares remain are relatively quick fixes, their effects money off the table in stocks like
government under Prime Minister and corporate sentiment would en- undervalued and underexposed to alone probably won’t be enough to Nomura Holdings that have run up
Shinzo Abe, which swept to power in able the economy to rebound.” international investors. “Japan is lure the kind of foreign capital so much,” said Naoki Fujiwara, a
a mid-December parliamentary elec- Hiromichi Tamura, a strategist at the only major market where price- needed for a longer-term recovery in fund manager at Shinkin Asset Man-
tion, is pushing the normally cautious Nomura Securities, expects gains of to-book ratios still stand near 2008 equity prices, some traders say. agement. “But we’re standing pat on
Bank of Japan to embark on aggres- at least 15% for both the Nikkei and crisis levels, while dividend yields Structural economic overhauls core exporters such as Toyota Mo-
sive monetary easing and to set a 2% the Topix in 2013. “With earnings at are more than triple 10-year govern- are the best hope for a sustained tor Corp. and Canon Inc.”
inflation target, up from 1% currently. Japanese companies still about 40% ment-bond yields,” notes Kathy Mat- bull market, as Japan’s experience in Adam Fisher, chief investment
Japan has been suffering nearly two below pre-financial-crisis levels, sui, chief equity strategist for Japan 2005 and 2006 illustrated, said Peter officer at Los Angeles-based hedge
decades of deflation; most measures there is considerable scope for re- at Goldman Sachs. Eadon-Clarke, an analyst at Macqua- fund Commonwealth Opportunity
of inflation are now around zero. covery,” Mr. Tamura said. With Japan currently under- rie Equities Research, referring to Capital, remains skeptical. “Consid-
Expectations for greater easing He expects that corporate earn- weight in many major international the efforts of Junichiro Koizumi, Ja- ering the kind of massive effort the
have helped to push the yen lower, ings per share would rise as much equity funds, a fundamental re- pan’s prime minister at the time. Mr. BOJ needs to make, I’m pessimistic,”
providing relief for the country’s ex- as 20% from a year earlier if the weighting could potentially pour Koizumi is credited with pushing Mr. Fisher said. “After so many
porters and propelling the market dollar is at around ¥80, and that the tens of billions of dollars back into through changes to Japan’s tax, reg- years of merely hoping for change, I
higher. The yen has lost more than gain would be 30% if the dollar rises Japanese stocks, she said. Foreign ulatory and financial systems. need to see follow-through before I
8% against the dollar and more than to ¥90. investors account for two-thirds or Some changes are already under become a believer.”

Data provided by:

Advertisement INTERNATIONAL INVESTMENT FUNDS

NAV —%RETURN— NAV —%RETURN— NAV —%RETURN— NAV —%RETURN—
FUND NAME GF AT LB DATE CR NAV YTD 12-MO 2-YR FUND NAME GF AT LB DATE CR NAV YTD 12-MO 2-YR FUND NAME GF AT LB DATE CR NAV YTD 12-MO 2-YR FUND NAME GF AT LB DATE CR NAV YTD 12-MO 2-YR

n ALEXANDRA INVESTMENT MANAGEMENT GH FUND S EUR OT OT CYM 12/14 EUR 140.48 5.2 5.8 2.2 Pictet-Asian Eq ExJpn-I USD OT OT LUX 12/31 USD 190.34 16.9 16.9 -2.1 MENA UCITS Fund OT OT IRL 12/20 USD 1037.29 11.8 11.1 -2.1
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OT OT ARE 12/20 AED 5.10 18.0 15.9 0.5
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GH Fund USD OT OT GGY 12/14 USD NS.00 4.6 5.1 1.1 Pictet-Conv. Bonds-P EUR OT OT LUX 12/28 EUR 96.34 6.4 6.2 -4.6
Hedge Investments OT OT GGY 07/20 USD NS.00 1.3 -2.9 2.5 Pictet-Digital Comm-P USD OT EQ LUX 12/28 USD 145.28 10.9 11.8 1.7
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MultiAdv Arb GBP Hdg OT OT JEY 12/14 GBP NS.00 4.3 4.2 0.6 Pictet-EUR Bonds-Pdy EU BD LUX 12/28 EUR 306.09 13.7 13.9 7.5
n BANC INTERNACIONAL D'ANDORRA. BANCA MORA.
MultiAdv Arb S EUR OT OT JEY 12/14 EUR 118.41 5.3 5.2 1.8 Pictet-EUR Corporate Bonds-P EU BD LUX 12/28 EUR 172.81 14.3 14.6 6.3
Avgd. Meritxell 96, Andorra la Vella. Andorra. Ph. +376.884884 www.bibm.ad MultiAdv Arb S GBP OT OT JEY 12/14 GBP 124.60 5.7 5.6 2.0 Pictet-EUR Corporate Bonds-Pdy EU BD LUX 12/28 EUR 104.76 14.2 14.5 6.3
Andfs. Anglaterra UK EQ AND 11/16 GBP 8.47 2.8 3.6 14.9
Andfs. Borsa Global GL EQ AND 12/27 EUR 5.92 4.5 4.5 -5.5 MultiAdv Arb S USD OT OT JEY 12/14 USD 135.34 5.6 5.5 1.9 Pictet-EUR High Yield-P EU BD LUX 12/28 EUR 198.51 25.5 25.6 7.8 n YUKI MANAGEMENT & RESEARCH
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Andfs. Plus Dollars US BA AND 10/22 USD 9.66 2.3 3.0 6.2 Emerg AdvantEdge EUR OT EQ JEY 09/28 EUR 82.99 2.8 -3.0 -5.9 Pictet-Indian Equities-P USD EA EQ LUX 12/31 USD 308.21 23.3 23.3 -15.0
Andfs. RF Dolars US BD AND 12/27 USD 12.21 5.4 5.6 1.8 Europ AdvantEdge EUR OT EQ JEY 06/30 EUR 127.84 -3.4 -1.3 2.2 Pictet-Japan Index-P JPY JP EQ LUX 12/31 JPY 8731.55 21.2 21.2 -1.0 Yuki 77 General JP EQ IRL 12/28 JPY 5268.00 13.4 15.0 -4.5
Andfs. RF Euros EU BD AND 12/27 EUR 11.56 4.8 4.9 2.9 Europ AdvantEdge USD OT EQ JEY 06/30 USD 135.07 2.0 4.3 5.1 Pictet-Japanese Eq Opp-P JPY JP EQ LUX 12/31 JPY 4743.25 21.6 21.6 1.8
Andorfons EU BD AND 12/27 EUR 15.28 5.2 5.5 3.2 JEY
Pictet-Japanese Eq Sel-I JPY JP EQ LUX 12/31 JPY 7900.76 21.6 21.6 -0.2 n Yuki Asia Umbrella Series
Real AdvantEdge EUR OT OT 04/30 EUR 104.69 1.3 -9.5 -1.9
Andorfons Alternative Premium GL EQ AND 10/31 EUR 93.01 -0.3 -1.4 -2.9 Pictet-Japanese Eq Sel-P JPY JP EQ LUX 12/31 JPY 7520.58 20.9 20.9 -0.8
Real AdvantEdge USD OT OT JEY 04/30 USD 105.31 1.5 -8.8 -1.7 Yuki Rebounding Gro Fd JP EQ IRL 12/28 JPY 9157.00 12.9 14.3 NS
Andorfons Mix 30 EU BA AND 12/27 EUR 9.83 5.4 5.6 0.0 Pictet-Pac (ExJpn) Idx-P USD AS EQ LUX 12/31 USD 342.57 24.7 24.7 4.1
Trading AdvantEdge OT OT GGY 12/14 USD 144.17 -4.0 -4.1 -1.9 Pictet-Piclife-P CHF OT OT LUX 12/28 CHF 833.04 8.2 8.6 2.4
Andorfons Mix 60 EU BA AND 12/19 EUR 8.96 4.4 7.1 -2.5 Trading AdvantEdge EUR OT OT GGY 12/14 EUR 130.33 -4.1 -4.2 -1.8 n Yuki Chugoku Series
Pictet-Premium Brands-P EUR OT EQ LUX 12/28 EUR 103.79 19.0 19.9 4.7
Trading AdvantEdge GBP OT OT GGY 12/14 GBP 139.15 -3.7 -3.8 -1.7 Pictet-Russian Equities-P USD EE EQ LUX 12/28 USD 65.62 16.1 15.4 -10.2
n CG Portfolio Fund Ltd Yuki Chugoku Jpn Gen JP EQ IRL 12/28 JPY 6198.00 14.7 16.4 -3.9
NAV OT OT CYM 12/14 GBP 25249.51 6.6 6.7 8.8 Pictet-Security-P USD GL EQ LUX 12/28 USD 130.82 14.5 15.7 1.7 Yuki Chugoku JpnLowP JP EQ IRL 12/28 JPY 6417.00 2.7 3.6 -9.4
n HSBC Trinkaus Investment Managers SA Pictet-Short-T Money Mkt CHF-P CH MM LUX 12/28 CHF 124.29 0.0 0.0 0.1
n CHARTERED ASSET MANAGEMENT PTE LTD - TEL NO: 65-6835-8866 E-Mail: funds@hsbctrinkaus.lu Pictet-Short-T Money Mkt CHF-P dy CH MM LUX 12/28 CHF 91.22 0.0 0.0 0.1 n Yuki Hokuyo Japan Series
Fax No: 65-6835 8865, Website: www.cam.com.sg, Email: cam@cam.com.sg Telephone: 352 - 47 18471 Pictet-Short-T Money Mkt EUR-P OT OT LUX 12/28 EUR 137.80 0.2 0.2 0.5 Yuki Hokuyo Jpn Gen JP EQ IRL 12/28 JPY 4116.00 15.3 16.6 -2.3
CAM-GTF Limited OT OT MUS 12/21 USD 396660.89 29.1 29.4 -1.9 HSBC Trinkaus Golden Opportunities OT OT LUX 12/27 USD 130.30 3.9 -0.8 -3.2 Pictet-Short-T Money Mkt EUR-Pdy OT OT LUX 12/28 EUR 95.60 0.2 0.2 0.5 Yuki Hokuyo Jpn Inc JP EQ IRL 12/28 JPY 4722.00 13.5 14.7 -3.3
Prosperity Return Fund A JP BD LUX 12/17 JPY 9464.94 10.5 9.8 -0.3 Pictet-Short-T Money Mkt USD-P OT OT LUX 12/28 USD 132.07 0.4 0.4 0.3 Yuki Hokuyo Jpn Sm Cap JP EQ IRL 12/28 JPY 5215.00 25.8 27.8 3.1
n Citadele Prosperity Return Fund B OT OT LUX 12/17 JPY 8447.62 22.7 19.8 -0.3 Pictet-Short-T Money Mkt USD-P dy OT OT LUX 12/28 USD 84.32 0.4 0.4 0.3
Republikas square 2a, Riga, LV-1522, Latvia Prosperity Return Fund C OT OT LUX 12/17 USD 90.40 13.7 11.4 0.5 Pictet-Small Cap Europe-P EUR EU EQ LUX 12/28 EUR 624.74 27.0 27.5 2.0 n Yuki Mizuho Series
Citadele Eastern Europ Bal EU BD LVA 12/27 EUR 16.20 16.0 16.3 1.0 Prosperity Return Fund D OT OT LUX 12/17 EUR 134.01 26.6 27.8 12.6 Pictet-Sov. ST Money Mkt-P EUR OT OT LUX 12/28 EUR 102.87 -0.1 -0.1 0.2 Yuki Mizuho Gen Jpn III JP EQ IRL 12/28 JPY 3219.00 -3.9 -2.8 -11.0
Citadele Eastern Europ Bd EU BD LVA 12/27 USD 19.81 15.0 15.2 7.0 Renaissance Hgh Grade Bd A JP BD LUX 12/17 JPY 10404.61 18.1 17.8 2.9 Pictet-Sov. ST Money Mkt-P USD OT OT LUX 12/28 USD 101.94 0.2 0.2 0.1 Yuki Mizuho Jpn Dyn Gro JP EQ IRL 12/28 JPY 3750.00 12.5 14.1 -7.3
Citadele Russian Eq EE EQ LVA 12/27 USD 22.47 16.9 15.2 -7.8 Renaissance Hgh Grade Bd B JP BD LUX 12/17 JPY 9198.54 29.0 26.5 2.6 Pictet-Sov. ST Money Mkt-Pdy EUR OT OT LUX 12/28 EUR 99.95 -0.1 -0.1 0.2 Yuki Mizuho Jpn Exc 100 JP EQ IRL 12/28 JPY 6159.00 15.6 17.0 -1.8
Renaissance Hgh Grade Bd C JP BD LUX 12/17 USD 97.84 19.5 17.7 3.3 Pictet-Sov. ST Money Mkt-Pdy USD OT OT LUX 12/28 USD 99.95 0.2 0.2 0.1 Yuki Mizuho Jpn Gen JP EQ IRL 12/28 JPY 7688.00 11.0 12.5 -5.3
n DJE INVESTMENT S.A. Renaissance Hgh Grade Bd D JP BD LUX 12/17 EUR 107.96 16.7 18.5 3.4 Pictet-Timber-P USD GL EQ LUX 12/28 USD 130.35 28.3 29.9 5.2 Yuki Mizuho Jpn Gro JP EQ IRL 12/28 JPY 5352.00 9.3 11.2 -7.5
internet: www.dje.lu email: info@dje.lu phone:+00 352 269 2522 0 fax:+00 352 269 25252 Pictet-USA Index-P USD US EQ LUX 12/28 USD 117.92 12.8 13.6 6.8 Yuki Mizuho Jpn Inc JP EQ IRL 12/28 JPY 6955.00 12.5 13.8 -3.8
DJE Real Estate P OT OT LUX 12/28 EUR 5.12 -4.7 -4.6 -8.2 Pictet-USD Government Bonds-P US BD LUX 12/28 USD 594.87 2.5 2.7 5.9 Yuki Mizuho Jpn Lg Cap JP EQ IRL 12/28 JPY 4386.00 13.0 14.2 -6.1
DJE-Absolut P OT OT LUX 12/28 EUR 234.58 16.5 16.7 0.8 Pictet-USD Government Bonds-Pdy US BD LUX 12/28 USD 390.79 2.5 2.7 5.9 Yuki Mizuho Jpn LowP JP EQ IRL 12/28 JPY 10167.00 9.1 9.7 -5.4
DJE-Alpha Glbl P OT OT LUX 12/28 EUR 172.13 9.6 9.4 -5.8 Pictet-Water-P EUR OT OT LUX 12/28 EUR 166.06 12.9 13.7 4.1 Yuki Mizuho Jpn PGth JP EQ IRL 12/28 JPY 6257.00 11.2 12.8 -7.5
DJE-Div& Substanz P EU EQ LUX 12/28 EUR 253.01 13.9 14.5 1.1 Pictet-World Gvt Bonds-P USD OT OT LUX 12/28 USD 187.10 1.5 2.2 4.6 Yuki Mizuho Jpn SmCp JP EQ IRL 12/28 JPY 6820.00 19.2 20.5 -0.7
DJE-Gold&Resourc P OT EQ LUX 12/28 EUR 170.27 -7.5 -8.2 -15.5 Pictet-World Gvt Bonds-Pdy USD OT OT LUX 12/28 USD 141.04 1.5 2.2 4.6 Yuki Mizuho Jpn Val Sel AS EQ IRL 12/28 JPY 5090.00 18.0 19.5 -4.5
DJE-Renten Glbl P EU BD LUX 12/28 EUR 151.19 9.4 9.7 4.9
n POLAR CAPITAL PARTNERS LIMITED
LuxPro-Dragon I AS EQ LUX 07/20 EUR 144.57 -8.5 5.0 7.6 n MP ASSET MANAGEMENT INC.
LuxPro-Dragon P AS EQ LUX 07/20 EUR 140.29 -8.8 4.4 7.0 International Fund Managers (Ireland) Limited PH - 353 1 670 660 Fax - 353 1 670 1185
Tel: + 386 1 587 47 77 Global Technology OT EQ IRL 12/28 USD 17.03 9.7 9.4 -2.3
LuxTopic-Aktien Europa EU EQ LUX 12/28 EUR 19.38 16.3 17.0 3.7 MP-BALKAN.SI EE EQ SVN 08/12 EUR 19.29 -1.9 -8.4 -10.9
LuxTopic-Pacific OT OT LUX 12/28 EUR 21.25 23.4 24.3 0.1 Japan Fund USD JP EQ IRL 12/28 USD 17.84 4.4 7.1 -1.4
MP-TURKEY.SI OT OT SVN 12/28 EUR 48.62 57.0 59.3 2.4
Polar Healthcare Class I USD OT EQ IRL 12/28 USD 17.95 23.5 23.7 15.6 n OTHER FUNDS
Polar Healthcare Class R USD OT EQ IRL 12/28 USD 17.69 23.0 23.3 15.1 For information about these funds, please contact us on Tel: +44 (0) 207 842 9694/9633
n HERMITAGE CAPITAL MANAGEMENT LTD. Medinvest Plc Dublin OT EQ IRL 09/30 USD NS.00 NS 1.3 -4.4
Tel: +7501 258 3160 www.hermitagefund.com n Hemisphere Management (Ireland) Limited
The Hermitage Fund GL EQ JEY 03/12 USD 963.12 4.5 105.6 -23.2
Discovery USD A GL OT CYM 12/31 USD 101.35 NS NS NS n WINTON CAPITAL MANAGEMENT LTD
Elbrus USD A OT OT CYM 10/31 USD 10.48 NS NS NS Tel: +44 (0)20 7610 5350 Fax: +44 (0)20 7610 5301
n HORSEMAN CAPITAL MANAGEMENT LTD. Winton Evolution EUR Cls H GL OT CYM 11/30 EUR NS.00 -9.6 -7.2 -1.5
Europn Conviction USD B EU EQ CYM 12/07 USD 155.30 6.6 5.6 6.7
T: +44(0)20 7838 7580, F: +44(0) 20 7838 7590, www.horsemancapital.com Europn Forager USD B EU EQ CYM 11/30 USD 278.27 10.6 10.4 7.4 Winton Evolution GBP Cls G GL OT CYM 11/30 GBP NS.00 -9.3 -6.8 -1.5
Horseman EurSelLtd EUR EU EQ GBR 11/30 EUR 252.32 26.7 23.8 8.2
GBR
n MERIDEN GROUP Latin America USD A GL EQ CYM 06/30 USD NS.00 NS NS NS Winton Evolution USD Cls F GL OT CYM 11/30 USD NS.00 -9.5 -7.1 -1.6
Horseman EurSelLtd USD EU EQ 11/30 USD 252.32 17.5 15.0 5.0 Paragon Limited USD A EU EQ CYM 12/31 USD NS.00 12.7 12.7 14.2
Horseman Glbl Ltd EUR GL EQ CYM 11/30 USD 440.47 16.1 16.9 4.9
Tel: + 376 741 175 Fax: + 376 741 183 Email: meriden@meriden-ipm.com Winton Futures EUR Cls C GL OT VGB 11/30 EUR 228.05 -4.9 -3.3 2.6
Antanta Combined Fund EE EQ AND 12/28 USD 262.59 -14.5 -13.8 -22.3 UK Fund USD A OT OT CYM 04/13 USD 157.94 1.8 NS NS Winton Futures GBP Cls D GL OT VGB 11/30 GBP 247.25 -4.6 -3.0 2.6
Horseman Glbl Ltd USD GL EQ CYM 11/30 USD 440.47 16.1 16.9 4.9 VGB
Antanta MidCap Fund EE EQ AND 12/28 USD 398.87 -18.5 -15.6 -32.6 Winton Futures JPY Cls E GL OT 11/30 JPY 15834.65 -5.4 -4.0 1.7
n PT CIPTADANA ASSET MANAGEMENT VGB
n HSBC ALTERNATIVE INVESTMENTS LIMITED Meriden Opps Fund GL OT AND 12/26 EUR 25.35 -11.3 -11.4 -24.4 Winton Futures USD Cls B GL OT 11/30 USD 809.62 -4.8 -3.3 2.4
Tel: +6221 25574 883 Fax: +6221 25574 893 Website: www.ciptadana-asset.com
T +44 20 7860 3074 F + 44 20 7860 3174 www.hail.hsbc.com Meriden Protective Div GL EQ AND 11/24 EUR NS.00 -2.8 NS NS Indonesian Grth Fund GL EQ BMU 12/19 USD 179.08 -0.5 -0.2 -0.1
HSBC ALTERNATIVE STRATEGY FUND
Special Opp EUR
Special Opp Inst EUR
Special Opp Inst USD
OT
OT
OT
OT
OT
OT
GGY
GGY
GGY
12/14
03/31
12/14
EUR
EUR
USD
NS.00
88.51
NS.00
16.5
0.7
17.8
17.5
-0.3
19.0
6.2
13.3
7.2
INDICES
Special Opp USD OT OT GGY 12/14 USD NS.00 17.0 18.1 6.5 NAV ——————%RETURN ——————
FUND NAME GF DATE CR NAV 1-WK 1-MO 1-Q 1-YR 2-YR
n HSBC Portfolio Selection Fund
GH Fund CHF Hdg OT OT GGY 12/14 CHF NS.00 3.7 4.1 0.0
GH Fund EUR Hdg (Non-V) OT OT GGY 12/14 EUR 127.83 4.1 4.5 NS n Pictet Funds (Europe) SA, ROUTE DES ACACIAS 60, CH-1211 GENEVA 73 n THE NATIONAL INVESTOR n ARIX ABSOLUTE RETURN INVESTABLE INDEX
GH Fund GBP Hdg OT OT GGY 12/14 GBP NS.00 4.6 5.1 1.1 PO Box 47435, Abu Dhabi, UAE Web:www.tni.ae Feri Institutional Advisors, www.feri.de
Tel: + 41 (58) 323 3000 Web: www.pictetfunds.com ARIX Composite Gross USD OT OT GBR 11/30.00 USD1461.41 3.9 3.9 0.7
GH Fund Inst USD OT OT GGY 12/14 USD NS.00 5.1 5.7 1.7 Pictet-Agriculture-P EUR OT OT LUX 12/28 EUR 145.76 12.4 13.0 -2.6 MENA Special Sits Fund OT OT BMU 11/29 USD 1035.69 5.0 5.8 -3.8
Data as shown is for information purposes only. No offer is being made by Morningstar, Ltd. or this publication. Funds shown aren’t registered with the U.S. Securities and Exchange Commission and aren’t available for sale to United States citizens and/or residents
except as noted. Prices are in local currencies. All performance figures are calculated using the most recent prices available. 12-month and 2-year returns may be calculated over 11- and 23-month periods pending receipt and publication of the last month end price.

For information about listing your funds, please contact: Lauren Berkemeyer tel: +44 20 7572 2102; email: lauren.berkemeyer@dowjones.com
26 | Wednesday, January 2, 2013
How Investors Should
Play 2013 Stock Picks
By Wall Street Analysts
BY BRETT ARENDS
As investors look into their
crystal balls and try to decide
which stocks to own in 2013, they
could always invest in the ones
most highly recommended by Wall
Street pros.
Or investors could just try flip-
ping a coin.
On Wall Street, unlike in high
school, popularity is no sure guide
to success.
The stocks that are most popu-
lar with financial analysts and in-
vestment managers often prove to
be poor investments. And those
that are the least popular often
turn out surprisingly well.
“The consensus is often wrong,”
says Lawrence Glazer, portfolio
manager at Mayflower Advisors, an
investment advisory in Boston with
$1 billion under management.
“There’s no better contrary indica-
tor than when a stock is loved by
Wall Street and Wall Street re-
search.”
Every year around this time, I
look at the stocks that started the
year with the highest ratings
among analysts who followed
them—the most “buy” recommen-
dations and the fewest “sells”—and
see how those picks did.
I also look at the stocks that
started the year with the lowest
ratings among analysts.
The information comes from
Thomson Reuters, which monitors
recommendations across the mar-
ket.
In theory, at least according to
the Wall Street marketing machine,
the stocks with the highest ratings
should outperform the overall mar-
ket by a country mile. The stocks
with the lowest ratings should do
very poorly.
This is, after all, what analysts
are paid for.
In 2012, let it be said, Wall
Street analysts had a good year. If
you had invested an equal amount
in their 10 favorite stocks a year
ago and reinvested the dividends,
you would have made an overall re-
turn of 19%. For example, power-
tool maker Snap-On gained 56%,
while pumps and valves company
Flowserve jumped 48%. Specialty
chemicals company FMC was rated
a “buy” by nine analysts and a
“sell” by just one. It rose 35%.
The return from the 10 most
popular stocks beat the 14% overall
return by the Standard & Poor’s
500-stock index.
Yet the stocks that began the
year least popular among analysts
didn’t do as badly as one might ex-
pect. As a group, they produced an
average investment return of 10%.
Several were spectacular perform-
ers: Movie-streaming company
Netflix gained 30%. Investment
company Federated Investors—
which had just two “buy” recom-
mendations among 15 analysts—
leapt 48%.
There is no clear pattern to how
analyst picks perform. In two of
the past five years, the least popu-
lar stocks—those which began each
year with the lowest rating among
analysts—handily outperformed
the most popular stocks. In two
Herd on the Street
Wall Street has a decidedly mixed record picking winners and losers.
Here are some of the top picks and pans for 2013.
PICKS
SLM (SLM)
Berkshire Hathaway (BRK.B)
Anadarko Petroleum (APC)
H&R Block (HRB)
Schlumberger (SLB)
Source: Thomson Reuters
other years, it was a virtual dead
heat.
Overall, buying the 10 most
popular stocks each year would
have brought you total losses of
11% over the past five years. Own-
ing an index fund that simply
tracked the S&P 500 instead would
have been much better, earning a
9% profit. And buying the 10 least
popular each year would have been
better still, earning 16%.
According to FactSet data, the
worst-performing stock in the S&P
500 this year has been educational
company Apollo Group, owner of
the online University of Phoenix.
The stock has tumbled 63%.
Yet of the 20 analysts who fol-
lowed the company a year ago, 12
recommended the stock as a “buy,”
while eight gave Apollo a neutral
“hold” rating. Not one recom-
mended selling the stock.
The worst-performing
stock in the S&P 500 in
2012 was Apollo Group.
None of the 20 analysts
who followed it a year ago
recommended selling.
Similarly, among 61 analysts
there were no “sell” ratings a year
ago for Cliffs Natural Resources,
Allegheny Technologies or New-
field Exploration. Investors had
losses of at least 30% on each of
those three stocks.
People who live outside the
bubble of Wall Street often find
this upside down. They are used to
a world where the best products
and services get the best reviews.
No one would go to a restaurant
panned by customers, or a movie
that earned a dismal 0% at review
website RottenTomatoes.com.
Yet on Wall Street, investors
step through the looking glass. The
first, quite often, shall be last, and
the last shall be first.
In a 2010 paper that ran in the
Accounting Review, which is pub-
lished by the American Accounting
Association, business professors
MARKETS
PANS
Netflix (NFLX)
Hormel Foods (HRL)
Hewlett-Packard (HPQ)
Molson Coors Brewing (TAP)
Waste Management (WM)
Michael Drake of Brigham Young
University and Lynn Rees and Ed-
ward Swanson of Texas A&M Uni-
versity examined the investment
performance of the most and least
popular stocks on Wall Street over
the period from 1994 to 2006.
Their conclusion: “Overall, follow-
ing the consensus analyst recom-
mendation does not generate posi-
tive abnormal returns for
investors, and in some periods can
actually generate significant nega-
tive returns.”
The reasons for this are embed-
ded in the system. Restaurants and
movies aren’t changed by their re-
views. Yet on Wall Street, positive
recommendations for a stock tend
to drive up the price. That makes it
a more expensive—and less attrac-
tive—investment.
Where there are many positive
reviews, the price often is driven
too high in relation to the risks
and likely returns.
On the other hand, where there
are few positive reviews, the price
often has fallen too low.
There are other problems.
Ten years ago, the Sarbanes-Ox-
ley Act cracked down on the most
obvious conflicts of interest, such
as investment banks effectively be-
ing paid by companies to churn out
positive recommendations. Yet
deeper and less obvious conflicts
remain. Analysts who go against
the herd—recommending the bar-
gain-basement stock of a company
in crisis, for example, or advising
clients to sell a highflier—face ca-
reer risks if the analysis turns out
to be wrong. They may also face a
backlash from any company for
which they issue a “sell” recom-
mendation.
As a result, just 5% of all ana-
lysts’ recommendations across the
S&P 500 are “sells,” according to
Thomson Reuters data.
Analyst research still be very
valuable. A good research report
can often show an enormous
amount of insight about a com-
pany’s fundamentals, risks, indus-
try challenges and opportunities.
The least valuable part of the note
is the actual recommendation.
There, as so often, investors are on
their own.
THE WALL STREET JOURNAL.
Dexia Spells Out
Plan to Wind Down
BY LAURENCE NORMAN lution, Paris and Brussels have also
frequently been at odds over how to
BRUSSELS—Franco-Belgian bank divvy up the costs of supporting it.
Dexia SA gave fresh details Monday Dexia on Monday also gave more
of its European Union-backed plan detail of the spinoff of Dexia Munici-
for winding down the bank, warning pal Agency, or DMA, an entity that
that its earnings would be hit by high refinances DCL’s loans to local and
borrowing costs and expenses related regional administrations by issuing
to asset sales. covered bonds.
On Friday, EU authorities gave French authorities plan to set up
their formal backing to the wind- a new financing program for the lo-
down of the bank, which received its cal public sector from Dexia’s ashes.
third bailout in four years last month DMA will be sold for one euro to
and is now largely a holding com- a new credit institution with the
pany for illiquid loans and sovereign French government holding 75%,
debt from troubled euro-zone coun- Caisse des Depots et Consignations
tries. Dexia nearly collapsed in Octo- France holding 20% and La Banque
ber 2011 as concerns about the euro Postale initially holding 5%.
zone left it unable to fund itself. The shareholders will provide the
In a news release Monday, Dexia necessary liquidity for the new
said the revised resolution plan ac- lender on completion of the sale, en-
cepted by the EU would give it a year abling DMA to repay outstanding
to sell its holdings in Popular Banca funding from DCL. Operational links
Privada and Sofaxis and either sell or between DMA and DCL will end after
wind down Dexia Bail Regions, Dexia six months.
Bail, Dexia LLD and Dexia Flobail. The plan is a major concession by
Dexia would also have 12 months to Paris, which is now directly and indi-
sell its Dexia Israel unit. rectly accepting complete financial
Most other units, including Dexia responsibility for DMA. Under the
SA itself, will be wound down over original resolution proposal, Dexia
time until all outstanding loans ma- would have had to retain responsibil-
ture. Belgium nationalized the do- ity for nearly a third of the costs.
mestic unit of the bank last year, re- DMA’s balance sheet, which was
naming it Belfius. €94.3 billion at the end of the third
Dexia said its municipal lending quarter, will be transferred to the
unit, Dexia Credit Local, will be al- new French lender, including the
lowed to grant new credits of up to non-French assets.
€600 million ($793 million) between Dexia also gave final details of the
2013-14 to reduce the overall riski- financial support it will receive in
ness of its loan portfolio. coming years. It confirmed the group
Dexia said with the planned asset will receive €85 billion in debt guar-
disposals, it will have a “robust” sol- antees first pledged in late 2011, with
vency base but that the group’s net Belgium guaranteeing 51.4%, France
income “will be impacted by excep- 45.6% and Luxembourg 3%. The guar-
tional elements in 2012 and 2013,” antees, which will come into force by
including the cost of asset sales and end of January, will cover funding
expensive funding. until the end of 2021 with a maxi-
Friday’s EU approval for the de- mum maturity of 10 years and will
leveraging plans ended a year of come with significant fees.
wrangling over Dexia’s future, in Dexia also confirmed Belgium will
which the commission has had to provide 53% of the €5.5 billion capi-
fight hard to force the price of failure tal injection the bank was promised
onto an institution that two national last month.
governments had considered impor- France will provide 47%. After the
tant to their respective economies. capital injection, the Belgian and
Besides fighting the commission French governments will hold 94.4%
over the dimensions of Dexia’s reso- of Dexia SA.
Fund Scorecard
Equity Market Neutral
These funds invest in offsetting long and short positions in equity securities. The funds
aim to avoid large market swings and provide absolute returns. Ranked on % total
return (dividends reinvested) in Euros for one year ending December 31, 2012
Leading 10 Performers
FUND FUND
RATING * NAME FUND MGM'T CO.
LEGAL
CURR. BASE YTD
% Return in $US **
1-YR 2-YR 5-YR
4 Wedbush Wedbush Equity USDUSA 17.04 36.88 12.64 NS
HedgedDividendFund,L.P. Management, LLC
NS DAFNA Dafna Capital USDCHI 21.91 26.70 14.33 10.14
LifeScienceMarketNeutralLtd Management LLC
2 Kobe Kobe Partners LP USDUSA 9.44 22.58 16.12 6.40
Partners LP
NS GAM Talentum Arkos Capital EURCYM 19.30 21.61 13.69 6.90
EnhancedEuropeL/SAEUR
2 Zacks Mkt Zacks Investment USDUSA 6.85 20.81 14.53 3.63
Neutral Management, Inc.
NS HiQ Invest HiQ Invest B.V. EURNLD 24.84 19.87 11.07 12.10
MarketNeutralFundAClass
NS Richland Richland Asset USDCYM 13.79 18.12 9.09 11.52
AsiaAbsoluteReturnFund Management Ltd
NS Oak Park Asset Direction USDUSA 12.18 17.82 2.05 3.50
MarketNeutralPartnersLP Incorporated
NS Parametrica Parametric Asset USDCYM 8.96 17.15 5.12 NS
Global Fund Ltd Management
NS DGHM Dalton, Greiner, USDCYM 11.91 16.35 4.11 1.65
Enhanced Value Ltd Hartman, Maher Co
NOTE: Changes in currency rates will affect performance and rankings. Source: Morningstar, Ltd
KEY: ** 2YR and 5YR performance is annualized 1 Oliver’s Yard, 55-71 City Road
NA-not available due to incomplete data; London EC1Y 1HQ United Kingdom
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Phone: +44 (0)203 107 0038; Fax: +44 (0)203 107 0001
THE WALL STREET JOURNAL. Wednesday, January 2, 2013 | 27

GLOBAL MARKETS LINEUP

Major stock market indexes Stock indexes from around the world, grouped by region. Shown in local-currency terms.
PREVIOUS SESSION PERFORMANCE PREVIOUS SESSION PERFORMANCE
Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk. Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk.
EUROPE Stoxx Europe 600 279.68 0.90 0.32% 14.4% 13.2% Spain IBEX 35 8167.5 36.50 0.45% -4.7 -6.4
Stoxx Europe 50 2577.62 8.71 0.34 8.8 7.9 Sweden OMX Stockholm 343.94 Closed 12.0 12.0
Euro Zone Euro Stoxx 260.84 0.77 0.30 15.5 13.1 Switzerland SMI 6822.44 Closed 14.9 14.9
Euro Stoxx 50 2635.93 9.08 0.35 13.8 11.2 Turkey ISE National 100 78208.44 -370.64 -0.47% 52.6 52.3
Austria ATX 2401.21 Closed 26.9 26.9 U.K. FTSE 100 5897.81 -27.56 -0.47 5.8 5.8
Belgium Bel-20 2475.81 -10.94 -0.44% 18.8 17.1 ASIA-PACIFIC DJ Asia-Pacific 133.20 -0.26 -0.19 13.1 13.1
Czech Republic PX 1038.7 Closed 14.0 14.0 Australia SPX/ASX 200 4648.90 -22.40 -0.48 14.6 14.6
Denmark OMX Copenhagen 452.52 Closed 26.9 26.9 China CBN 600 20794.07 343.74 1.68 6.8 6.8
Finland OMX Helsinki 5801.29 Closed 8.3 8.3 Hong Kong Hang Seng 22656.92 -9.67 -0.04 22.9 22.9
France CAC-40 3641.07 20.82 0.58 15.2 13.0 India Sensex 19426.71 -18.13 -0.09 25.7 25.2
Germany DAX 7612.39 Closed 29.1 29.1 Japan Nikkei Stock Average 10395.18 Closed 22.9 22.9
Hungary BUX 18173.20 Closed 7.1 7.1 Singapore Straits Times 3167.08 -24.72 -0.77 19.7 19.7
Ireland ISEQ 3396.67 30.44 0.90 17.1 17.1 South Korea Kospi 1997.05 Closed 9.4 9.4
Italy FTSE MIB 16273.38 Closed 7.8 7.8 AMERICAS DJ Americas 369.85 4.40 1.20 12.3 12.3
Netherlands AEX 342.71 0.71 0.21 9.9 8.3 Brazil Bovespa 60952.08 Closed 7.4 7.4
Norway All-Shares 490.52 Closed 10.9 10.9 Mexico IPC 43599.55 -122.38 -0.28 17.6 17.6
Poland WIG 47460.59 Closed 26.2 26.2 Note: Americas index data are as of 3:00 p.m. ET. Sources: SIX Financial Information; WSJ Market Data Group
Portugal PSI 20 5655.62 -4.35 -0.08 2.9 0.8
Russia RTSI 1526.98 Closed 10.5 10.5

Dow Jones Indexes MSCI indexes

Price-to- Price-to-
Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars) Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars) Developed and emerging-market regional and country indexes
yield* ratio* Dows Jones Index Last Daily 52-wk. Last Daily 52-wk. yield* ratio* Dows Jones Index Last Daily 52-wk. Last Daily 52-wk. from MSCI Barra as of December 31, 2012
2.48% 17 Global TSM 2665.89 0.76% 13.5% Turkey Titans 20 -c 720.40 -0.03% 62.7% 973.44 -0.46% 56.1% Price-to- LOCAL-CURRENCY
2.49 21 Global Dow 1425.50 0.86% 8.4% 1995.96 0.57 10.0 5.97% 14 Global Select Div -d 194.50 0.50 6.5 219.45 0.22 8.2 Dividend earnings PERFORMANCE
yield ratio Morgan Stanley Index Last Daily YTD 52-wk.
2.42 15 Global Titans 50 198.00 1.34 9.8 194.97 1.05 11.5 5.70 14 Asia/Pacific Select Div -d 326.63 -0.54 17.2
2.80% 14 ALL COUNTRY (AC) WORLD* 337.18 0.55% 12.6% 12.2%
2.94 18 Europe TSM 2736.11 0.05 15.3 4.01 16 U.S. Select Dividend -d 411.76 1.43 6.4
2.80 14 World (Developed Markets) 1,326.84 0.71 12.2 12.0
2.49 18 Developed Markets TSM 2615.50 0.85 13.4 1.96 16 Islamic Market 2298.30 0.99 10.9
2.70 14 World ex-EMU 161.90 0.67 11.5 11.9
2.49 12 Emerging Markets TSM 4248.27 0.02 13.8 2.06 15 Islamic Market 100 2184.50 1.32 8.9 2464.69 1.03 10.6
2.70 15 World ex-UK 1,326.42 0.76 12.4 12.2
3.03 14 Africa 50 897.70 0.42 17.3 751.20 0.14 19.2 Islamic Turkey -c 1857.10 0.71 43.5 4308.42 0.27 37.7
3.50 14 EAFE 1,605.82 0.25 13.7 12.5
3.35 9 BRIC 50 424.50 0.21 5.3 533.53 -0.07 6.9 2.73 17 Sustainability 952.60 0.72 10.0 1060.31 0.43 11.7
2.80 12 Emerging Markets (EM) 1,055.18 -0.54 15.1 13.7
3.41 12 GCC 40 573.50 0.14 1.7 479.86 -0.14 3.3 3.09 22 Brookfield Infrastructure 2198.00 1.33 8.2 2762.73 1.05 9.9
3.80 13 EUROPE 96.01 -0.64 13.0 15.3
2.15 17 U.S. TSM 14834.88 1.72 13.9 1.29 18 Luxury 1524.20 0.93 23.4 1703.63 0.65 25.3
4.00 13 EMU 157.19 1.00 17.2 12.6
Kuwait Titans 30 -c 191.53 -0.48 2.1 UAE Select Index
3.70 14 Europe ex-UK 100.69 -0.81 15.5 16.8
RusIndex Titans 10 -c 3805.80 0.52 14.6 6352.21 0.80 10.7 DJ-UBS Commodity 145.30 0.27 -2.7 139.07 -0.01 -1.1
4.70 11 Europe Value 96.65 -0.80 11.2 13.5
*Fundamentals are based on data in U.S. dollar. Footnotes: a-in US dollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET. Source: DowJones Indexes 2.80 15 Europe Growth 91.91 -0.49 14.6 16.9
3.00 22 Europe Small Cap 198.83 -0.27 23.1 23.3
Cross rates U.S.-dollar and euro foreign-exchange rates in global trading 3.70 6 EM Europe 310.63 -0.24 18.0 10.4
3.80 11 UK 1,755.32 -0.49 6.4 7.7
USD GBP CHF SEK RUB NOK JPY ILS EUR DKK CDN AUD 3.60 14 Nordic Countries 172.35 -0.53 16.5 17.7
Australia 0.9621 1.5644 1.0508 0.1478 0.0315 0.1729 0.0111 0.2577 1.2686 0.1700 0.9657 ... 3.50 5 Russia 765.78 -0.28 5.0 -2.5
Canada 0.9963 1.6201 1.0882 0.1530 0.0326 0.1791 0.0115 0.2668 1.3137 0.1761 ... 1.0355 3.20 15 South Africa 1,013.37 0.20 20.9 17.9
Denmark 5.6586 9.2008 6.1802 0.8691 0.1854 1.0169 0.0653 1.5153 7.4607 ... 5.6793 5.8812 3.10 13 AC ASIA PACIFIC EX-JAPAN 466.31 -0.56 18.7 18.7
Euro 0.7585 1.2332 0.8284 0.1165 0.0248 0.1363 0.0088 0.2031 ... 0.1340 0.7612 0.7883 2.40 22 Japan 530.30 0.77 18.9 18.6
Israel 3.7342 6.0718 4.0784 0.5736 0.1223 0.6711 0.0431 ... 4.9235 0.6599 3.7479 3.8811
3.00 10 China 62.67 0.43 18.4 21.2
Japan 86.6141 140.8345 94.5978 13.3036 2.8372 15.5656 ... 23.1947 114.1983 15.3067 86.9316 90.0220
1.30 15 India 764.42 0.69 27.9 22.3
Norway 5.5644 9.0478 6.0774 0.8547 0.1823 ... 0.0642 1.4901 7.3366 0.9834 5.5848 5.7834
1.20 11 Korea 579.96 0.54 11.7 10.6
Russia 30.5282 49.6388 33.3422 4.6890 ... 5.4863 0.3525 8.1753 40.2506 5.3950 30.6401 31.7294
3.50 22 Taiwan 276.64 0.70 8.8 11.8
Sweden 6.5106 10.5862 7.1107 ... 0.2133 1.1700 0.0752 1.7435 8.5840 1.1506 6.5344 6.7667
Switzerland 0.9156 1.4888 ... 0.1406 0.0300 0.1645 0.0106 0.2452 1.2072 0.1618 0.9190 0.9516
2.10 15 US BROAD MARKET 1,580.69 1.04 12.0 12.7
U.K. 0.6150 ... 0.6717 0.0945 0.0201 0.1105 0.0071 0.1647 0.8109 0.1087 0.6173 0.6392 1.50 22 US Small Cap 2,309.59 0.66 14.1 14.2
U.S. ... 1.6260 1.0922 0.1536 0.0328 0.1797 0.0115 0.2678 1.3185 0.1767 1.0037 1.0393 3.40 15 EM LATIN AMERICA 3,800.78 -0.87 5.5 3.6
Source: ICAP Plc. *Twenty-three developed and 26 emerging markets Source: MSCI Barra

Taiwan dollar 38.321 0.02610 29.065 0.03441

Commodities Prices of futures contracts with the most open interest Currencies London close on Dec. 31
Thailand baht 40.347 0.02479 30.601 0.03268
EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.MDEX: Bursa Malaysia Per In Per In
Derivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: London Metals Exchange; AMERICAS Per euro In euros U.S. dollar U.S. dollars EUROPE Per euro In euros U.S. dollar U.S. dollars
NYMEX: New York Mercantile Exchange;ICE-EU: ICE Futures Europe
Year Year Argentina peso-a 6.4802 0.1543 4.9149 0.2035 Euro zone euro 1 1 0.7585 1.3185
ONE-DAY CHANGE
Commodity Exchange Last price Net Percentage high low Brazil real 2.7014 0.3702 2.0489 0.4881 1-mo. forward 0.9997 1.0003 0.7583 1.3188
Corn (cents/bu.) CBOT 699.75 5.75 0.83% 846.00 511.00 Canada dollar 1.3137 0.7612 0.9963 1.0037 3-mos. forward 0.9992 1.0008 0.7578 1.3195
Soybeans (cents/bu.) CBOT 1409.00 -9.00 -0.63% 1,728.50 1,194.50 Chile peso 632.07 0.001582 479.40 0.002086 6-mos. forward 0.9983 1.0017 0.7572 1.3207
Wheat (cents/bu.) CBOT 779.00 0.25 0.03 948.25 652.00 Colombia peso 2329.74 0.0004292 1767.00 0.0005659 Czech Rep. koruna-b 25.092 0.0399 19.031 0.0525
Live cattle (cents/lb.) CME 132.425 -1.150 -0.86 135.900 123.800 Ecuador US dollar-f 1.3185 0.7585 1 1 Denmark krone 7.4607 0.1340 5.6586 0.1767
Cocoa ($/ton) ICE-US 2,232 -17 -0.76 2,710 2,065 Mexico peso-a 17.0927 0.0585 12.9640 0.0771 Hungary forint 291.15 0.003435 220.82 0.004529
Coffee (cents/lb.) ICE-US 144.00 -2.85 -1.94 249.00 141.25 Peru sol 3.3653 0.2971 2.5525 0.3918 Norway krone 7.3366 0.1363 5.5644 0.1797
Sugar (cents/lb.) ICE-US 19.55 0.13 0.67 25.13 18.31 Uruguay peso-e 25.249 0.0396 19.151 0.0522 Poland zloty 4.0829 0.2449 3.0967 0.3229
Cotton (cents/lb.) ICE-US 75.40 0.74 0.99 98.50 66.85 U.S. dollar 1.3185 0.7585 1 1 Russia ruble-d 40.251 0.02484 30.528 0.03276
Rapeseed (euro/ton) LIFFE 456.75 -0.25 -0.05 520 396
Venezuela bolivar 5.74 0.174357 4.35 0.229885 Sweden krona 8.5840 0.1165 6.5106 0.1536
Cocoa (pounds/ton) LIFFE 1,433 -5 -0.35 1,737 1,380
ASIA-PACIFIC Switzerland franc 1.2072 0.8284 0.9156 1.0922
Robusta coffee ($/ton) LIFFE 1,922 11 0.58 2,237 1,836
Australia dollar 1.2686 0.7883 0.9621 1.0393 1-mo. forward 1.2064 0.8289 0.9150 1.0929
Copper ($/lb.) COMEX 3.6495 0.0600 1.67 4.02 3.29 1-mo. forward 1.2716 0.7864 0.9644 1.0369 3-mos. forward 1.2051 0.8298 0.9140 1.0941
Gold ($/troy oz.) COMEX 1674.00 18.10 1.09 1,801.50 1,538.10
3-mos. forward 1.2770 0.7831 0.9685 1.0325 6-mos. forward 1.2030 0.8313 0.9124 1.0960
Silver ($/troy oz.) COMEX 30.435 0.460 1.53 37.43 26.40
6-mos. forward 1.2849 0.7783 0.9745 1.0261 Turkey lira 2.3535 0.4249 1.7850 0.5602
Aluminum ($/ton) LME 2,071.50 5.50 0.27 2,349.00 1,831.00
China yuan 8.2161 0.1217 6.2316 0.1605 U.K. pound 0.8109 1.2332 0.6150 1.6260
Tin ($/ton) LME 23,405.00 55.00 0.24 25,700.00 17,675.00
Hong Kong dollar 10.2193 0.0979 7.7508 0.1290 1-mo. forward 0.8109 1.2331 0.6151 1.6259
Copper ($/ton) LME 7,930.00 55.00 0.70 8,647.00 7,270.00
India rupee 72.3313 0.0138 54.8600 0.0182 3-mos. forward 0.8111 1.2329 0.6152 1.6255
Lead ($/ton) LME 2,342.00 18.00 0.77 2,342.00 1,760.00
Indonesia rupiah 12743 0.0000785 9665 0.0001035 6-mos. forward 0.8114 1.2325 0.6154 1.6250
Zinc ($/ton) LME 2,064.00 -8.00 -0.39 2,195.50 1,756.50
Nickel ($/ton) LME 17,160 55 21,880 15,260 Japan yen 114.20 0.008757 86.61 0.011545 MIDDLE EAST/AFRICA
0.32
1-mo. forward 114.17 0.008759 86.59 0.011548 Bahrain dinar 0.4972 2.0114 0.3771 2.6520
Crude oil ($/bbl.) NYMEX 91.80 1.00 1.10 109.43 80.09
3-mos. forward 114.11 0.008763 86.55 0.011554 Egypt pound-a 8.3868 0.1192 6.3610 0.1572
Heating oil ($/gal.) NYMEX 3.0315 0.0102 0.34 3.3346 2.5557
RBOB gasoline ($/gal.) NYMEX 2.7608 unch. 0.08 2.9297 2.1980 6-mos. forward 114.03 0.008770 86.48 0.011563 Israel shekel 4.9235 0.2031 3.7342 0.2678
Natural gas ($/mmBtu) NYMEX 3.366 -0.116 -3.33 4.0490 3.0520 Malaysia ringgit-c 4.0318 0.2480 3.0579 0.3270 Jordan dinar 0.9359 1.0685 0.7099 1.4087
Brent crude ($/bbl.) ICE-EU 111.27 0.65 0.59 119.30 90.39 New Zealand dollar 1.5951 0.6269 1.2098 0.8266 Kuwait dinar 0.3710 2.6958 0.2814 3.5543
Gas oil ($/ton) ICE-EU 938.75 5.50 0.59 1,031.50 800.25 Pakistan rupee 128.268 0.0078 97.285 0.0103 Lebanon pound 1982.92 0.0005043 1503.95 0.0006649
Philippines peso 54.123 0.0185 41.050 0.0244 Saudi Arabia riyal 4.9467 0.2022 3.7519 0.2665
Sources: SIX Financial Information; WSJ Market Data Group
Singapore dollar 1.6106 0.6209 1.2215 0.8186 South Africa rand 11.1907 0.0894 8.4876 0.1178
South Korea won 1402.12 0.0007132 1063.45 0.0009403 United Arab dirham 4.8429 0.2065 3.6732 0.2722
WSJ.com Follow the markets throughout the day with updated stock quotes, news and
>>
commentary at WSJ.com. Also, receive email alerts that summarize the day’s trading in Europe a-floating rate b-financial c-government rate c-commercial rate d-Russian Central Bank rate.
and Asia. To sign up, go to WSJ.com/email. Source: ICAP Plc.
28 | Wednesday, January 2, 2013 THE WALL STREET JOURNAL.

BLUE CHIPS & BONDS

Below, a look at the Dow Jones Stoxx Dow Jones Industrial Average P/E: 15
Major players & benchmarks 50, the biggest and best known
companies in Europe, including the U.K. LAST: 13104.14
YEAR TO DATE:
s 166.03, or 1.28%
s 886.58, or 7.3%
Stoxx Europe 50: Monday's best and worst... OVER 52 WEEKS s 886.58, or 7.3%

Previous
close, in STOCK PERFORMANCE
Company Country Industry Volume local currency Previous session YTD 52-week
14000
L'Air Liquide France Commodity Chemicals 99,118 95.05 1.13% -0.6% -2.1%
GDF Suez France Multiutilities 55,261 15.58 1.04 -25.8 -28.1 50–day
ING Groep Netherlands Life Insurance 2,849,522 7.06 1.02 27.0 23.7 moving average 13500
Sanofi SA France Pharmaceuticals 402,233 71.39 25.8 24.3 t
0.93
Moet Hennessy Louis Vuitt France Clothing & Accessories 2,752 138.80 0.73 27.4 25.2
13000

Banco Santander S.A. Spain Banks 15,324,650 6.01 -1.46% 6.0 4.3
ENI Italy Integrated Oil & Gas 6,190,155 18.34 14.6 14.6 High 12500
-1.08
ABB Switzerland Industrial Machinery 3,272,898 18.75 -1.06 6.1 6.1 Close
Daimler Germany Automobiles 1,720,196 41.32 -1.05 21.8 21.8 Low
12000
H&M Hennes & Mauritz B Sweden Apparel Retailers 1,859,075 224.50 -1.01 1.4 1.4

...And the rest of Europe's blue chips 11500

5 12 19 26 2 9 16 23 30 7 14 21 28
Latest, Latest, Oct. Nov. Dec.
in local STOCK PERFORMANCE in local STOCK PERFORMANCE
Company/Country (Industry) Volume currency Latest YTD 52-week Company/Country (Industry) Volume currency Latest YTD 52-week Note: Price-to-earnings ratios are for trailing 12 months
BNP Paribas 370,141 42.59 0.59% 40.3% 36.1% Novartis AG 2,183,853 57.45 -0.43% 7.0% 7.0%
France (Banks) Switzerland (Pharmaceuticals) DJIA component stocks
Banco Bilbao Vizcaya Argn 6,246,424 6.96 0.58 5.2 3.5 Deutsche Telekom 5,273,827 8.60 -0.45 -3.0 -3.0
Spain (Banks) Germany (Mobile Telecommunications) Volume, CHANGE
Stock Symbol in millions Latest Points Percentage
BG Grp 2,380,156 1,013 0.45 -26.4 -26.4 Anglo American PLC 700,296 1,894 -0.53 -20.4 -20.4
United Kingdom (Integrated Oil & Gas) United Kingdom (General Mining) AT&T T 26.4 $33.71 0.39 1.17%
British American Tobacco 680,387 3,121 0.40 2.1 2.1 Royal Dutch Shell A 890,306 2,122 -0.56 -10.5 -10.5 Alcoa AA 18.6 8.68 0.18 2.12
United Kingdom (Tobacco) United Kingdom (Integrated Oil & Gas) AmExpress AXP 5.5 57.48 0.81 1.43
Financiere Richemont 672,756 71.40 0.35 50.3 50.3 Zurich Insurance Group 278,608 243.40 -0.57 14.5 14.5 BankAm BAC 165.9 11.61 0.25 2.20
Switzerland (Clothing & Accessories) Switzerland (Full Line Insurance)
Boeing BA 4.9 75.36 0.67 0.90
Imperial Tobacco Grp 435,605 2,373 0.34 -2.5 -2.5 Siemens 892,806 82.20 -0.59 11.2 11.2
United Kingdom (Tobacco) Germany (Diversified Industrials) Caterpillar CAT 7.1 89.61 2.80 3.22
Total 50,423 39.01 0.26 -0.5 -1.7 Vodafone Group 34,657,809 154.45 -0.61 -13.7 -13.7 Chevron CVX 6.4 108.14 1.69 1.59
France (Integrated Oil & Gas) United Kingdom (Mobile Telecommunications) CiscoSys CSCO 32.1 19.65 0.20 1.03
Barclays 8,012,697 262.40 0.25 49.0 49.0 Unilever 425,762 2,366 -0.63 9.4 9.4 CocaCola KO 15.4 36.25 0.28 0.78
United Kingdom (Banks) United Kingdom (Food Products)
Disney DIS 10.2 49.79 0.64 1.30
Telefon L.M. Ericsson B 8,493,976 65.10 0.23 -7.5 -7.5 HSBC Hldgs 4,733,757 646.90 -0.68 31.7 31.7
Sweden (Telecommunications Equipment) United Kingdom (Banks) DuPont DD 7.0 44.98 0.27 0.60
Unilever CVA 656,553 28.84 0.21 8.5 6.4 Rio Tinto 735,359 3,512 -0.68 12.4 12.4 ExxonMobil XOM 19.4 86.55 1.45 1.70
Netherlands (Food Products) United Kingdom (General Mining) GenElec GE 58.1 20.99 0.55 2.69
Telefonica S.A. 11,373,975 10.19 0.20 -23.9 -25.4 Reckitt Benckiser Grp 189,334 3,879 -0.69 22.0 22.0 HewlettPk HPQ 28.4 14.25 0.57 4.17
Spain (Fixed Line Telecommunications) United Kingdom (Nondurable Household Products)
HomeDpt HD 7.8 61.85 1.20 1.98
Anheuser-Busch InBev 227,567 65.74 -0.03 39.0 36.1 UBS 6,027,451 14.27 -0.70 27.6 27.6
Belgium (Brewers) Switzerland (Banks) Intel INTC 40.5 20.62 0.39 1.93
BP PLC 7,116,123 424.80 -0.06 -7.8 -7.8 BHP Billiton 1,154,275 2,130 -0.70 13.4 13.4 IBM IBM 4.5 191.55 1.72 0.91
United Kingdom (Integrated Oil & Gas) United Kingdom (General Mining) JPMorgChas JPM 22.7 43.97 0.73 1.69
SAP 1,203,622 60.69 -0.08 48.6 48.6 Bayer 971,481 71.89 -0.72 45.5 45.5 JohnsJohns JNJ 12.7 70.10 0.62 0.89
Germany (Software) Germany (Specialty Chemicals) McDonalds MCD 6.2 88.21 0.63 0.72
Standard Chartered 804,394 1,574 -0.10 11.7 11.7 Diageo 849,905 1,787 -0.80 27.1 27.1 Merck MRK 14.3 40.94 0.30 0.74
United Kingdom (Banks) United Kingdom (Distillers & Vintners)
AstraZeneca 553,841 2,910 -0.14 -2.2 -2.2 GlaxoSmithKline 1,720,072 1,335 -0.82 -9.3 -9.3 Microsoft MSFT 42.1 26.71 0.16 0.60
United Kingdom (Pharmaceuticals) United Kingdom (Pharmaceuticals) Pfizer PFE 33.6 25.08 0.19 0.76
National Grid 1,544,754 703.00 -0.28 12.5 12.5 BASF 1,148,556 71.15 -0.91 32.0 32.0 ProctGamb PG 9.0 67.89 0.74 1.10
United Kingdom (Multiutilities) Germany (Commodity Chemicals) 3M MMM 2.6 92.85 1.07 1.17
Nestle 3,304,568 59.60 -0.42 10.4 10.4 Roche Holding Part. Cert. 721,555 184.00 -0.92 15.6 15.6 TravelersCos TRV 2.0 71.82 0.58 0.81
Switzerland (Food Products) Switzerland (Pharmaceuticals)
UnitedTech UTX 3.6 82.01 1.20 1.48
E.ON SE 5,757,653 14.09 -0.42 -15.5 -15.5 Deutsche Bank 2,449,359 32.95 -0.95 11.9 11.9
Germany (Multiutilities) Germany (Banks) UtdHlthGp UNH 4.9 54.24 0.38 0.71
Tesco 4,519,140 336.00 -0.43 -16.7 -16.7 Allianz SE 744,140 104.80 -0.99 41.8 41.8 Verizon VZ 14.1 43.27 0.37 0.86
United Kingdom (Food Retailers & Wholesalers) Germany (Full Line Insurance) WalMart WMT 7.0 68.23 0.62 0.92
Sources: SIX Financial Information Source: WSJ Market Data Group

Credit derivatives
Tracking Spreads on credit derivatives are one way the market rates
creditworthiness. Regions that are treading in rough waters
Credit-default swaps: European companies
At its most basic, the pricing of credit-default swaps measures how much a buyer has to pay to purchase-and

credit can see spreads swing toward the maximum—and vice versa.
Indexes below are for five-year swaps.
how much a seller demands to sell-protection from default on an issuer's debt. The snapshot below gives a
sense which way the market was moving yesterday.

markets & Markit iTraxx Indexes

Index: series/version
Europe: 18/1
Mid-spread,
in pct. pts.
1.17
Mid-price
99.22%
Coupon
0.01%
SPREAD RANGE, in pct. pts.
since most recent roll
Maximum Minimum
1.41 1.09
Average
1.25
Showing the biggest improvement...
CHANGE, in basis points
Yesterday Yesterday Five-day 28-day
And the most deterioration
CHANGE, in basis points
Yesterday Yesterday Five-day 28-day

dealmakers Eur. High Volatility: 18/1

Europe Crossover: 18/1
Asia ex-Japan IG: 18/1
1.71
4.78
1.11
96.72
100.89
99.48
0.01
0.05
0.01
2.11
5.81
1.43
1.63
4.45
1.07
1.91
5.13
1.21
Alliance Leicester
MAN
Rhodia
118
107
66
–3
–2
–1
–8
–1
–1
–20
–4
–2
UPC Germany HoldCo 1
Kabel Deutschland Vertrieb
und Service
68
209
2
7
3
7
4
–1
THOMSON REUTERS 38 1 1 1
Japan: 18/1 1.59 97.22 0.01 2.27 1.57 1.94 Munich Re 56 –1 ... –9 GROUP
Note: Data as of December 28 Svenska Cellulosa 74 –1 –1 9 Gas Nat SDG 211 6 5 –28
In percentage points Abertis Infraestructuras 228 –2 –3 –27 SODEXO 69 2 2 ...
Spreads
Index roll ProSiebenSat 1 Media 239 –2 –1 ... UBS 94 2 1 –19
Spreads on five- 2.00 LLOYDS TSB BK 139 3 5 –26
Australia Dexia Cr Loc 526 –5 –5 –65
year swaps for t 1.50 Clariant 213 –2 –2 –28 SOCIETE AIR FRANCE 585 14 21 –17
corporate debt; CARLTON Comms 132 –1 1 4 Compass Gp 43 1 1 –1
based on Markit t 1.00 Stora Enso 289 7 9 –10
iTraxx indexes. Asia ex-Japan IG 0.50 Source: Markit Group

0
July Aug. Sept. Oct. Nov. Dec.
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2012 Behind every IPO, bond offering, merger deal or syndicated loan is one or more investment banks. Here are
Source: Markit Group investment banks ranked by year-to-date revenues from recent deals.
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JPMorgan $5,035 7.5% 19% 35% 25% 21%
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Goldman Sachs 3,922 5.9 23 26 41 10
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Deutsche Bank 3,588 5.4 19 34 27 20
WSJ.com>> Credit Suisse 3,478 5.2 19 28 32 21
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THE WALL STREET JOURNAL.
Europe Lags on Decision-Making
Many Employees Question Their Companies’ Ability to Respond Effectively to Changing Market Conditions
BY MARK ROYAL
Charles Darwin is quoted as say-
ing that “it isn’t the biggest, the
brightest, or the best that will sur-
vive, but those who adapt the quick-
est.” Applied to the business con-
text, this evolutionary perspective
suggests that the organizations that
will be successful in dealing with
turbulent conditions in today’s
highly competitive environments
and in responding to the opportuni-
ties associated with emerging mar-
kets, will be those that are the most
nimble.
Unfortunately, by this standard,
many European firms come off look-
ing like dinosaurs. Based on analysis
of Hay Group’s global employee
opinion database (featuring the per-
spectives of over four million em-
ployees from across the G-14 na-
tions—the G-8 plus Brazil, China,
Egypt, India, South Africa and Mex-
ico)—at the present time, many Eu-
ropean employees think their orga-
nizations are unable to make speedy
decisions and question their compa-
nies’ ability to respond effectively to
changing market conditions.
Fifty-three percent of employees
in European G-14 countries (France,
Germany, Italy, U.K. and Russia) re-
port that their organizations are too
slow in decision-making. Likewise,
only two-thirds (64%) are confident
in the ability of their companies to
respond effectively to changes in the
business environment. By compari-
son, in high-performing companies,
(based on Hay Group’s high-per-
forming norm, which comprises data
from organizations that outpace in-
dustry averages on a broad range of
financial metrics), fewer than half
(44%) of employees express con-
cerns about timely decision-making.
In addition, 72% of employees in
high-performing companies view the
responsiveness of their organization
to changing business conditions fa-
vorably.
To illustrate these concerns, con-
sider the comments of employees we
surveyed recently at a global phar-
maceutical company. One worker
noted that “it seems many decisions
go through the entire hierarchy and
even up to the executive leadership
team that should be decided at levels
below. The current tendency to run
everything through committees
slows this down even more.” Another
asked, “Why does everything have to
go through 12 people?”
When employees indicate that
decisions aren't made in a timely
After an Office Gaffe, Some Ways to Say You’re Sorry
BY CAITLIN NISH
When a verbal gaffe slips out
in the office, there is more at
stake than a little personal embar-
rassment: Your reputation and ca-
reer could be on the line. But
don’t immediately start updating
your résumé, executive coaches
say. Most faux pas can be made
right.
The first rule: Apologize, and
fast.
The apology needs to be direct
and the offender should take full re-
sponsibility, says Marilyn Puder-
York, Ph.D., a psychologist and exec-
utive coach.
PERSONAL JOURNAL: MANAGEMENT
Too Tardy
European companies, when compared with those elsewhere, may be less quick to respond to turbulent conditions
Percentage of employees surveyed from various countries who agree with the following statements about
their firm
‘Decisions are made without
undue delay’
U.K. 45%
France 47
Italy 47
Russia 47
South Africa 47
Germany 48
U.S. 50
Mexico 52
India 58
China 60
Source: Hay Group
manner, what they are really saying
of course is that decisions take lon-
ger than they should. While hierar-
chical structures, corporate-gover-
nance procedures, and government
regulations may all present con-
straints that can be difficult to over-
come, there is much that leaders
can do to increase the agility of
their companies through awareness
of, and responsiveness to, a range of
organizational factors that com-
monly get in the way of swift action.
Our research points to three
common barriers to timely decision-
making.
The first is fear: concerns about
making the wrong decisions may
cause leaders to pull decisions up to
higher levels than necessary—and
encourage employees to seek out
additional approvals to protect
themselves from negative outcomes.
Notably, only 57% of European em-
ployees currently report that deci-
sions are generally made at the
right level.
The second is conflict: tensions
associated with decisions are often
heightened by the fact that out-
comes that are organizationally ben-
eficial may not advance the individ-
ual interests of all parties involved
in, or affected by, a decision. Glob-
ally, just 49% of employees indicate
that open discussion of conflicts is
encouraged in their organizations.
It should convey: “I recognize
what I did was inappropriate, I rec-
ognize it had impact I didn’t intend,
no one is blaming the universe or a
bad night’s sleep,” she says.
And if you made the gaffe in
public, your mea culpa should also
be public, experts say. (This is com-
mon-sense advice for politicians
standing in front of open mics, ev-
erywhere.) Just make sure the apol-
ogy is sincere.
Sissy DeMaria, president of Mi-
ami-based public relations firm
Kreps DeMaria, points to remarks
by ex-BP CEO Tony Hayward as an
example of an apology that was per-
ceived as an even bigger verbal mis-
‘Responding effectively to changes
in the business environment’
France 61%
China 62
U.K. 63
Italy 63
Germany 64
U.S. 65
Russia 69
Mexico 70
South Africa 72
India 73
The third is attention spans:
amid high workloads and periods of
considerable organizational change,
even straightforward decisions may
be crowded out by other priorities
that compete for the time and focus
of decision makers. Indeed, at the
present time, 40% of employees in
Europe express concerns about ex-
cessive workload pressures.
As well as these barriers there
are contextual factors that com-
pound lackadaisical decision mak-
ing.
First there is uncertainty. The
harder final outcomes are to foresee
with any confidence, the more
slowly—as predecision research,
analysis, and discussions becomes
more extensive—will decisions be
made.
Secondly there is the problem of
the consequences, especially of fail-
ure. And even where the prospect of
success stemming from a particular
decision is higher than the potential
for failure, decision makers can be
expected to hesitate when contem-
plating negative possibilities that
are viewed as significant. Within
Europe, just 56% of employees per-
ceive that they are supported in tak-
ing reasonable risks to enhance or-
ganizational effectiveness.
A final delaying factor can be the
need to reach a consensus, the need
for all stakeholders concerned with
take. In attempting an apology for
the Gulf of Mexico oil spill, he (now
infamously) said “I’d like my life
back.”
Another tip: Make the apology fit
the crime, and the circumstances.
Margaret Morford, owner of The
HR Edge, a management consulting
company, recalls a manager who
went to the company’s CEO to alert
him to an employee’s underperfor-
mance, only to find out the em-
ployee was also the CEO’s daugh-
ter.
Ms. Morford advised the man-
ager to ignore it and never mention
it again. Ms. Morford made that call
because the CEO already knew his
Wednesday, January 2, 2013 | 29
The Wall Street Journal
decisions to be in alignment. While
this may potentially enhance deci-
sion quality (by ensuring that all
relevant perspectives are consid-
ered) and implementation success
(by enhancing buy-in), it is also
likely to lead to greater delays asso-
ciated with more lengthy delibera-
tions.
Conditions are ripe for decision-
making problems when these vari-
ous barriers and contextual factors
are combined.
Fear of decision-making errors
will increase when the potentially
negative consequences for individu-
als or organizations are perceived to
be high. And in consensus-oriented
cultures such as Europe where a
lack of alignment over chosen paths
is viewed to be particularly prob-
lematic, conflicts of interest among
decision-making parties becomes
harder to resolve. Finally, the higher
the uncertainty surrounding a par-
ticular path, and the more time
needed to consider all potential out-
comes, the less likely it is that the
mater will get prompt attention and
focused decision-making.
So, drawing on lessons from
nimble organizations, how is it pos-
sible to confront these common im-
pediments to timely decision-mak-
ing?
Firstly, fear of delegation can be
reduced if leaders view decisions—
daughter had some performance is-
sues. To bring it up again, Ms. Mor-
ford suggested, would only embar-
rass him further.
Whether a verbal slip-up is sur-
vivable can depend on the culture of
the office, the rank and popularity
of the person you’ve offended, or
whether the gaffe is culturally in-
sensitive, says Dr. Puder-York.
There’s nothing wrong with re-
peating an apology for good mea-
sure (“I’m even more mortified to-
day than I was yesterday”), but
don’t keep revisiting the mistake,
says Paul Hellman, founder of Ex-
press Potential, a consulting firm fo-
cused on executive communication
especially those that carry lower
risks—as offering opportunities for
others in the organization to de-
velop capabilities and demonstrate
their skills.
And, from the perspective of de-
cision makers, reluctance to take ac-
tion can be mitigated by fostering
cultures that are tolerant of well-
considered choices, even when the
outcomes fall short of what was
hoped for.
Conflicts over decision rights
and outcomes can be managed by
clarifying, in advance, the levels of
involvement and authority associ-
ated with different individuals and
organizational units, across a range
of common decision-making scenar-
ios. Clarity and accountability are
key.
And finally, by acknowledging
that different decisions require dif-
ferent approaches, leaders in Europe
can ensure that they give the right
level of attention to each one. For
example, strategic decisions may
call for high degrees of involvement,
and management of uncertainty
through careful examination of po-
tential scenarios, whereas tactical
decisions can be pushed down to
appropriate levels in the interest of
speed and efficiency.
What’s clear from our research,
and what employees across the Eu-
ropean G-14 countries are telling us,
is that something is fundamentally
flawed with the decision-making
processes of many European firms.
Decisions are too often made at
higher levels than necessary or de-
layed due to concerns about taking
risks, problems in managing con-
flicting interests, or workload pres-
sures that divert the attention of
decision makers.
What’s also clear is that this
should be a real concern for busi-
ness leaders in the region. The
speed at which companies make de-
cisions and how they respond to
market challenges are matters of
business agility.
Agile firms are able to flex and
change, structuring themselves to
avoid bureaucratic processes and
taking the bold decisions necessary
to drive the organization forward.
These qualities are essential to re-
maining a viable competitor on the
global stage, and Europe can ill af-
ford to fall behind.
Mark Royal is senior principal at
global management consultancy
Hay Group. He can be reached at
mark.royal@haygroup.com.
skills.
After all, he says, “you are the
main character in your story. But
you’re a minor character in every-
one else’s story.”
Last, if you’ve done something
that results in only your ego being
bruised, like crying in a meeting, ex-
perts say ignore it and move on.
Apologizing just draws more atten-
tion to the mistake.
People have a tendency to “cata-
strophize,” notes Mr. Hellman. If
you immediately tender your resig-
nation after saying something hu-
miliating, he says, you’ll never know
what would have happened had you
apologized and waited it out.
30 | Wednesday, January 2, 2013
Australia’s Mike Hussey plays a classic cut shot on the first day of the second Test against South Africa at the Adelaide Oval in November.
Australians Will Miss Mr. Cricket
Hussey Arrived Late on the Test Scene, but He Will Leave an Indelible Mark
BY RICHARD LORD
Australian batsman Mike
Hussey’s announcement last week
that he was retiring came as a
shock, mainly because it was sur-
prising to see Hussey do anything
earlier in his career than expected.
After all, this is the late bloomer par
excellence, the man whose name be-
came a byword for late-career ful-
fillment, the embodiment of
cricket’s ultimate, drawn-out Indian
summer.
At 37, Hussey is not retiring par-
ticularly young, except that he only
played his first One-Day Interna-
tional aged 28 and his first Test
aged 30.
When he was selected for that
Test, against West Indies in Novem-
ber 2005, Hussey had already scored
more than 15,000 first-class runs in
a career lasting more than a decade,
during which he had been prolific
both for his native Western Austra-
lia and for three separate English
counties.
In 77 Tests since then, he has
scored 6,118 runs at an average of
51.41, while in 185 ODIs he has 5,442
at 48.15. His last Test, against Sri
Lanka, started on Tuesday and he
will then play in limited-overs series
against Sri Lanka and the West In-
dies before finally quitting the in-
ternational stage at the end of the
Australian summer as calmly as he’s
batted throughout his career. He
steps away as a rarity—a player re-
tiring at the top of his game, leaving
fans wondering what else he might
have achieved.
Hussey’s career is also a rarity
because it represents a victory over
squad-selecting orthodoxy, which
has taught teams to pick young
players and stick with them in the
interests of consistency for a while
now. It is also a triumph of patience:
the main reason he didn’t get picked
for so long had very little to do with
his own form and a great deal to do
with the form of the Test incum-
bents.
The first half of his career coin-
cided with a time of ridiculous bat-
ting plenitude in Australia, when
men like Stuart Law and Brad Hodge
could play just one and six Tests re-
spectively, despite more than 27,000
first-class runs at an average of
50.52 in Law’s case, and more than
18,000 at 54.89 in Hodge’s.
His departure, following
that of Ricky Ponting,
leaves a big hole in the
Australian middle order.
Hussey, who started his career as
an opener but mainly played in the
middle order, was competing for a
place with everyone from Steve and
Mark Waugh to Ricky Ponting, Mat-
thew Hayden, Justin Langer and Da-
mien Martyn. The other late inter-
national starter of a similar era,
Darren Lehmann, who didn’t get
into the side until he was 28, played
only 27 Tests despite a useful aver-
age of 44.95. It makes Hussey’s
achievement of breaking into the
Test side at his age and staying
there for so long all the more im-
pressive.
But the wait served him well.
By the time he represented his
country, it was clear that Hussey al-
ready understood his game per-
SPORT
fectly. It translated into a phenome-
nal start to his international
career—at one point his Test aver-
age was 86, and it stayed above 100
for 29 ODIs. Hussey’s signature
shots were his pull, cover drive and
in his later career the slog-sweep,
but it wasn’t any particular stroke
that caught the eye so much as his
demeanor at the crease—of effi-
ciency, technical excellence and con-
tinuous self-improvement.
With a compact, perfectly bal-
anced technique, Hussey did every-
thing with an economy of movement
and effort. His shot selection was
faultless and he was also ruthless in
taking advantage of any bad deliv-
ery that came his way. A brilliant
fielder who could catch pigeons in
the gully, he was also greyhound-
like between the wickets, remaining
one of the quickest movers in the
Australian team to the present day.
And he was one of the greatest
performers in a crisis. Hussey came
into an Australian side exiting its
greatest ever period and had to per-
form numerous middle-order rescue
jobs.
Early in his career, his quietly ef-
ficient technique gave him a reputa-
tion as a craggy accumulator. But
the sheer lack of risk-taking in his
batting meant that the reputation
stuck with him unfairly: his career
ODI strike rate was 87, and in 38
Twenty20 Internationals he aver-
aged 37.94 with a strike rate of 136.
And any doubts about his short-
form credentials should have been
blasted away in St. Lucia in May
2010, when his remarkable 60 not
out from 24 balls stole the World
T20 semifinal from under the noses
of a shell-shocked Pakistan.
Hussey also had to overcome
Getty Images
dips in form that threatened his
place in the side. After his initial
surge, he struggled through 2008
and 2009 before a career-saving 121
in the final Test of the 2009 Ashes
at The Oval. He then contributed a
match-swinging unbeaten second-in-
nings 134 to complete one of Test
cricket’s greatest heists, when Aus-
tralia beat Pakistan in Sydney in
January 2010 after being eight sec-
ond-innings wickets down and just
51 ahead. Then Hussey scored 570
runs at 63.33 in the 2010-11 Ashes
after another slump had put his
place in doubt.
His departure, following that of
Ricky Ponting, leaves a big hole in
the Australian middle order, where
stocks are looking a little thin, in
contrast to the team’s hydra-headed
range of seam-bowling options. It
also contributes to the team’s short-
term leadership vacuum; with cap-
tain Clarke currently suffering with
an injury and official vice captain
Shane Watson apparently perma-
nently suffering with one, potential
leadership candidates being dis-
cussed include the distinctly green
David Warner and Ed Cowan, with
12 and 11 Tests, respectively.
But Hussey won’t just be missed
by Australian fans. A universally
popular character, he’ll be missed by
cricket lovers from all countries—
because of the way he made the
most of his opportunity, of course,
but also because of how he so often
played the game with a smile, de-
spite intense concentration. When
you make your living surrounded by
people who live and breathe the
game, it takes some level of smitten
dedication to become the individual
who acquires Hussey’s universally
recognized nickname: Mr. Cricket.
THE WALL STREET JOURNAL.
HEARD ON
THE PITCH
Veteran Commentator
Martin-Jenkins Dies at 67
One of the most respected
HEARD ON
voices in cricket, Christopher Mar-
tin-Jenkins, died on Tuesday.
THE FIELD
He was 67 and had been diag-
nosed with cancer almost a year
ago.
In a career that spanned more
than half a century, Martin-Jenkins
served as chief cricket correspon-
dent for The Times of London and
also covered the game for the BBC
and the Daily Telegraph, while writ-
ing more than 20 books on cricket
on the side. But perhaps he was
best known for his authoritative
tone and encyclopedic knowledge
as a commentator on the BBC’s
“Test Match Special” for almost
four decades.
“Listeners to ‘Test Match Spe-
cial’ were all too familiar with
CMJ’s eccentricities, like going to
the wrong ground for the start of
a Test match,” BBC cricket corre-
spondent Jonathan Agnew told
BBC Sport. “His legendary, chaotic
time-keeping was very much part
of his charm.”
CMJ, as many fans knew him,
even spent a year as president of
the storied Marylebone Cricket
Club. And on Tuesday, he was
mourned by the cricket press and
the game’s establishment alike.
“Cricket has lost two of its most
revered commentators in the last
few days with the passing of both
CMJ and, last week, of Tony Greig,”
International Cricket Council chief
executive Dave Richardson said in
a statement. “I know that press
boxes around the world will be
deeply saddened by the death of
two giants of the game.”
—Joshua Robinson
Sharapova Injury Worry
Ahead of Australian Open
Maria Sharapova’s fitness is still
in doubt ahead of the Australian
Open after she withdrew from the
Brisbane International on Tuesday
with a collarbone injury. Sharapova
said that she didn’t expect to enter
another warm-up tournament be-
fore the Grand Slam event, which
she won in 2008, begins on Jan.
14, preferring instead to focus on
recovery.
The injury has recently pre-
vented her from working on any-
thing but groundstrokes.
“I have my own fair share of ex-
perience, and know that it’s much
more important to be healthy to
go into a big tournament like the
Australian Open than to go into
something big with a lot of
matches and feel like you’re not
prepared health-wise,” she said.
—J.R.
Reuters
Maria Sharapova
THE WALL STREET JOURNAL. Wednesday, January 2, 2013 | 31

OFF THE WALL

For New Year, Grab a Good-Luck Charm

One Apocalypse Avoided, Does Another Loom? Experts Suggest Deep Breaths for Dreaded Digits
BY JAMES R. HAGERTY a serious problem because “one
year is a long time to live with a

F
or prophets of doom, the stress response.”
failure of the world to end Sufferers might try breathing
Dec. 21 may have been a bit techniques, Dr. Ryan suggests:
of a letdown. Now, the calendar “Start to count your breaths. In
brings a new possibility for anx- one. Out two. In three. Out four.
ious obsession: a whole year end- And so on.”
ing in the unlucky number 13. One person unlikely to consult
Thirteen has been associated Dr. Ryan is the country singer
with bad luck for centuries. Many Taylor Swift, whose birthday is
people cite the Biblical Last Sup- Dec. 13. “I love the number 13,”
per, where Jesus Christ gathered she proclaims on her official web-
with his 12 disciples, as a reason site. The number is often
for the stigma. In Norse mythol- scrawled on the back of her right
ogy, the troublesome Loki is said hand.
to have spoiled a dinner in Val- Many others profess to be per-
halla by arriving as the 13th par- fectly calm about prospects for
ticipant. There is even a word for 2013. “The number makes no dif-
the dread of those digits: ference,” says Jack Creswell,
triskaidekaphobia. chairman of Optimist Interna-
Any year that may begin with tional, the St. Louis-based um-
a fiscal cliff doesn’t sound very brella group for several thousand
Agence France-Presse/Getty Images

promising. Yet, because the past Optimist service clubs world-

few years have been so distress- wide. “It’s what your target is for
ing, many people figure 2013 can yourself as an individual and how
hardly be much worse. “My hope that fits into the bigger picture.”
is that things are going to im- Brien White, a graphic artist in
prove,” says Suzan Hollist, a sub- Los Angeles, plans to marry Ilene
stitute teacher in the Pittsburgh Ivins, a school administrator, next
area whose son, Parker, was born October. Until a reporter asked
on a Sept. 13. him about the significance of the
Some fretful folks, of course, People wrote ‘2013’ with sparklers as they celebrated early Tuesday in the Russian city of Zelenogorsk. year, he says, he and Ms. Ivins
may have been so fixated on ru- had never thought about whether
mors that the world would end on would die within a year. The fear of similar curses are genuinely concerned that bad 2013 was propitious for matri-
Dec. 21, supposedly the end of the In 1880, Captain William could mean more business for things may happen to them as a mony.
Mayan calendar, that they have Fowler, a Civil War veteran, Elaine Ryan, a psychologist in direct result of the year being “It’s like a nonissue,” Ms. Ivins
only recently begun to stew over tempted fate by creating a club in Dublin, Ireland, who helps people 2013,” Ms. Ryan says in an email. says. Mr. White agrees: “We’re
the implications of 2013. New York that met on the 13th of cope with anxiety. She says the fear can cause not going to let a number deter
There have been some precau- each month with 13 members “I have seen a few people who sweating and heart palpitations— us from pursuing happiness.”
tions. The Times Square Museum around a dinner table. Menus
& Visitor Center in New York re- were printed in the shape of
cently displayed a collection of 13 tombstones. Similar clubs arose in
good-luck charms, including a other cities. Few if any suspicious
horseshoe, a four-leaf clover and deaths ensued. Still, in 1898, the
a rabbit’s foot. clubhouse of a 13 club in Wood-
America’s leading expert on 13 bury, N.J., was blown up with dy-
may be Tom Fernsler, a 59-year- namite, injuring three members,
old math teacher at the Univer- Mr. Lachenmeyer found.
sity of Delaware. He became in- There seems to be little histor-

Don’t Miss
terested in the topic in 1987 when ical basis for fearing years ending
he noticed that there were three in 13. As years go, 1913 wasn’t
Friday the 13ths in that year, particularly calamitous, though it

the Bigger
something that he later found did have its share of untoward
happens about once every 11 events. The 16th amendment cre-
years. ated the U.S. federal income tax.
He calculated that there are A flood devastated Dayton, Ohio.

Picture.
three Friday the 13ths within six War erupted in the Balkans.
months once every 28 years, as In 1813, Napoleon Bonaparte
occurred in 2012. Dr. Fernsler, was on the rampage in Europe.
who gives lectures under the The British burned Buffalo, N.Y.
name Dr. 13, learned the lore and Two centuries before, in 1613,
uses it in programs aimed at mak- Shakespeare’s Globe theater
ing math more fun for children. burned down.
When he is asked whether we Some people saw confirmation
should be wary of 2013, Dr. Fern- of the curse on April 13, 1970,
sler has no hesitation: “Nah.” He when an explosion aborted the
believes 13 has become a historic Apollo 13 space mission. That
superstition, one people joke shouldn’t have been a surprise.
about but few fear. Dr. Fernsler notes that the digits
That wasn’t the case a century in the launch date—4-11-70—add
or two ago, according to up to 13 and that the launch pad,
Nathaniel Lachenmeyer, author of 39A, is a multiple of 13.
“13,” a book published in 2004. Even in our supposedly ra-
Among other superstitions, he tional age, many hotels lack floors
wrote, many people believed that numbered 13. Some airlines do
if 13 people sat at a table, one without a row 13.
Most athletes shun No. 13 jer-
seys. But the basketball star Wilt Deeper, broader coverage of breaking news in all markets and asset
Chamberlain wore that number
on his jersey, as did the football
classes to keep you ahead of the competition.
quarterbacks Kurt Warner and
Dan Marino. All three are remem- To learn more, visit: dowjones.com/wsj/bigpicture
bered as heroes.
That isn’t the case for another
athlete who wore 13 on his uni-
form: Ralph Branca, the Brooklyn
Dodgers pitcher, today is known
almost exclusively for a lapse—
Brian White

the fastball that Bobby Thomson

of the New York Giants smacked
over the left-field fence of the © 2012 Dow Jones & Company, Inc. All rights reserved. 3EFNW110
Ilene Ivins and Brien White plan to Polo Grounds to win the 1951 Na-
marry in October 2013. tional League pennant.
32 | Wednesday, January 2, 2013
Email: heard@wsj.com
Still Time to Download European Cable
Europe’s cable firms show a lot of
spark, particularly given the dire out-
look for their telecom rivals. Cable
sector shares rose 47% in 2012. Tele-
com incumbents fell 17% on average.
Cable barely resembles the heav-
ily indebted industry investors de-
serted a decade ago. Then, firms like
ntl:Telewest, now split between Vir-
gin Media and Liberty Global Inc.,
were high-risk capital hogs. Much of
the sector eventually fell into bank-
ruptcy.
But in 2011, Virgin Media se-
cured an investment-grade credit
rating, a first for U.K. cable. And in-
vestor appetite is strong, as shown
by Dutch operator Ziggo’s popular
initial public offering in March.
These days, it is the traditionally
defensive telecom firms that strug-
gle, with France Telecom, Royal
KPN, and Telekom Austria all cut-
ting dividends.
Cable is taking market share in
pay TV, but the real growth is in
Mobile’s Path to Glory Goes Through ‘Discovery Tools’
The path to the mobile future may
be maps.
More than driving directions, or
finding a nearby dive bar, the battle
over mobile maps is ultimately about
which company can roll out the
most-sophisticated tools to answer
the widest range of questions users
ask of their mobile devices. That will
be an important driver of shares in
tech giants such as Apple, Google,
Microsoft and Facebook, and help
determine who has the dominant mo-
bile platform.
The fury with which iPhone users
reacted to Apple booting Google
maps in favor of its own inferior al-
ternative highlighted the importance
of smartphone “discovery” tools.
Over time, they will get far more so-
phisticated, answering questions that
go way beyond location.
Google demonstrated it has the
lead when it released its new maps
app for iPhones. And, with a new pre-
dictive tool called Google Now for its
Android mobile operating system, the
search giant marches even further
into the brave new mobile world. Us-
HEARD ON THE STREET
FINANCIAL ANALYSIS & COMMENTARY
Willing and Cable
2012 share performance
60%
40
20
0 Kabel Deutschland
–20
J F M A M J
Source: Thomson Reuters Datastream
broadband Internet offering faster
download speeds than telecoms’ cop-
per lines. Broadband penetration is
still rising and firms are selling more
services to existing users. Less than
20% of Kabel Deutschland’s buy all
three pay-TV, broadband and home-
phone services. Even as Deutsche
Telekom’s sales in Germany are fore-
ers give the tool access to their loca-
tion, email and calendar. In return, it
provides useful information before
they have even asked for it.
The tool can see an airline board-
ing pass in a user’s email inbox and
notify them automatically if the flight
is delayed. It can see a meeting
across town is scheduled on a user’s
calendar, look up traffic information,
and—unasked—tell the user to leave
early if traffic looks heavy.
Apple has nothing so sophisti-
cated. But it is looking to license ex-
Reuters
tra data to catch up.
The immediate potential for such
mobile apps may be big. In 2006, be-
fore it was hammered by the Inter-
net, the U.S. print Yellow Pages busi-
ness peaked at $14.5 billion,
according to BIA Kelsey. As the mo-
bile era’s equivalent “lookup tool,”
discovery apps may come to occupy
the Yellow Pages’ former niche.
But the stakes are far higher. Five
years from now, users will expect Ap-
ple’s digital assistant Siri or Google’s
“voice search” to answer far more
complex questions. It is technology
Virgin Media
Liberty Global
J A S O N D
The Wall Street Journal
cast to fall in 2013, Kabel’s are seen
rising 9.7%.
But for investors to justify buy-
ing cable companies on 7.9 times
forecasted 2013 earnings before in-
terest, taxes, depreciation and
amortization—against 4.5 times for
telecoms stocks—they need to be-
lieve companies can raise prices.
Google CEO Larry Page
that Microsoft and Research In Mo-
tion likely will have to master, as
well, to grab a more meaningful
share of the smartphone market.
Google looks well-prepared. As a
search-engine company, it has vast
data assets and thousands of engi-
neers building algorithms to make
sense of it. It also has used its cash
to buy additional data assets such as
Zagat, Frommer’s for travel guides
In theory, they can: cable compa-
nies’ package deals are typically
one-third cheaper than those from
telecom rivals. Even in mature mar-
kets like Belgium and the Nether-
lands, where Telenet and Ziggo al-
ready price services at or above
their telecoms peers, they have an-
nounced 3% price increases in De-
cember. Virgin Media will raise
prices by 5% to 7% in the U.K. in
February.
While telecom stocks look cheap,
their networks will remain a poor
match for cable without massive in-
vestment. And customers are still
switching from fixed line to mobile,
where tariffs in many markets have
plummeted.
Liberty, meanwhile, trades at a
discount to peers; if it were to trade
in line with Kabel, the shares would
be worth almost 40% more, notes
Barclays. Cable’s rally may have
further to run.
—Renée Schultes
and ITA Software for airline-ticket in-
formation.
Apple doesn’t look poised to build
a search engine of its own. The sheer
popularity of the iPhone and the iPad
means Apple benefits from the in-
vestment of other developers writing
apps for its mobile operating system.
But third-party apps don’t let Ap-
ple control its own destiny, so it may
still feel pressure to beef up its own
services.
One place to start might be buy-
ing TomTom. Smartphones have
mostly obviated the need for sepa-
rate navigation devices so TomTom
has seen its enterprise value crash to
$1 billion. That would be a small
check for Apple to write, made easier
considering Apple could use trapped
offshore cash to buy the Netherlands-
based company.
Other assets might be there for
the taking.
If the mobile platforms of Apple,
Google, Microsoft and Facebook are
to shine, they will feel more and
more pressure to differentiate them-
selves with data. —Rolfe Winkler
THE WALL STREET JOURNAL.
WSJ.com/Heard
Japan Offers
A Lesson
For Financial
Alchemists
In the Middle Ages, alchemists
toiled fruitlessly to transform lead
into gold. Things have gotten a little
easier in the 21st century. Big cen-
tral banks can boost the value of as-
sets by using printing presses.
But how real are these gains?
Shinzo Abe’s new policies may give
an indication.
The new Japanese prime minis-
ter wants the country’s central bank
to step up its money-printing efforts
to reflate the economy. Japan’s Nik-
kei stock index has soared in re-
sponse, gaining 20% from the low
point hit Nov. 14.
But before U.S.-based investors
pile into Japanese stocks, they
should stop and consider the cur-
rency they would be buying into.
Take the MAXIS Nikkei 225 Index
exchange-traded fund, which is
listed in New York under the ticker
symbol NKY. Since the same date in
November, it is up only 10.8%.
Why the disconnect?
Because some of the gains in the
Nikkei have, for U.S. investors, been
erased as the yen has weakened by
about 8% against the dollar over the
same period.
In fact, while the Nikkei notched
a 23% gain in 2012, U.S.-based in-
vestors would have done better buy-
ing, say, the SPDR S&P 500 ETF,
traded under the symbol SPY, than
the NKY. The SPY gained almost 12%
last year, compared with 10.1% for
the NKY.
It is a stark reminder that there
are no free lunches when very cheap
money boosts financial markets.
The U.S. enjoys some protection
as printer of the world’s reserve
currency. This has been shown by
the dollar’s resilience over the past
four years or so of ultraloose mone-
tary policy.
Even that, though, is only rela-
tive to the paper currencies of other
countries, many of whose central
banks have also been happy to fire
up the printing presses.
—Thorold Barker